Beat the Convertible Market

What's your GM position like now, in the light of last week's downgrade?

GM is one of our winners. We've done very well in the past few months. The convertible GM will be lucrative for the New Year. We made money by shorting the stock and collecting coupons. We own the GM senior debt convertible.

Any preference for certain sectors?

Now we're looking for situations where the convertible bond is very cheap relative to the existing debt and the common stock in the capital structure. We don't have sector-bias. It's always how the convert looks relative to the debt and the common stock and the listed options. We also hedge interest rate risks by shorting Treasuries.

So many convertible shops have shut down this year. Is that a good thing for the survivors?

I am a hedger, so everything is yes and no. On one hand, it's made it very hard for us to make money this year because when the funds shut down, they sell what we own and make it cheaper. On the other hand, going forward, they won't be there to compete for good ideas. So I think what was bad for last year will be good next year.

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