The stock-market selloff and interest rate uncertainty have many investors wondering where to stash their money. One oft-overlooked place is convertible bond funds.
"At this point nobody knows where the bottom is," says Edward Silverstein, portfolio manager of the MainStay Convertible (MCOAX Quote) fund. "During times like these, convertibles protect you on the downside and, when stocks eventually rally again, they allow you to join in the upside."
The S&P 500 is down 12.5% this year, while the average convertibles fund is off only 4.75%, according to fund tracker Morningstar. In the bull market of 2003, the average convertible bond fund returned 26.6%, compared with 28.7% for the S&P 500. In other words, converts delivered 93% of the upside of the stock market.
Meanwhile, when the stock market sank in 2002, convert funds fell just 8% for the year vs. 22% for the index, which is only 36% of the decline. ...
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| Dow Jones | S&P 500 | NASDAQ | 10-Year Note | |
|---|---|---|---|---|
| 10,285.97 | 1,091.93 | 2,172.99 | 33.92 |
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