Convertible Bonds : The High Return Asset Class That Vanguard Abandoned
Money For the Rest of Us
J. David Stein
4.5 • 1.4K Ratings
🗓️ 16 December 2020
⏱️ 26 minutes
🔗️ Recording | iTunes | RSS
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Summary
How convertible bonds work, why they gained 50% in 2020 and outperformed stocks over the past five years. Why Vanguard shut down their convertible bond mutual funds.
Topics discussed include:
- How big is the convertible bond market
- Why companies issue convertible bonds
- How convertible bonds work and how to analyze them
- Why convertible bonds have performed so well
- What is a reasonable expected return for convertible bonds and what are the risks
- What are ways to invest in convertible bonds
Thanks to Netsuite for sponsoring the episode. Take the Money For the Rest of Us listener survey.
Show Notes
A Plunge and a Recovery Drives a Top-Performing Year in Convertibles by Andrew Bary—Barron's
Convertible Bond Indices: An Overview by SPDR EMEA ETF Strategy Team—State Street Global Advisors
The Fluctuating Maturities of Convertible Bonds by Patrick Verwijmeren, and Antti Yang
Convertible Bond Arbitrage by George Long—Eureka Hedge
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Transcript
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| 0:00.0 | Welcome to Money for the rest of us. This is a personal finance show on money, how it works, how to invest it and how to live without worrying about it. |
| 0:10.0 | I'm your host, David Stein. Today is episode 325. It's titled, |
| 0:15.2 | Convertible Bonds, the highest returning asset class that Vanguard |
| 0:20.9 | abandoned. I recently received an email from a member of money for the |
| 0:26.6 | rest of us plus. He wrote he recently learned of a new asset class and wanted some |
| 0:31.9 | help understanding it better. It's called convertible bonds. |
| 0:36.8 | He wrote what really surprised him was how well convertible bonds had performed over the previous 10 years, relative to the S.B. 500. |
| 0:46.0 | Convertible bonds have outperformed U.S. stocks on an annualized basis |
| 0:52.0 | over the past five years. |
| 0:54.0 | They've trounced U.S. stocks in 2020. |
| 0:58.0 | The Spider-Blumberg Barclays convertible securities E.T.F has gained 49% year to date, |
| 1:06.7 | compared to 14.9% for the S&P 500. |
| 1:11.0 | On a three-year annualized basis, that E.T.F. returned 21% versus 13.3% for the SP 500. |
| 1:19.2 | And on a five-year basis, the annualized return is 18.3% versus 14.7% for the S&P 500. |
| 1:27.0 | We have to go and look at a decade's worth of return to see the S&P outperform convertibles, 13.6% annualized for the SP500, 12.2% for |
| 1:39.4 | convertible bonds. The member continued, it not only has done better than the SP 500, but with a lower |
| 1:46.2 | drawdown in March 2020. |
| 1:49.0 | It begs the question, why not invest in something like this versus the S&P 500? |
| 1:54.4 | Although its name includes the word bond, |
| 1:56.8 | is it really a bond or equity? |
| 2:01.0 | I was first introduced to convertible bonds back in the early 2000s. |
| 2:07.0 | As an Institutional Investment Advisor, we took on a new client. |
... |
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