The economy has staged an impressive comeback from last year’s drop, even fueling concerns that the market at large is overvalued. Forward-thinking investors may want to consider hybrid approaches. Convertible bonds have the potential to generate equity-like returns without the volatility, while preferred stocks may enhance yield without sacrificing credit quality.
In the upcoming webcast, Afraid of a Market Pullback? Hybrid Approaches for Uncertain Times, Sandra Testani, Vice President, ETF Product and Strategy, American Century Investments; and Rene Casis, ETF Portfolio Manager, American Century Investments, will explore alternate strategies for a market that is stretching valuations to precipitous levels.
Specifically, the American Century Quality Convertible Securities ETF (QCON) is an actively managed convertible bond portfolio that focuses on quality, industry diversification, and balancing beta exposure to optimize risk/return potential for investors seeking an alternative strategy to diversify an investment portfolio.
The portfolio managers of QCON identify high-quality, growth-oriented names through both fundamental and quantitative analysis. The portfolio construction methodology seeks optimal risk balance among securities offering attractive structural features and relative valuation.
Convertible bonds are a type of hybrid fixed-coupon security that allows the holder the option to swap the bond security for common or preferred stock at a specified strike price. Due to the bond’s equity option, convertible bonds typically pay less interest than traditional corporate bonds. Investors are exposed to the equity premium due to the way the bonds are priced.
Convertibles have the potential for growth. For example, many convertible securities products exhibited returns in 2020 of 50% or higher. Consequently, investors may consider allocating part of their large cap growth equity exposure to something like convertibles. Returns may be slightly lower than pure growth stocks, but investors will also be generating some extra yield along the way, which one might not necessarily associate with growth investments.
Financial advisors who are interested in learning more about alternative strategies can register for the Monday, March 15 webcast here.