The stage is being set for what we internally call the “convertible trifecta.” The markets are uncertain right now. But when markets eventually calm, the team would expect to see the combined forces of equity upside, credit upside and convert valuation gaps closing, which can be very powerful on the way back up.
I believe the economy can withstand this short-term pullback and continue on its growth trajectory for the next year, if not longer. There are many reasons to be positive on the U.S. economy. Even if markets move sideways over these next months and volatility intensifies, there are still many opportunities, including in equities, convertibles, fixed income and alternative strategies.
During the second half of the year, convertibles should benefit in advancing but volatile equity markets. Convertibles have outperformed bonds during rising rate environments. Thanks to their equity characteristics, convertible securities have performed well versus bonds during periods of rising interest rates—including this most recent period.
We see a strong case for convertible securities at this point in the market cycle along with our expectations going forward.
It’s important to keep a long-term perspective and remember that the markets are tremendously resilient. Just a few months ago, markets were roiled immediately following the Brexit referendum, only to come back strong within just a few days. In regard to the economy, Donald Trump’s victory echoes Brexit, and speaks to a widespread desire for change. It is my hope that the Trump administration will focus on developing fiscal policies that incentivize entrepreneurship, private sector growth and taking responsible risks with capital.