F&C finds value in sold-off convertibles market

By Claire Milhench

LONDON (Reuters) - F&C Investments is expecting double-digit returns from its convertible bond portfolio in 2009 as credit spreads tighten, and by taking advantage of trading opportunities in the sold-off market.

Convertibles performed poorly last year, down 27 percent, due to forced selling from hedge funds, a widening of credit spreads and equity market declines, but F&C is bullish on convertibles for 2009.

Alan van der Kamp, portfolio marketing manager at F&C, which manages 1.2 billion euros (one billion pounds) in convertibles, said he is targeting convertibles caught by the triple whammy, but with good downside protection.

"As soon as a convertible starts to behave more like an equity, we sell, because the downside risk becomes too big," Van der Kamp told Reuters.

This happened in October, when share prices - including those in defensive sectors - plunged.

Convertible bonds can be exchanged for a set number of shares at a pre-stated strike price, giving them both bond-like and equity-like characteristics. When the underlying shares start to perform, so should the convertible.

"We now have a better feeling about which companies have strong balance sheets and good liquidity," he said. "Telecoms and energy are two sectors we favour because of their more stable characteristics."

Some of the top-10 holdings in the F&C Global Convertible Bond Fund in January included Portugal Telecom (PTC.LS), Bayer Capital BAYG.DE, and Michelin (MICP.PA).