Lipper’s Detlef Glow, head of EMEA research, reviews a one-on-one meeting on September 15, 2014, with Uli Sperl, CFA, Executive Director, Senior Portfolio Manager at UBS Global Investment Solutions in Zürich and manager of UBS (LUX) Bond SICAV–Convert Global (EUR).
REUTERS/Saad Shalash
Uli Sperl joined UBS in 2005. Prior to that he was portfolio manager at Activest Investment in Munich. In his role at Global Asset Management Uli is responsible for the strategy and management of global convertible bond funds. He is part of a five-person team that is split up into three senior and two junior managers. The three senior managers split the workload by region. While Alain Eckmann is predominantly looking after European convertibles and Charles Tranier is looking after Asia, Uli’s primary coverage region is North America.
The final performance responsibility for UBS (LUX) Bond SICAV–Convert Global (EUR) lies with Alain Eckmann and Uli Sperl jointly. The fund is managed with a bottom-up approach, and all investment decisions need to be unanimous. Since the fund has a broad investment universe, this approach seems to ensure the quality of the decisions rather than to be a hindrance for the selection of portfolio constituents.
Uli Sperl (left) and Alain Eckmann (right)
During his presentation Uli explained that UBS Global Asset Management is one of the largest players in the convertibles segment, since it runs around 4.4 billion euros globally (roughly 1% of the overall market) in this segment. The pure size of UBS in this market gives it good access to the primary market but leads to a slightly above-average liquidity risk within the portfolios, since the short-term liquidity in some convertibles could be limited. In this regard the manager of UBS (LUX) Bond SICAV–Convert Global (EUR) tries to reduce risk with a diversified portfolio that contains 120 different holdings on average.
Uli said that UBS (LUX) Bond SICAV–Convert Global (EUR) is managed by using a bottom-up selection process that is based on the outlook for the equity side as well as for the credit side of the issuer. In addition, the management team does a theoretical evaluation of the price for the convertible and an analysis of the prospectus to identify opportunities or pitfalls with regard to shareholder and/or issuer rights. At the end of this process the portfolio manager chooses only convertibles that have passed all the tests and show an attractive payment profile, i.e., he is looking for “real convertibles” that show the typical convexity. Uli once again explained that diversification is a key component (or: “is the key”) in the convertibles segment and that he does not look after benchmark weights to determine the weighting of a convertible bond within his portfolio.
Figure 1 Performance, UBS (LUX) Bond SICAV–Convert Global (EUR) Versus Peer Group Average, August 31, 2009–August 31, 2014 (in Euros)
Past performance is no guarantee for future results
Source: Lipper
Since convertibles have shown good performance since the financial crisis, investors might have doubts about the future returns of this asset class. In this regard Uli explained that he can’t foresee a change in the performance pattern, since convertible bonds normally show anomalies that investors can exploit. One example is the fact that new convertibles are often issued with discounts, since the chief financial officers want to avoid displacements of their convertible bonds. In addition, convertibles offer recurring opportunities caused by “suboptimal” behavior of the issuers with regard to the call-right.
Asked what people can expect from UBS (LUX) Bond SICAV–Convert Global (EUR), Uli answered that the general performance pattern of the fund is determined by the performance pattern of the global equity markets, since the fund has more than 90% exposure to “plain-vanilla” convertibles. With regard to this Uli concluded that the fund has delivered 1% outperformance p.a. (gross of fees) on average in the past, compared to the Global Convertible Index.
According to Uli Sperl, the performance of the fund is driven by an active-management approach that follows a straight bottom-up selection process that is set to identify the most attractive investment ideas in the convertibles universe, instead of picking convertibles just because they are constituents of a benchmark. He remarked that he buys only convertibles that have an attractive valuation at present. He explained that this means he won’t buy any convertibles that might become attractive in the future and therefore contain high premiums at the present. In this regard Uli expects UBS (LUX) Bond SICAV–Convert Global (EUR) will continue to outperform its benchmark.
The author acknowledges that he has no holdings in the fund mentioned in the article above.
