Got my first-ever speeding ticket this morning on the way into the office. I’m a pretty safe driver but I guess my number just came up. Or maybe I was thinking too much about what I was going to write for today’s cover to try to keep the faith even as I seem to learn, weekly if not daily, about more attrition from the convertible market. It’ll change—some time. But the new normal is clearly not our friend, and lower-for-longer has proven truer than anyone could probably imagine.
Similarly, names and groups go in and out of favor. There’s usually some reason. Is it a good reason? Maybe. Or maybe not. Was there a good reason for Jordan Spieth to fall apart on the back nine yesterday?
One thing we did see coming—we just didn’t know quite when—was last week’s resurgence of pharmaceutical and biotech, which helped our HOCS benchmarks narrow their relative-performance gaps for 2016. HOCS is not specifically designed to favor those names, but it is designed to favor “sweet-spot” convertibles with respectable yields and conversion premiums not high enough to choke off potential gains. As such, it’s a very countercyclical process, so that it can be on the right side of market noise over the longer term.
In this week’s Ugly 20 review, Curt Peters shows how even in a seemingly nondescript week there can be a number of interesting moves, and potential opportunities, taking place. “Moving While Standing Still,” he calls it. Well, I was definitely not standing still on my way to work today.
Also in today’s issue: returning guest contributor Will Frohnhoefer puts his distinctive spin on everybody’s favorite name, SunEdison, while Roman Terekhin weighs in on the Allergan situation and Jeff Alton sees value in a sometimes-misunderstood gold convertible.
What does it all signify? Well, my father’s erstwhile colleague at Berkeley, the brilliant literary critic Stephen Greenblatt, recently wrote that Shakespeare’s greatness came from his ability to take a low profile and let his characters and muse speak for themselves. Having already pulled over to the side of the road once today, I’ll do so again and let you read what our team has to say about our market. We have tales to tell, and while we may be doing little more than strutting and fretting, hopefully we are at least a little better than idiots.
(This is the cover letter for the subscription-based weekly Hillside's Hybrid Vigor newsletter. For a complete copy, please contact John Anderson at + 1 (646) 712-9289 x 107).