Salomon convertible index off 5.6% for the year with underlying stocks down 19.8%

By Ronda Fears

Nashville, Tenn., Jan. 3 - The Salomon Smith Barney convertible index closed 2001 with a negative 5.6% return versus a negative 19.8% return for the underlying common stocks. The roller coaster year finished the year with a December return of 0.9% while the underlying common stock posted a monthly return of 2.3%.

Despite the rough go of it, Salomon convertible analyst Adrian Miller noted in a report Thursday that 2001 saw convertibles post attractive relative returns as the asset class outpaced the S&P 500 by 630 basis points. The S&P 500 was off about 11.9% for the year while the Dow Jones Industrial Average was down 5.4% and the Nasdaq declined a whopping 21%.

As a result of industry concentration and a defensive structure, the Salomon analyst said mandatory preferreds and zero-coupon bonds were the best performing types during 2001. Mandatory convertibles were off 1.5% for the year and zeros were down 2.45%, whereas the Salomon report showed cash coupon converts dropped 5.11% and convertible preferred fell 16%. Mandatory convertibles were showing a strong push toward the end of the year, however, gaining 3.61% in December while cash coupon converts were up just 0.99% and zeros edged up 0.52%. Preferreds were off 0.58% for the month.

From a credit rating standpoint, high-yield converts performed better than investment-grade and non-rated converts. The junk-rated issues were down 2.7% for the year while high-grade issues dropped 10.7% and non-rated issues lost 3.42%. For December, non-rated issues had the biggest turnaround, gaining 1.48% while investment-grade issues edged up 0.7% and high-yield issues rose 0.87%.

Not surprising, utilities, energy and telecom were the worst performing industry groups in 2001. The only industry groups in positive territory for the year were materials, consumer cyclicals and capital goods.

The profile of the Salomon index continued to show more balance but technology and telecom issues still have a dominant presence in the convertible universe. As a single industry group, drug/biotech was the largest with 10.57% of the index. Telecom and telecom equipment together made up 13.47%. Electronics represented 8.62% while computer hardware, peripherals and service account for 9.11% collectively. Media and cable took up 5.5%.

Premiums remained high with the total Salomon convertible index premium at 53%. Cash-paying convertibles, accounting for 70% of the index, had an average premium of 49% while zeros, making up the remaining 30% of the index, had an average 65% premium.

End

© 2015 Prospect News.
All content on this website is protected by copyright law in the U.S. and elsewhere. For the use of the person downloading only.
Redistribution and copying are prohibited by law without written permission in advance from Prospect News.
Redistribution or copying includes e-mailing, printing multiple copies or any other form of reproduction.