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Because convertibles are corporate bonds that give the holder the right to exchange the bond for sha...

Because convertibles are corporate bonds that give the holder the right to exchange the bond for shares in the issuing company at a set price, they can give a balanced portfolio greater exposure to upside in the equity markets. However, in an equity downturn they offer bond-like protection, thus giving investors the best of both worlds. Convertibles also function as a diversifier for a portfolio, because their characteristics cannot be replicated by a conventional mix of equities and bonds. Convertibles are likely to perform better than bonds when equity markets are rising. When equit...