Peanut Convertible Debentures Index™ (April 2019 Review)

In search of zen in faraway lands.  Luang Prabang, Laos. Copyright © 2011 Felix Choo / dingobear photography.  Picture available for licensing at Alamy Images. Photo may not be reproduced without permission. 

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Back in January, we introduced the Peanut Convertible Debentures Index™, which we like to think of as the benchmark convertible debentures index in Canada! For more background on the index, please click here. 

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Peanut Convertible Debentures Index™ (April 2019 Review)

Correction in late 2018? What correction in late 2018? April marked the fourth straight month of positive performance for North American equities, as the market has apparently decided that the threat of economic recession in 2019 is now in the rear-view mirror and monetary policy will be accommodating for the foreseeable future.  Year-to-date to the end of April, Canadian stocks were up 16.94% as measured by the S&P/TSX Composite Index, which mean it's gone very far, very fast.

Across the Canadian government bond yield curve, rates largely ended the month close to where they began, though with some choppiness in-between.  Sentiment these days seems to be that rates will remain lower than longer, but at this point in the credit cycle, there is some (valid) concern that higher credit risk names might be volatile in the near to medium-term.  If we consider that convertible debentures are, generally speaking, higher yield (i.e. lower credit quality) instruments, this is reason for caution.

This said, however, April was still a positive month for our favourite asset class.  The Peanut Convertible Debentures Index™ tacked on another 0.63% during the month, which qualifies in our  books as pretty decent.  Year-to-date to the end of April, the Peanut Convertible Debentures Index™ was up a heady 5.31%, outperforming the FTSE TMX Canada Convertible Bond Index™ by 0.32%.

Please click on the table below to also see how performance for the Peanut Convertible Debentures Index™ compared with two exchange-listed Canadian convertible debenture ETFs, the iShares Convertible Bond Index (ticker: CVD) and the First Asset Convertible Bond Index (CXF), as well as the FTSE TMX Canada Universe Bond Index™ and the S&P/TSX Capped Composite Index.  Pro tip: if you still find the table below too small to read after clicking on it, please simply download the PNG file, which then can be zoomed to a size that you prefer.

Ok, April was another good month for convertible debentures, but clouds are already forming overhead in May.  As I currently write this on the 7th of May, market worries over US-China trade talks are causing some real nervousness out there, and convertible debentures have not been immune to this week's sell-off.  As with what we've been saying for awhile now, we believe it is prudent to "high grade" portfolios, focus on better quality credit risks, and maintain caution (and cautious expectations) going forward.  Just our two cents

If you're a regular reader of this blog, you are probably already aware that we update the Peanut Convertible Debentures Index™ levels and daily percentage changes on a frequent basis in the dedicated widget on the right sidebar for desktop users and the Peanut Convertible Debentures Index™ page for both desktop and mobile users.  May looks to be a month with some action in the markets.  We will see how convertible debentures do, and then return to do another performance update post in about a month's time.

Until then, good luck with your convertible debenture (and other) investing.
 

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