Peanut Convertible Debentures Index™ (November 2019 Review)

In the courtyards of the Mediterranean under the Maltese cross, dreaming of the World Cup. Vittoriosa, Malta.  Copyright © 2008 Felix Choo / dingobear photography.  Picture available for licensing at Alamy Images. Photo may not be reproduced without permission. 

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We're still playing catch-up over here at the Canadian Convertible Debentures Project.  Thank you for your continued patience.

As long time readers of this blog know, we introduced the Peanut Convertible Debentures Index™ back in January.  Hard to believe it's almost the end of the year already; let's see how the benchmark convertible debentures index in Canada performed in November. For more background on the index, please click here. 

Important disclaimers: Like everything else on this website, content here is provided as information and opinions only and not intended to be a provision of investment advice or a recommendation of any investment action in any form. There is no guarantee, warranty, representation, or other assurance whatsoever on any of the information provided.  Information and opinions reflect our views as of the date provided, but may change without notice.  Investments made in convertible debentures are exposed to the risk of financial losses, and as with all disseminated information concerning investments, it is highly recommended that an individual consult with a qualified investment professional before making any investment decisions.



Peanut Convertible Debentures Index™ (November 2019 Review)

In many ways, 2019 has been a remarkable investing year.  Despite all of the political, trade, economic, and environmental considerations, markets of most types have climbed the wall of worries and scaled ever higher.  Stocks, bonds, real estate, infrastructure and, yes, convertible debentures - all have been up and up big since the start of the year.  With respect to convertible debentures, in November, the Peanut Convertible Debentures Index™ went up 0.66%.  Year-to-date to November 30, 2019, the Peanut Index is up 11.85%, exceeding the return of the FTSE TMX Canada Convertible Bond Index™ by 277 basis points or 2.77%.

Bond yields have firmed a bit since the hitting lows earlier in the fall, and immediate fears of a coming global economic recession has dissipated somewhat thanks to central banks easing on interest rates and some progress on the trade front (NAFTA 2.1 signed, US and China coming to a Phase One trade deal on paper if not really on substance).  Developments in the US and China trade front bear watching as a misstep here could singlehandedly plummet the global economy.  However, as the US heads into an election year in 2020, the current incumbent has plenty of incentive to do whatever necessary (legal or not) to keep the US economy afloat, as this would seem key to his re-election prospects (never mind the apparent high crimes, misdemeanours, and impeachment); unnecessarily inflaming trade issues would seem to be a critical unforced error, but with this guy, you just never know.

Over in Mother Britain, Brexit seems a foregone conclusion after the recent elections in Britain handed the Boris Johnson-led Conservatives a decisive majority.  Damn the torpedoes as the saying goes, but the impending messy breakup with the Continent will have real economic implications (look no further than the high pricing of puts on broad-based European stock indices) which could light a powder keg of currently suppressed market worries.

In the bond market, one thing to watch for is credit.  Specifically, all of the years of easy money and low rates means leverage levels of companies have headed higher, and credit quality has deteriorated.  Every now and then, you see news reports that even so-called "investment grade" fixed income is becoming increasingly skewed toward the BBB-end of the spectrum as opposed to AAA, and yields on sub-investment grade debt have compressed.   Of course, convertible debentures as a whole in Canada are issued by smaller companies in general and are lower credit quality grade everything else being equal; the returns in 2019 have been great but it's probably best to keep close watch on how much credit risk you want to take so you can sleep at night.  As we've been saying all year, emphasize quality issues and stay diversified out there.  As unexpectedly great 2019 has been, 2020 could be conversely unexpectedly bad ... so keep your head on a swivel!

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 CI 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.

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.

We will try 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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