MFOHome About Commentary Discussions Funds The Best Resources Support Us!

Howdy, Stranger!

It looks like you're new here. If you want to get involved, click one of these buttons!

Sign In Register

Categories

In this Discussion

  • Ted March 2013
Here's a statement of the obvious: The opinions expressed here are those of the participants, not those of the Mutual Fund Observer. We cannot vouch for the accuracy or appropriateness of any of it, though we do encourage civility and good humor.

    Support MFO

  • Donate through PayPal

Great Interview With Alan Muschott About Convertible Bond, Too Bad The Fees Are High

BondInvestor
edited March 2013 in Fund Discussions
Question:Instead of investing in a convertible, why not just buy a bond and an option for a particular security?

Alan Muschott: There are two reasons. The first is that the type of options to purchase stocks that are embedded in most convertibles are for long periods of time. Let’s say 3 to 7 years is typical. Options of this length are generally not available for sale on the market. Secondarily, convertibles are generally priced based on the issuer acting logically and “forcing” a conversion at the first opportunity. However, we have found that many issuers don’t do this, and let the option stay active for much longer periods than necessary. In many instances, when an investor buys a convertible they are getting a longer option than the price suggests.

Full Interview available at : http://www.learnbonds.com/the-franklin-convertible-securities-fund/

But the fees are high:

It is important to note that this fund has three share classes—Class A, Class Advisor, and Class C—and that the Class A shares carry an initial sales charge of up to 5.75%. The reason the sales charge is labeled a “Max Initial Sales Charge” rather than simply a “Sales Charge” can be found in the Summary Prospectus dated March 1, 2013. In that document, it states, “You may qualify for sales charge discounts in Class A if you and your family invest, or agree to invest in the future, at least $50,000 in Franklin Templeton funds.” Moreover, Class A shares also have a net expense ratio of 0.90%.

Class C shares, on the other hand, have no initial sales charge. But they do have a 1.65% net expense ratio and a 1.00% contingent deferred sales charge (CDSC) in the first year an investor owns the fund. According to the aforementioned Summary Prospectus, the 1.00% CDSC is calculated as a percentage of the lower of an investor’s original purchase price or the sales proceeds. Last, the Advisor shares carry no initial sales charge, no CDSC, and a 0.65% net expense ratio.

From the article: http://www.learnbonds.com/top-convertible-bond-funds/

Comments

Sign In or Register to comment.