Convertible bonds often come with five-year maturities. And while they yield less than standard investment-grade corporate bonds, their shorter duration makes them less sensitive to interest rate changes than many other bonds.
Convertible securities also slightly topped the S & P 500 last year by a small amount( as measured by the ICE BofA All U. S. Convertibles Index, the benchmark Fidelity uses). And by that yardstick, convertibles beat the Bloomberg U. S. Aggregate Bond Index and Morningstar’ s various bond fund categories by even larger numbers.
Over 10 years, the index outperformed the S & P 500 by three times and beat the Bloomberg index by nine times— in most years by a wide margin.( The one exception was in 2022, a horrible year for both stocks and bonds in which the convertibles index trailed the Agg by 570 basis points.)
Still, convertible securities investors don’ t set out to beat the S & P 500 in the
first place( though it’ s a bonus when it happens). The asset class is intended instead as a hybrid product and portfolio diversifier that offers favorable risk-adjusted returns.
Different Flavors
Fidelity launched this fund in 1987. Adam Kramer has been its manager since 2016, Gandhi since 2024. Over the past 10 years, it has landed in the top quartile in Morningstar’ s convertibles category during the three, five and 10-year periods. In addition, Lipper last year named it as the top fund in its convertible securities fund category during the previous three- and five-year periods.
From a net asset value perspective, the fund has topped its ICE BofA All U. S. Convertibles Index benchmark in each measurable period during the past 10 years.
According to Kramer, the convertible bond market’ s fortunes depend on companies issuing new securities, and the amount of new issuance can vary according to market and economic conditions.
“ The market has different flavors over different cycles,” he explains.“ It’ s always changing, and that’ s what makes it so exciting. We wait for the opportunities to come our way.”
Issuers of convertible bonds typically are smaller, high-growth companies that tend to be cash poor and rated as non-investment grade. In the past they’ ve been popular vehicles for tech and healthcare companies needing to raise money to fuel their growth. And that evidently still holds today, as information technology and healthcare were the two top sector weights in the Fidelity fund at the end of 2025.( Tech represented 32 % of the fund’ s weight and healthcare 12 %.)
Convertible bonds let companies tap the credit market by offering coupons at a lower rate than traditional bonds. This saves the companies money, while the call option allows them to turn debt into equity that provides needed capital while simultaneously improving their balance sheets.
Manager: Adam Kramer Age: 53
Professional Background: He is a portfolio manager in the High Income and Alternatives division at Fidelity Investments and manages various funds. Before assuming his current responsibilities, he had a hand in several other Fidelity funds. He joined Fidelity in 2000 as a research analyst and has since covered a variety of industries. Before joining Fidelity he worked for RSM Richter in Montreal as a chartered accountant and auditor. He has been in the financial industry since 1994.
Outside Interests: Exercise, collecting hockey cards with his son, and looking for investment ideas. He’ s a big Boston Bruins fan.
Manager: Rick Gandhi Age: 44
Professional Background: He is a portfolio manager in the High Income and Alternatives division at Fidelity Investments and co-manages a handful of funds. Before assuming his current responsibilities, he was a research analyst in the High Income division where he covered sectors including software, gaming, energy, technology and media. Before joining Fidelity in 2009 he was an associate at Barclays Capital, where he advised insurance clients on financing and investment solutions, and an analyst at Morgan Stanley, where he worked on interest rate and currency swaps for corporate clients. He has been in the financial industry since 2004.
Outside Interests: Spending time with his family, playing golf and reading.
New Blood
According to ICE BofA Global Research, much of the 2010s was a humdrum time for convertible issuance. Gandhi attributes that to the exceptionally low interest rates during that period.
“ From 2010 till 2018, interest rates were so low that companies preferred to issue straight debt because they could borrow at extremely low rates,” he says.“ When interest rates rose, we saw lots of different companies come to [ the convertible ] market; some of these companies are those we never thought would come to market.”
He adds that such companies have opted to create some equity dilution— which happens when they exercise the call option to convert debt to equity— in return for getting a much cheaper interest rate by issuing convertible bonds.
That helped put some juice into the convertible securities market. As per ICE BofA Global Research, the amount of U. S. convertibles issuance zoomed from $ 29 billion in 2022 to $ 119 billion last year.
Gandhi notes that another boost to the convertibles market during the past six
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