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A Low-Cost, Conservative Approach to Convertibles

Cara Esser, CFA

Cara Esser: Investors looking to add low-cost, relatively conservative exposure to convertibles to their portfolio should consider Vanguard Convertible Securities (VCVSX). The fund has landed in the top decile of its category over the trailing 10 years, and its 41-basis-point expense ratio is among the lowest in its peer group.

Its Morningstar Analyst Rating was recently lowered to Bronze, primarily due to a manager change. Longtime manager Larry Keele will be retiring in June, and Stu Spangler from subadvisor Oaktree Capital Management will be taking the helm. The new manager has been with Oaktree for nearly two decades, though he has no public track record managing money.

At this point, there's no reason to believe there will be big changes to the fund's strategy, which has been fairly constant for 20 years. The value-oriented process tilts the portfolio toward balanced convertibles, though the team tends to hold a large allocation to nonrated issues. A quarter of the portfolio is generally allocated to foreign convertibles, a sleeve run by a separate global-convertibles team.

All told, for investors looking for relatively conservative exposure to convertibles, Vanguard Convertible Securities remains a great, low-cost option.