Convertible bonds have been dominated by hedge funds in recent years. Such bonds are convertible to the issuing company’s common stock, at a given price. Many hedge funds bought the convertibles and sold short the same company’s stock, hoping to make money on future price moves.
In recent years, though, arbitrage strategies involving convertibles haven’t done as well as expected. Therefore, some hedge funds have dumped their convertibles to raise cash.
As a result, there has been a big sell-off in convertibles. As hedge funds have moved out of this market, they’ve frequently been willing to accept low selling prices. Convertibles had been overvalued but now, after all the selling, this might be the biggest buying opportunity in convertibles since 1987, after the stock market crashed.
You can buy individual convertible bonds or you can buy funds such as Fidelity Convertible Securities or Calamos Convertible.