Two-thirds of convertible issuers are US companies, which have historically used convertible proceeds to finance growth projects. These names should thrive under a Trump presidency. Technology is one of the largest weightings in the broad convertible bond benchmark indices, is a cornerstone of US growth and earnings, and is strategically important for the ‘Make America Great Again’ initiative.
Many convertible issuers are household names with solid fundamentals and underlying growth. Post-election strength should also extend to smaller and mid-cap names that are heavily represented in our universe. A number of issuers are exposed to the AI revolution: semiconductor manufacturers or US electric utilities involved in the creation and management of data centres.
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Electricity demand is set to increase exponentially as demand for AI products and services grows. The new administration is likely to leverage the Technology sector in any geopolitical stand-off with China. Potentially punitive import tariffs could cause harm initially, but Beijing has room to increase stimulus to offset any weakness. Besides, some of the larger Asia Pacific convertibles offer exposure to South Korea and Taiwan, rather than China itself.
The US Industrial and Resource sectors should also perform well if the new administration opts to increase investment in infrastructure projects, energy and supply chain security, and US-built electric vehicles. A broad selection of convertibles offers exposure to these themes.
