Dagney Maseda, CFA, Managing Director and Portfolio Manager at SSI Investment Management, joined Keith Black, Managing Director of RIA Channel, to discuss the role of liquid alternative funds, such as convertible bond arbitrage, in client portfolios.
SSI is a 50-year-old boutique investment advisor with an average manager tenure of 30 years. The firm offers alternative income and tactical asset allocation strategies.
In over 20 years at SSI, Maseda has risen from the role of a trading assistant to become the portfolio manager for the convertible bond arbitrage mutual fund, which offers daily liquidity. Maseda describes convertible bond arbitrage as a moderate return, low volatility strategy that purchases a convertible bond and takes a short position in the underlying stock. The strategy earns interest on the proceeds of the short sales, the yield on the convertible bond, and profits from trading the stock relative to the value of the option embedded in the convertible bond. Many convertible bond issuers have stocks that experience high price volatility, which provides opportunity for trading stock around the options position.
The liquid alternative funds offered by SSI are fixed-income oriented and compete with cash and core fixed income for portfolio allocations.
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