Merrill: Ford, GM convertibles help overall returns move back into black for May, gaining 2.6%

By Ronda Fears

Nashville, June 1 - Merrill Lynch & Co. convertible analyst Marc Malloy noted in a report Wednesday that U.S. convertible returns moved back into the black, posting a 2.6% gain for May while the underlying stocks advanced 6.4%, largely helped by the rebound in Ford Motor Co. and General Motors Corp. convertibles.

Year to date, however, the Ford and GM convertibles were the biggest drag on returns, with the overall index down 5.5% while underlying stocks lost 5.7%. Convertibles lagged major equity benchmarks in May and are behind year to date, Malloy added.

After being down 16% through the first four months in 2005, by sector, the consumer discretionary group was the best performing sector in May, Malloy said in a report Wednesday. The sector gained 6% as underlying stocks advanced 11%, which translated into a 79 basis point gain in the master index. Convertibles of GM and Ford were the biggest contributors to the sector's positive performance in May and negative performance of 10% year to date, he said.

Speculative-grade convertible bonds outperformed their investment-grade counterparts in May but are behind year to date, as well. The speculative-grade index gained 3.8% during the month, while the investment-grade index rose 1.6%.

Mid cap convertibles were the leading sub-index in May, up 3.6% for the month as underlying stocks gained 7.9%.

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