Salomon convertible index up 1.1% for March, up 3.6% for first quarter

By Ronda Fears

Nashville, April 2 - Salomon Smith Barney convertible analysts noted in a report Wednesday that the asset class continues to outperform others amid volatile market conditions.

"While the convertible market witnessed increased performance volatility during March, in the end convertible's cap-weighted result of +1.1% bested most other asset classes," said Salomon convertible analyst Adrian Miller in the report.

"Thanks in large part to continued strength in the high yield market, the convertible market, for the fifth month in a row, has outperformed their underlying stocks and the broad equity market (S&P 500)."

By comparison, he noted that the underlying stocks rose 0.8%, the S&P 500 was up 1%, investment-grade corporate bonds were off 0.1% and high-yield bonds gained 3.4% for the month.

"As a result of another solid month, the convertible market's 1Q03 result of +3.6% led most other asset classes," Miller said in the report.

"Only the high yield market's +8.7% quarterly result is higher."

For the quarter, the underlying stocks were down 2.7%, the S&P 500 down 3.2% and investment-grade corporate bonds posted a gain of 1.4%.

With the underlying stocks advancing during the month, convertibles' weighted average delta ticked up slightly to 41. Also, the weighted average delta for the cash-pay convertible sector finished the month at 46.9%.

While the strength in the convertible market was wide spread, weakness in large cap names like Tyco International Ltd., Ford Motor Co. and General Motors Corp. contributed to a slide of 0.24% in that group for March. Small caps rose 1.93% and mid caps were up 2.21%.

The top 10 performing convertibles for March, in order, were the XM Satellite Radio Holdings Corp. 8.25% convertible preferred due 2012, XM Satellite 7.75% due 2006, AES Corp. 6% convertible preferred due 2008, Pegasus Communications Inc. 6.5% perpetual convertible preferred, Mirant Corp. 2.5% due 2021, Lucent Technologies Inc. 8% convertible preferred due 2031, AES 6.75% perpetual convertible preferred, BroadWing Inc. 6.75% perpetual convertible preferred and QuadraMed Corp 5.25% due 2005.

The 10 worst performing convertibles for March, in order, were the HealthSouth Corp. 3.25% due 2003, Fleming Cos. Inc. 5.25% due 2009, CMS Energy Corp. 7.25% mandatory due 2003, Aegon NV 4.75% due 2004, Semco Energy Corp. 4.5% mandatory due 2003, Fleetwood Enterprises Inc. 9.5% convertible preferred due 2013, Fleetwood 6% convertible preferred due 2028, Qwest Communications Inc. mandatory due 2003, Loral Space & Communications Inc. 6% convertible preferred due 2006 and Tyco International Ltd. 0% due 2010.

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