If smart investors buy when everyone else is selling, then the partners at AQR Capital Management have looked pretty shrewd lately. At the beginning of this year, they put $30 million of their own money into the firm’s convertible arbitrage strategy, which earned a 25.2 percent return through May.
"We are pounding the table that this is a great opportunity," says David Kabiller, a founding partner of the Greenwich, Connecticut–based firm. "We have huge conviction for anyone who has no exposure to convertible arbitrage."
Don’t mistake that for a bet-the-farm endorsement. Kabiller recommends that hedge fund investors should have just "a little" convertible arbitrage. That’s as far as he’s willing to go, although by AQR’s reckoning convertible bonds are cheaper than ever — except for when the market collapsed last fall before rebounding early this year. The once–$40 billion AQR took a beating in 2008, but it...
