Convertible bonds delivered strong performance in 2025, supported by a favourable combination of factors – robust new issuance throughout the year expanded the opportunity set, with many companies taking advantage of attractive market conditions to raise capital via the convertible market; elevated volatility levels and wider dispersion in equity performance created an environment conducive to active management, allowing convertibles to capture asymmetric upside while maintaining downside protection.

Performance drivers were notably diverse, spanning multiple themes and sectors. Companies linked to artificial intelligence and high-performance computing infrastructure were standout contributors, alongside strong issuance and returns from rare earths, aerospace and defence, healthcare and the broader renewables complex –including uranium and nuclear energy.

Continued corporate funding needs and high equity valuations should underpin another year of healthy new issuance.

The breadth of sector participation reinforced convertibles’ role as a dynamic asset class that bridges growth and defensiveness.

Looking ahead to 2026, we expect many of these supportive dynamics to persist. Continued corporate funding needs and high equity valuations should underpin another year of healthy new issuance. Similarly, ongoing macro uncertainty and market dispersion are likely to sustain elevated volatility, an important driver of convertible attractiveness.

After a very positive 2025, we remain cautiously positioned in the near term, acknowledging the potential for short-term consolidation. Nonetheless, we see an encouraging opportunity set for 2026, with active selection and disciplined risk management key to capturing value in what remains an attractive environment for convertible bond investors.