Driving in reverse

Despite The Wall Street Journal lambasting equity-linked reverse convertibles as ‘dangerous investments’ and a chorus of bad press culminating in regulatory fines, the products continue to attract capital from the US retail sector. Joti Mangat asks how the market’s bellwether product is overcoming lingering headline risk

Reverse convertibles are seeing a revival of interest

Most of the recent problems for buyers of reverse convertibles started at the end of 2007, at a time when the market was regularly absorbing 500 launches every month. As global equity markets collapsed, the number of reverse convertible investors receiving shares upon redemption diverged dramatically from normal market conditions. “Where we had seen a typical distribution of 80:20 between those investors receiving principal at redemption versus stock, during the worst of the turmoil, that ratio