. They buy the convertible bonds of companies whose stock has soared and hedge their position by shorting the shares.
That arbitrage strategy – which takes advantage of differences in price between the debt and equity – has been utilized by funds like CQS, AQR Capital Management, Man Group, and Whitebox Advisors, among others. Gil Song, portfolio manager at Man GLG, said large, unexpected moves in stocks that benefit convertible arbitrage investors may become more common.
Companies that have convertible debt outstanding and whose equity valuations have become overinflated fit the criteria for investing.
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