3 Convertibles Funds Offer Smooth Rides

Another fund that focuses on balanced convertibles is Allianz AGIC Convertible . During the last 10 years the fund returned 8.2% annually, outdoing 97% of peers. Portfolio manager Justin Kass likes to find issuers that are improving profit margins and beating earnings estimates. Lately he has been favoring semiconductor companies. A holding is an issue from Micron Technology (MU) . Last year, the semiconductor companies did poorly as investors worried about oversupplies and sluggish sales of personal computers, Kass says. But lately the picture has been improving. "Inventories are coming down, and the PC market is starting to recover," he says.

First You Screw Up, Then Lie and Finally Die

A relatively steady fund is MainStay Convertible , which returned 6.3% annually during the past 10 years, outdoing 66% of peers. Portfolio manager Edward Silverstein looks for balanced securities from companies with healthy balance sheets and strong free cash flow. A favorite holding is an issue from Apache (APA) , an independent producer of oil and gas. The security yields 6% and should provide 80% of the upside of the stock. "The stock is undervalued, and the company has strong cash flow," says Silverstein.