Hedge-Fund Arb Bets Triumph as Man Group Sees ‘Perfect’ Climate

A niche hedge fund strategy involving convertible debt is having a moment, with market forces aligning to create ideal conditions for trading the hybrid securities.

So-called convertible arbitrage, which seeks to profit from pricing discrepancies between convertible bonds and their underlying shares, has returned almost 6% through July — putting it among the top-performing hedge fund trades in the first seven months of the year, according to a Hedge Fund Research index which tracks 120 funds with combined assets of $84 billion. Inflows into the strategy, meanwhile, are on track for their biggest annual jump in 18 years.

The arbitrage ...