In June, the Pacific Coolabah Global Active Credit (PCGA) USD share class returned +1.57%, representing 16bps outperformance over its benchmark, the Bloomberg Global Aggregate Corporate Index, which returned +1.41%. The GBP share class delivered similar outperformance of 0.13% compared to the respective GBP-hedged index.
Despite the outbreak of war in the Middle East, risk markets, and IG credit in particular, continued to perform strongly. European IG credit spreads were 0.08% tighter, outperforming the corresponding US IG credit index, which finished the month 0.04% tighter. Equity market monthly performance was reversed, with the S&P 500 finishing the month +5.1% on a total return basis, while the Euorstoxx50 was down -1.1%. The US dollar continued its weakening trend against the euro, closing the month 3.9% weaker. This FX move is consistent with changes in risk-free sovereign yields with German and French 10-year yields higher by 0.11% and 0.13% respectively on the month, while the US Treasury 10-year yield was lower by 0.17%.
Outperformance in the month was driven by overweight risk positioning versus the index namely in US IG credit. The strategy does not take active views on interest rates or FX rates, which are highly efficient markets.
Since its 29 October 2023 inception, PCGA’s USD share class has outperformed the benchmark by 1.33% (net of fees) on an annualised basis with an absolute return of 13.67% net of fees compared to the index return of 11.46%.
As at the end of June, PCGA’s weighted average yield to expected maturity is 5.91% compared to the index’s 5.22%. PCGA’s weighted-average credit rating of A- is in line with the index’s A- rating.
Primary markets remained strong through June: USD IG credit supply totalled about $150 billion and EUR IG credit supply €78 billion. Elevated yields continued to supportive inflows, particularly in Europe. Weekly European IG credit fund flows built through the month, with the final week of June marking the largest inflow on record, according to Barclays.
Coolabah’s models continue to identify attractively priced floating rate bonds, which are trading cheaper than equivalent fixed rate bonds from the same issuer. This trend is especially evident in names with strong name-recognition among Asian investors. The strategy participated in such primary deals from ANZ, Macquarie, Mizuho, NAB, Nomura, Sumitomo, and Westpac.
