The Pacific Coolabah Global Active Credit Fund outperformed its benchmark in November as it has since inception. As at 30 November, the Fund’s weighted average yield to expected maturity is 6.64%, which compares with the benchmark yield of 5.23%.
Market sentiment was ebullient in November as several major global economies reported lower than forecast inflation readings. This resulted in market participants pricing in a higher likelihood of central banks cutting policy rates sooner than previously expected. The 10 year US Treasury yield declined by approximately 60 basis points to 4.33% while 10 year German Bund yield declined by 36bps to 2.45%. This move lower in sovereign bond yields was supportive for risk assets with the S&P 500 up 8.9% and the Eurostoxx 50 up 7.9% (their best monthly figures for 2023). Synthetic credit spreads also tightened, with the widely followed CDX credit default swap index of US investment grade corporate bonds tightening by 17 basis points. The rally in duration and spreads helped the Bloomberg Global Aggregate Corporate Index to a healthy +4.48% (GBP hedged) return.
The Fund entered the month defensively positioned following market turbulence in October. This was unwound early in November, with the Fund returning to a slightly overweight risk position versus the benchmark. The Fund increased its risk exposure during the month as the volume of primary supply proved underwhelming. Many investors who had retained high cash balances in anticipation of such supply deployed this capacity in secondary markets, compressing spreads.
The Fund participated in attractive primary deals across a number of US, European and Asian issuers. January especially is a seasonally important month for primary supply as issuers look to take advantage of large redemptions to make significant inroads into their financing requirements for the financial year. This should present the Fund with attractive opportunities.