In March, the Pacific Coolabah Global Active Credit (PCGA) USD share class returned -0.49% compared
to the benchmark Bloomberg Global Aggregate Corporate Index’s -0.42%. The GBP share class returned
a similar -0.50% compared to the respective GBP-hedged index return of -0.39%.
The Fund’s absolute performance in March was driven by a large sell off in German bond yields
following the announcement of increased infrastructure and defence spending, loosening the
constitutional “debt brake.” 10-year German Bond yields increased by 33bps, underperforming their
US counterparts which were unchanged on the month.
As anxiety around upcoming tariff announcements grew, risk asset performance was weak. The S&P 500
index was down -5.6% and the NASDAQ 100 down by -7.6%. European bourses were also down but
continued to outperform US indices with the Eurostoxx 50 down -3.8% and the FTSE 100 down -2%. It
was a similar story in benchmark credit spreads, with the Bloomberg USD Corporate Aggregate Index
wider by 7bps to 93bps and its European counterpart also 7bps wider at 97bps.
Since the Fund’s inception on 10 October 2023, PCGA GBP share class has cumulatively outperformed
the benchmark by +2.40% net (+3.13% gross) with an absolute return of +15.44% net of fees (+16.18%
gross) compared to the index return of +13.04%.
PCGA’s annual volatility is similar to the index (4.9% vs. 4.8%) and, accordingly, PCGA’s since
inception Sharpe Ratio of 1.3 times has been superior to the index’s 0.8 times.
PCGA’s current weighted average yield to expected maturity is 5.78% compared to the index’s 5.24%.
PCGA’s weighted-average credit rating of A is higher than the index’s BBB+ rating. The weighted
average rating of PCGA’s active (as opposed to passive) exposures is also A.
Primary volumes tailed off noticeably towards the second half of the month and supply that did come
to market was skewed towards non-financial corporate deals. Heightened volatility resulted in a
number of deals printing with attractive new issue concessions. Those issuers who tried to squeeze
pricing too aggressively saw dramatic attrition in order books.
Throughout March the Fund participated in 32 deals. This included 20 financial, 7 corporate, and 5
SSA deals.
Historically, CCI has always generated its best performance after shocks, and has been waiting for
an opportunity like the current one to acquire cheap bonds paying historically attractive credit
spreads. Looking forward, we believe these mispricings will get particularly intense in the coming
weeks/months in both secondary and primary (or new issue) markets. CCI has observed assets starting
to become cheap on various historical measures. The volatility in current markets will create
exceptional future investment opportunities in the new issue or primary markets, which have offered
skinnier returns in recent times. New bond issuers will be compelled to pay very large new issue
concessions to raise capital, and this is a key source of CCI’s long-term alpha or excess returns.
