Sydney, 8th February 2023  – Foresight Analytics’ rates Coolabah Floating-Rate High Yield Fund as ‘Very Strong’

Foresight Analytics & Ratings has recently completed a ratings assessment of the newly launched Coolabah Floating-Rate High Yield Fund (FRHY). The fund rating has been assigned as VERY STRONG, indicating a very strong conviction that the management team can deliver a risk-adjusted return in line with its’ investment objectives. The investment manager’s support for this strategy is very well-resourced and continues to be enhanced.  

The Foresight Product Complexity Indicator (PCI) for the FRHY Fund is RELATIVELY SIMPLE, indicating that the investment manager will seek to outperform their chosen mainstream market sector. It also reflects public market liquidity and pricing transparency, a simple fee structure and the standard nature of the underlying asset class of Australian bank bonds. That said, the geared nature of the Fund means returns will be amplified both on the upside and downside compared to a similar strategy that is ungeared. 

The Coolabah Floating-Rate High Yield Fund (Managed Fund) consists of a portfolio of Australian bank senior and subordinated floating-rate notes (FRNs) to which leverage is applied within a permissible range of 50% to 75% (I.e., gross exposure up to 400%). As of 31 January 2023, the portfolio consisted of approximately one-third senior bank FRNs and two-thirds subordinated bank FRNs with an average credit rating of A- and the net of fees yield to maturity is currently 9.27% p.a, based on approximately 70% gearing.  

The Coolabah FRHY Fund is managed by Australia-based Coolabah Capital Investments Pty. Ltd, an active credit alpha manager responsible for managing numerous institutional mandates. Coolabah Capital Investments Pty. Ltd is 65% owned by its investment team and 35% owned by the Pinnacle Investment Management Group Limited, an Australia-based multi-affiliate investment firm. Coolabah Capital Investments (Retail) Pty Limited is a wholly owned subsidiary of Coolabah Capital Investments and was established to offer investors fixed-income products with a low volatility profile.  

Coolabah Capital Investments Pty. Ltd was established in 2011 and issued its first fund in February 2012. In 2020, Coolabah Capital Investments opened a London office, in addition to 2 Sydney offices and a Melbourne office. The Manager intends to continue expanding overseas and believes that its overall FUM capacity across all the strategies is between $15BN to $20BN. Pinnacle, which has offices in London and New York, is leading Coolabah Capital Investments’ overseas expansion and is exploring the best structures for offering the manager’s capabilities in overseas markets. 

Foresight Analytics’ analyst Rodney Lay commented “the Australian bank FRN market has historically exhibited exceptional returns per unit of risk, has minimal default risk, and is highly liquid. In short, the underlying portfolio is well suited to be geared to enhance returns. However, the high level of leverage does create material mark-to-mark volatility/drawndown risk. Historically, on a back-tested basis these risks are not dissimilar to global high yield bonds (albeit back-tested return on the Fund’s strategy were materially higher).” 

He also further added that “the Fund may be viewed to high-yield sub-investment grade bond strategies, yet with a portfolio that has substantially higher credit rating and lower default risk.” 

To access the pdf version of the press release, click here.

The full research report is available on the Foresight 360 Digital platform. The platform can be accessed via www.foresight–analytics.com. 

About Foresight Analytics’ Investment Due Diligence (IDD) Rating

The objective of Foresight Analytics’ Investment Due Diligence Rating (IDD Rating) is to identify the best funds and opportunities for future investment. We assess the fund’s historical risk-adjusted performance – compared to its peers – to form a holistic view of the manager’s ability to deliver future returns. The IDD rating indicates the quality of the investment option within the context of a diversified portfolio and full investment cycle. Foresight’s analysts use a 5-point scale to determine how the fund will perform against a range of risk factors.

• SUPERIOR indicates the highest level of confidence that the fund can deliver a risk-adjusted return in line with its investment objectives and that it is highly suitable for inclusion on APLs.
• VERY STRONG indicates a very strong conviction that the fund can deliver a risk-adjusted return in line with its investment objectives and that it is suitable for inclusion on most APLs.
• STRONG indicates a strong likelihood that the fund can deliver a risk-adjusted return in line with its investment objectives and that it is suitable for inclusion on most APLs.
• COMPETENT indicates the fund may deliver a risk-adjusted return in line with its relevant benchmark and that it may be suitable for APLs.
• WEAK indicates the fund is unlikely to deliver a risk-adjusted return in line with its investment objective and that it is not suitable for most APLs.

A ‘Hold’ designation is applied to a fund’s rating if a material change impacts the fund manager, and we need to review the rating.  A ‘Sell’ designation indicates the Foresight Investment Ratings Committee considers risk factors to be elevated enough that maintaining an investment in the fund as part of their diversified portfolio is questionable.

Foresight Product Complexity Indicator (PCI)

A Foresight Product Complexity Indicator (PCI) highlights the complexity of an investment product based on a range of indicators. These typically include its terms and conditions, performance-based fees, liquidity structure, financial leverage, use of derivatives, rare and niche asset class/opportunity set, currency exposure and the level of transparency offered for investors. Foresight believes these factors can disproportionately affect risk-adjusted return outcomes for investors even if a manager is very skilled. Investors can use FCI as a guide to portfolio position sizing within a diversified portfolio context.

Media Contact – Foresight Analytics

Rodney Lay, Analyst

Suite 208, 33 Lexington Drive, Bella Vista, 2153, NSW

Telephone: 0435 610 293/ 02 8883 1369

Email: rodney@foresight-analytics.com

Web: www.foresight-analytics.com

About Foresight Analytics 

Foresight Analytics, an independent Sydney-based firm, provides investment diligence, data analytics, and advisory solutions to leading investment management companies, superannuation funds and wealth groups across the Asia Pacific. Foresight’s innovative, evidence-based approach blends both human and forensic insights to provide a range of analytical, predictive and market intelligence solutions to investors. Foresight Analytics was founded in 2015 by Jay Kumar, a former executive of Morningstar, Optimix Investment Management, ANZ Wealth & Private Bank and the Reserve Bank of Fiji.

Foresight’s fiduciary solutions include Diligence Services (Investment, Operational, ESG & Risk Diligence), Data Analytics and Asset Consulting. Foresight’s fund strategy solutions include Data Analytics for asset managers, Fund Strategy Benchmarking Solutions and Strategic Research.

For more information on our capabilities, please visit our website at www.foresight-analytics.com and social media platforms via LinkedIn, Facebook, or Twitter. For additional analyst insights, thematic research, and market commentaries, please visit our website at www.foresight-analytics.com and streaming channels YouTube and Podcast.