Press Release – Foresight Analytics reaffirms three SMI Coolabah Capital funds’ (Smarter Money Long Short Credit Fund) investment rating as ‘SUPERIOR’
Sydney, 24 AUGUST 2022
Foresight Analytics & Ratings has recently completed a ratings assessment of three SMI Funds – The Smarter Money Fund (SMF), Smarter Money Higher Income Fund (SMHIF) and Smarter Money Long Short Credit Fund (SMLSCF).
All three fund ratings have been reaffirmed as SUPERIOR, reflecting Foresight Analytics’ highest level of confidence that the funds will deliver a risk-adjusted return in line with its investment objectives.
The Foresight Product Complexity Indicator (PCI) for SMF and SMHIF is RELATIVELY SIMPLE, indicating that the Investment Manager will seek to outperform their chosen market sector. The strategies used to outperform may include the use of very liquid derivatives such as index futures. While these funds are still expected to move closely in line with mainstream markets there may be periods where they outperform or underperform the benchmark index.
The PCI for the SMLSCF was assigned as MORE COMPLEX, which indicates that the Fund generates returns through a variety of non-standard strategies. These strategies include the use of leverage, the ability to go both long and short, investment in sub-investment grade securities and the use of over-the-counter credit derivatives.
The SMF, SMHIF and SMLSCF are managed by Australia-based Coolabah Capital Investments Pty. Ltd. (CCI), an active credit alpha manager responsible for managing numerous institutional mandates. The firm is 75% owned by its investment team and 25% owned by the Pinnacle Investment Management Group Limited (ASX: PNI), an Australia-based multi-affiliate investment firm.
The SMF is an actively managed, low-duration, enhanced-cash investment solution that targets returns of 1.0% p.a. to 2.0% p.a. (net of fees) in excess of the RBA cash rate, over a rolling 12-month period. Additionally, the SMHIF is an actively managed, low-duration, short-term, fixed-interest investment solution that targets returns of 1.5%-3.0% p.a. (net of fees) above the RBA cash rate, over a rolling 12-month period.
However, the SMLSCF is an absolute return, fixed-income strategy. Coolabah Capital Investments aims to generate returns by taking a long or short position in mispriced fixed-income securities. Since its inception, the manager has made limited use of shorting, relying on leveraging the investment strategy implemented in the Smarter Money High Income Fund
Foresight Analytics’ analyst Maggie Callinan commented on both the SMF and SMHIF, saying that ‘CCI has recorded a negative return in the 1-year period ending July 2022, with some recovery taking place over the month of July. The performance reflects the significant global shifts in inflation, asset pricing, interest rates and credit spreads that have taken place from late 2021. While CCI correctly predicted much of the asset pricing shifts and held close to record-low exposures to credit spreads and interest-rate risk, the portfolio has been impacted.
She also commented on the SMLSCF, adding that ‘the market turmoil caused by the recent inflation-driven interest rate spikes has affected this portfolio, with a return of -4.58% for the year to July 2022. Investors should be prepared for a relatively volatile pattern of returns and a potentially extended time horizon for the strategy to achieve its objective.’
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About Foresight Analytics’ Investment Due Diligence Rating (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 Complexity Indicator
A Foresight Complexity Indicator (FCI) 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.
The full research report is available on the Foresight 360 Digital platform. The platform can be accessed via www.foresightanalytics.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.