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May 2025
Fund: Coolabah Active Composite Bond PIE Fund
Strategy: Composite Bond
Return (since Dec. 2023): 7.87% pa net
Net return volatility (since Dec. 2023): 4.03% pa

Objective: The Fund targets returns in excess of the Bloomberg Ausbond Composite 0+ Yr Index (hedged to NZD) by 1.0% to 2.0% per annum over rolling 12 month periods.

Strategy: The Fund offers exposure to an actively managed fixed-income strategy focused on mispricings in Australian and global government and corporate bond markets with an interest rate duration risk broadly similar to that of the Index. The Fund currently invests in the Coolabah Active Composite Bond Fund (Underlying Fund), an Australian unit trust managed by Coolabah. The Fund targets a position of being fully hedged back to New Zealand dollars.
The Underlying Fund is permitted to invest in bonds, such as government and semi-government bonds, bank and corporate bonds, and asset-backed securities, including residential-mortgage-backed securities, issued in Australian Dollars or in G10 currencies hedged to Australian Dollars, as well as cash, cash equivalents and related derivatives. It can borrow, use derivatives and short-sell, meaning it may be geared (or leveraged). Leverage can amplify gains and also amplify losses.

Period Ending 2025-05-31Net Return†AusBond Comp Bond Index*Net Excess Return‡
1 month0.76%0.12%0.64%
3 months1.71%1.88%-0.16%
6 months3.87%3.51%0.36%
1 year8.04%6.96%1.08%
Inception pa Dec. 20237.87%5.90%1.96%
Underlying FIXD Strategy*
3 years pa6.34%3.77%2.57%
5 years pa2.15%0.30%1.85%
Inception pa Mar. 20173.92%2.36%1.56%

* The underlying strategy is an Australian unit trust. The returns displayed are estimated in NZD based on the actual AUD returns with 1 month forward contracts. † Net returns are calculated from the historic gross returns using the current fee structure as displayed in the PDS. ‡ The Excess Return columns represent the gross and net return above the AusBond Composite Bond Index hedged to NZD. # The yields shown are estimates based on the yield of the underlying strategy hedged to New Zealand Dollar (NZD) using the NZD Bank Bill 3 Month Index (NDBB3M) and the AUD Bank Bill 3 Month Index (BBSW3M).

Disclaimer: Past performance does not assure future returns. Returns are shown net of management fees and costs unless otherwise stated. All investments carry risks, including that the value of investments may vary, future returns may differ from past returns, and that your capital is not guaranteed. To understand Fund’s risks better, please refer to the Product Disclosure Statement available at Coolabah Capital Investments' website.
Note: all portfolio statistics other than yields and duration are reported on gross levered value of the underlying fund hedged to NZD
Av. Portfolio Credit Rating A+ Modified Interest Rate Duration 5.00 years
Portfolio MSCI ESG Rating A Gearing Permitted? Yes
No. Cash Accounts 24 Gross Portfolio Weight to AT1 Hybrids 0.0%
No. Notes and Bonds 195 Gross Cash Accounts + RBA Repo-Eligible Debt 65.7%
Av. Interest Rate (Gross Running Yield) 5.31% Net Annual Volatility (since incep.) 4.03%
Underlying Strategy Ratings: Superior - More Complex (Foresight);
Recommended (Lonsec); Recommended (Zenith)
Fund: Coolabah Active Composite Bond PIE Fund
Return/Risk: 7.87% pa net (4.03% pa volatility)
Disclaimer: Past performance does not assure future returns. Returns are shown net of management fees and costs unless otherwise stated. All investments carry risks, including that the value of investments may vary, future returns may differ from past returns, and that your capital is not guaranteed. To understand Fund’s risks better, please refer to the Product Disclosure Statement available at Coolabah Capital Investments' website.
The since inception net return of 7.87% pa net is the total annual return earned by the fund since Dec. 2023, including interest income and movements in the price of the bond portfolio after all fund fees (assuming net returns are calculated from the historic gross returns using the current fee structure as displayed in the Product Disclosure Statement). The net return quoted applies to the Coolabah Active Composite Bond PIE Fund, with quarterly distributions reinvested. Investment return will vary depending upon investment date and any additional investments and withdrawals made. The annualised volatility estimate of 4.03% pa is based on the standard deviation of net daily returns since inception, which are then annualised, attributable to the Coolabah Active Composite Bond PIE Fund.
Portfolio Managers Christopher Joye, Ashley Kabel, Roger Douglas, Fionn O'Leary (Coolabah Capital Investments)
Fund Inception 6-Dec-2023 Distributions Quarterly
Asset-Class Composite Bond Target Return Net 1.0%-2.0% pa over AusBond Composite Bond Index
Min. Investment NZD$1,000 Withdrawals Daily Requests (funds normally in 4 days)
Buy/Sell Spread 0.00%/0.025% Investment Manager Coolabah Capital Investments (Retail)
Supervisor Public Trust Manager FundRock NZ
Mgt. & Admin Fee 0.40% pa Perf. Fee 20.5% of returns over AusBond Composite Bond Index hedged to NZD
Fund: Coolabah Active Composite Bond PIE Fund
Return/Risk: 7.87% pa net (4.03% pa volatility)

In the commentary below, returns indicated with * are estimated returns in NZD based on AUD returns hedged to NZD with 1m forward contracts. All other returns are NZD Denominated where unit classes in NZD exist, and estimated from AUD returns hedged to NZD using 1m forward contracts before the inception of the NZD unit class. Strategy commentary is for the AUD Market.

Portfolio commentary: In May, the long duration daily liquidity Active Composite Bond PIE Fund (NZFIXDP) returned 0.76% net, outperforming the AusBond Composite Bond NZD Hedged Index (0.12%) by 0.64%. Over the previous 12 months, NZFIXDP returned 8.04% net, outperforming the AusBond Composite Bond NZD Hedged Index (6.96%) by 1.08%. NZFIXDP ended May with a running yield of 5.31% pa, a weighted-average credit rating of A+, and a portfolio weighted average MSCI ESG rating of A.

Since the inception of NZFIXDP in December 2023, it has returned 7.87% pa net, outperforming the AusBond Composite Bond NZD Hedged Index (5.90% pa) by 1.96% pa. While NZFIXDP's return volatility since inception has been low at around 4.03% pa (measured using daily returns), as a daily liquidity product with assets that are marked-to-market using executable prices, volatility does exist. This contrasts with illiquid credit (eg, loans and high yield bonds) wherein assets that have very high risk can appear to have remarkably low volatility, which is, in fact, just a mirage explained by the inability to properly value these assets using executable prices.

Strategy commentary: It's worth recapping that Coolabah was exceptionally bearish on risk markets prior to April, writing in the AFR on 14 March that US equities would likely decline 20-40%. As it transpired, the S&P500 fell 22% while the Nasdaq slumped 27%.

We had reduced risk for 12 months, cutting US and European bond exposures, selling hybrids and subordinated bonds, and moving up the capital stack into the safest and highest rated senior-ranking bonds. In levered portfolios, we also actively reduced gearing. In late March we further hedged 15-25% of all our global credit risk.

While Coolabah was bearish, we swung 180 degrees on 9 April, removing all hedges/shorts and aggressively buying $1.7bn of bonds on that day alone. We proceeded to buy almost $5 billion of bonds between 9 and 30 April (see summary below). Indeed, we even outlined the rationale for this shift in the AFR on 11 April, arguing that that time presented an enticing buying opportunity.

Despite many investors complaining about market illiquidity in April, Coolabah provided its clients with exceptional liquidity and traded around $15 billion of bonds, including $11 billion of credit. We definitely heard anecdotes of investors in riskier debt securities struggling with illiquidity, which was not a problem in our markets.

The catalyst for the shift in Coolabah's risk posture was the assessment that President Donald Trump's backflip on tariffs on 9 April would trigger a very significant risk rally. This is what has played out in the period since.

Fund: Coolabah Active Composite Bond PIE Fund
Return/Risk: 7.87% pa net (4.03% pa volatility)

Strategy commentary cont'd: Our central case remains that the world will be cleaved by declining short-term interest rates juxtaposed against higher long-term rates as investors worry about the enormous supply of government bonds that will be required to fund politicians' profligate spending programs. This is unlikely to contribute to an environment characterised by sustainably low inflation.

It is, nonetheless, a complex climate. In small open economies like Australia and New Zealand, inflation pressures in the near-term could be disinflationary as global exporters dump products blocked by the US on to non-protectionist markets. (Consider BYD sales of EVs in Australia that are now multiples the volume of Teslas being purchased.)

This could improve the scope for central banks in these smaller countries to cut their policy rates back to more normal levels. The RBA, for example, is priced by markets to lower its cash rate from its current 3.85% level to 3.05% by December 2025 (or circa 3-4 more standard cuts).

At the same time, the US is likely to face an acceleration in short-term inflation pressures as tariffs push up prices, which could keep the Federal Reserve sidelined for a longer period than might otherwise be the case in the absence of such tariffs. Markets are currently forecasting that the Fed will reduce its cash from 4.25-4.50% to around 3.8%, implying that there will only be two cuts this year in total (compared to a total of more than five cuts from the RBA in 2025).

Coolabah prefers to remain focussed on the safest and most liquid assets that are likely to outperform securities that are subject to stress during cyclically volatile periods like the present environment where tail risks are unusually elevated.

After the extreme volatility experienced during April, the month of May was constructive for both performance and long-term yields. Coolabah's daily liquidity strategies delivered healthy excess returns in May, outperforming benchmarks and peers, including:

It is instructive to highlight how Coolabah's Active Composite Bond Fund, which is also an ETF under the ticker FIXD, has performed compared to peers since its inception in 2017 and over more recent 1 year and 3 year periods. Net of retail fees, FIXD has outperformed while maintaining exceptional liquidity.