Johannesburg, 28 February 2019 — Global Credit Ratings has accorded Ashburton Stable Income Fund an initial national scale fund rating* of AA-(ZA)(f); with the outlook accorded as Stable.
SUMMARY RATING RATIONALE
Global Credit Ratings (“GCR”) has accorded the above fund rating to Ashburton Stable Income Fund (“Ashburton SIF”, “the fund”), key features of which are summarised below:
|Fund currency||South African Rand|
|Fund data review date||31 October 2018|
|Assets under management (“AUM”)||R7.2bn|
|Net asset value (“NAV”)||Market value (variable NAV)|
|Fund benchmark||STeFI Composite Index (“STeFI”)|
The fund rating of the Ashburton Stable Income Fund is supported by portfolio weighted average credit quality, and a good fund manager track record. The outlook is Stable, reflecting our opinion that the investment manager will ensure the credit quality, and liquidity remains at robust levels.
Fund rating factors: GCR qualitatively assesses the fund’s management and performs an evaluation of the fund portfolio’s historical performance in terms of price/return volatility, underlying asset quality, market risk and liquidity risk.
Fund profile: The fixed income mandate of the Ashburton Stable Income Fund aims to deliver total returns exceeding those offered by money market funds. The fund’s objective is to maximise interest income whilst preserving capital and offering high liquidity. The fund complies with regulatory requirements for income funds, investment policy, the trust deeds, and features T+1 liquidity and modified duration not exceeding 0.15 years. Negatively, the minimum credit rating score to instruments investable in the fund is low compared to peers.
Asset manager profile: Ashburton Investments performs the fund and investment management functions in house, outsourcing administration activities. A solid track record supports our view that the manager possesses the competence, capability and capacity to manage the fund. Very strong management practices, compliance and risk monitoring facilitate performance objectives within mandate constraints and targeted constant NAV requirement. Furthermore, the fund’s marketing, risk management, compliance and administration follow market best practice.
Investment performance: The fund’s return has consistently outperformed the benchmark over the period under review. Investor flows have been somewhat volatile over the past years, but the fund has adequate strategies in place to simultaneously meet investment objectives and manage liquidity, including maintaining adequate levels of liquid assets. The fund’s monthly annualised returns have exceeded benchmark over the last three years, with moderately low volatility in returns.
Portfolio quality and market risk: GCR’s portfolio analysis considers credit/concentration risk, tenor/duration (and limits), and additional sources of market risk, in addition to Ashburton SIF’s stress-tested weighted average credit rating (“WACR”) of ‘AA(ZA)’ in determining the fund rating. Interest rate risk is assessed as low, given the high volume of floating rate securities in the fund’s holding. The fund is however exposed to spread risk given the long weighted average maturity (“WAM”) of the fund. The fund’s long track record, long portfolio tenor, moderately low volatility and exposure, albeit managed, to subordinated debt instruments result in a ‘moderately low’ market risk assessment.
Key fund risks: Spread risk is the main risk factor for the Ashburton SIF due to the long WAM of the fund. Positively, investor and counterparty concentration are moderate considerably better than market average. The sector concentration is largely due to holdings in securities issued by the top five South African banks. The fund manages this by adding selected corporate and structured instruments to the portfolio, while maintaining high weighted average credit quality.
More stringent guidelines on the minimum credit rating allowed on portfolio holdings, and reduction in tenor and investment in more liquid instruments could result in a positive rating action. Mandate breaches, and/or deterioration in credit, liquidity or concentration risks, could negatively affect the rating.
* Fund ratings (denoted by an ‘f’ modifier) provide an opinion regarding the fund’s ability to preserve principal value under varying market conditions; with reference to the relevant asset management environment. Refer to GCR’s published rating scales and definitions.
|NATIONAL SCALE RATINGS HISTORY|
|Initial/last rating (February 2019)|
|Fund rating: AA-(ZA)(f)|
|Primary Analyst||Secondary Analyst|
|Vimbai Muhwati||Kudzanai Samanga|
|(011) 784-1771||(011) 784-1771|
|Sector Head: Financial Institution Ratings|
APPLICABLE METHODOLOGIES AND RELATED RESEARCH
Global Criteria for Rating Funds and Asset Managers, updated March 2017
RATING LIMITATIONS AND DISCLAIMERS
ALL GCR’S CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: HTTP://GLOBALRATINGS.NET/UNDERSTANDING-RATINGS. IN ADDITION, GCR’S RATING SCALES AND DEFINITIONS ARE ALSO AVAILABLE FOR DOWNLOAD AT THE FOLLOWING LINK: HTTP://GLOBALRATINGS.NET/RATINGS-INFO. GCR’S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, PUBLICATION TERMS AND CONDITIONS AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE AT HTTP://GLOBALRATINGS.NET.
SALIENT FEATURES OF ACCORDED RATINGS
GCR affirms that a.) no part of the rating process was influenced by any other business activities of the credit rating agency; b.) the rating was based solely on the merits of the rated entity, security or financial instrument being rated; c.) such rating was an independent evaluation of the risks and merits of the rated entity, security or financial instrument.
Ashburton Investments participated in the rating process via face-to-face management meetings, and written correspondence. Furthermore, the quality of information received was considered adequate and has been independently verified where possible.
The fund rating has been disclosed to Ashburton Investments.
The information received from Ashburton Investments and other reliable third parties to accord the fund rating included:
- A breakdown of the fund investment portfolio, including information on the instruments, their terms, conditions and credit quality;
- A breakdown of the fund investor portfolio, including fund flows and withdrawal terms;
- Detail on historical fund returns, fee structures, and expense ratios;
- Details regarding the fund management, investment management and administration activities of the fund;
- Financial statements for Ashburton Management Company (RF) (Proprietary) Limited at 30 June 2018;
- Corporate governance and enterprise risk framework; and
- Industry comparative data and regulatory framework.
The rating above was solicited by, or on behalf of, Ashburton Investments, and therefore, GCR has been compensated for the provision of the rating.
GLOSSARY OF TERMS/ACRONYMS USED IN THIS DOCUMENT AS PER GCR’S FINANCIAL INSTITUTIONS GLOSSARY
|Asset||A resource with economic value that a company owns or controls with the expectation that it will provide future benefit.|
|Capital||The sum of money that is invested to generate proceeds.|
|Corporate Governance||Refers to the mechanisms, processes and relations by which corporations are controlled and directed, and is used to ensure the effectiveness, accountability and transparency of an entity to its stakeholders.|
|Credit Rating||An opinion regarding the creditworthiness of an entity, a security or financial instrument, or an issuer of securities or financial instruments, using an established and defined ranking system of rating categories.|
|Credit Rating Agency||An entity that provides credit rating services.|
|Credit Risk||The possibility that a bond issuer or any other borrowers (including debtors/creditors) will default and fail to pay the principal and/or interest when due.|
|Debt||An obligation to repay a sum of money. More specifically, it is funds passed from a creditor to a debtor in exchange for interest and a commitment to repay the principal in full on a specified date or over a specified period.|
|Financial Institution||An entity that focuses on dealing with financial transactions, such as investments, loans and deposits.|
|Financial Statements||Presentation of financial data including balance sheets, income statements and statements of cash flow, or any supporting statement that is intended to communicate an entity’s financial position at a point in time.|
|Interest||Scheduled payments made to a creditor in return for the use of borrowed money. The size of the payments will be determined by the interest rate, the amount borrowed or principal and the duration of the loan.|
|Liquid Assets||Assets, generally of a short term, that can be converted into cash.|
|Liquidity||The speed at which assets can be converted to cash. It can also refer to the ability of a company to service its debt obligations due to the presence of liquid assets such as cash and its equivalents. Market liquidity refers to the ease with which a security can be bought or sold quickly and in large volumes without substantially affecting the market price.|
|Liquidity Risk||The risk that a company may not be able to meet its financial obligations or other operational cash requirements due to an inability to timeously realise cash from its assets. Regarding securities, the risk that a financial instrument cannot be traded at its market price due to the size, structure or efficiency of the market.|
|Long-Term||Not current; ordinarily more than one year.|
|Long-Term Rating||Reflects an issuer’s ability to meet its financial obligations over the following three to five year period, including interest payments and debt redemptions. This encompasses an evaluation of the organisation’s current financial position, as well as how the position may change in the future with regard to meeting longer term financial obligations.|
|Maturity||The length of time between the issue of a bond or other security and the date on which it becomes payable in full.|
|National Scale Rating||Provides a relative measure of creditworthiness for rated entities only within the country concerned. Under this rating scale, a ‘AAA’ long term national scale rating will typically be assigned to the lowest relative risk within that country, which in most cases will be the sovereign state.|
|Net Asset Value||The value of an entity’s assets less its liabilities. It is a reflection of the company’s underlying value and is usually quoted on a per share basis.|
|Portfolio||A collection of investments held by an individual investor or financial institution. They may include stocks, bonds, futures contracts, options, real estate investments or any item that the holder believes will retain its value.|
|Principal||The total amount borrowed or lent, e.g. the face value of a bond, excluding interest.|
|Provision||The amount set aside or deducted from operating income to cover expected or identified loan losses.|
|Risk||The chance of future uncertainty (i.e. deviation from expected earnings or an expected outcome) that will have an impact on objectives.|
|Risk Management||Process of identifying and monitoring business risks in a manner that offers a risk/return relationship that is acceptable to an entity’s operating philosophy.|
|Securities||Various instruments used in the capital market to raise funds.|
|Security||An asset deposited or pledged as a guarantee of the fulfilment of an undertaking or the repayment of a loan, to be forfeited in case of default.|
|Short-Term||Current; ordinarily less than one year.|
|Tenor||The time from the value date until the expiry date of a financial instrument.|
For a detailed glossary of terms please click here
GCR accords a fund rating* of AA-(ZA)(f) to Ashburton Stable Income Fund; Outlook Stable