Johannesburg, 21 November 2016 — Global Credit Ratings has accorded Absa Money Market Fund a 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 Absa Money Market Fund (“Absa MMF”, “the fund”), key features of which are summarised below, based on the following key criteria:
|Fund currency||South African Rand|
|Fund data review date||30 September 2016|
|Assets under management (“AUM”)||R59.83bn|
|Net asset value (“NAV”)||Targeted constant price of R1.00|
|Fund benchmark||The Alexander Forbes Short Term Fixed Interest (“STeFI”) Composite Index|
Fund profile: Absa MMF, which has a fixed income mandate executed in favour of its retail and institutional/corporate investors, seeks to maximise interest income whilst preserving capital and offering same day liquidity. The fund complies with regulatory requirements for money market funds, investment policy, and the trust deeds.
Manager profile: Absa Asset Management Proprietary Limited/Absa Fund Managers Limited perform the investment/fund management functions in house, outsourcing selected administration activities. Based on the manager’s track record, it possesses the competence, capability and capacity to manage the fund. High quality management practices, compliance and risk monitoring, and operational and systems environments aim to meet performance objectives within mandate constraints. Furthermore, the fund’s marketing, risk management, compliance, administration and performance reporting follow international best practice.
Investment performance: The fund’s monthly annualised returns over the past three years have exceeded benchmarks since September 2014, while 0.3% volatility over a 5 year time horizon supports a low volatility risk assessment of the portfolio. AUM have been volatile in the past 3 years, partly due to the negative market sentiment that surrounded troubled lender African Bank Investments Limited. Investor flows may be volatile, but the fund has adequate strategies in place to simultaneously meet investment objectives and manage liquidity, including maintaining adequate levels of liquid assets (with minimum short-term national scale credit ratings of ‘A1+(ZA)’ or equivalent), supported by acceptable investor concentration.
Portfolio quality and market risk: GCR has analysed the portfolio in terms of credit/concentration risk and tenor/duration (relative to limits), while considering additional sources of market risk. Absa MMF’s weighted average credit rating (“WACR”) – the initial credit risk filter calculation – is ‘AA(ZA)’. GCR considers the fund’s underlying WACR score, tenor and duration limits, fund volatility, concentration and structural risks in determining whether an adjustment to the WACR is required, in according the overall fund rating.
Key fund risks: Very high credit counterparty concentration is the fund’s key risk. Credit concentration is a systemic issue in South Africa, affecting most or all variable rate, money-market type fixed income funds (due to the high proportion of investments in financial institutions). The portfolio’s weighted average legal maturity was 104 days at 30 September 2016, while weighted average duration was inside the mandated limit (90 days).
An increase in the WACR of the portfolio, accompanied by stability or improvement in credit concentration risk could enhance the rating. Mandate breaches, and/or deterioration in credit, liquidity or concentration risks, could negatively affect the rating.
* Fund ratings 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 published rating scales and definitions).
|NATIONAL SCALE RATINGS HISTORY|
|Initial/last rating: First time/new rating#|
|Outlook: First time/new rating#|
# First time rating for GCR; the fund has been rated previously.
|Sector Head: Financial Institution Ratings|
APPLICABLE METHODOLOGIES AND RELATED RESEARCH
Global Criteria for Rating Funds and Asset Managers, updated March 2016
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 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; and d.) the validity of the rating is for a maximum of 12 months, or earlier as indicated by the applicable fund rating document.
Absa Asset Management Proprietary Limited participated in the rating process via face-to-face management meetings, teleconferences and other 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 Absa Asset Management Proprietary Limited with no contestation of the rating.
- The information received from Absa Asset Management Proprietary Limited 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 Absa Money Market Fund at 31 December 2015;
- Corporate governance and enterprise risk framework; and
- Industry comparative data and regulatory framework.
The rating above was solicited by, or on behalf of, Absa Asset Management Proprietary Limited, and therefore, GCR has been compensated for the provision of the ratings.
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.|
|International Scale Rating LC||International local currency (International LC) ratings measure the likelihood of repayment in the currency of the jurisdiction in which the issuer is domiciled. Therefore, the rating does not take into account the possibility that it will not be able to convert local currency into foreign currency or make transfers between sovereign jurisdictions.|
|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.|
|Short-Term Rating||An opinion of an issuer’s ability to meet all financial obligations over the upcoming 12 month period, including interest payments and debt redemptions.|
|Tenor||The time from the value date until the expiry date of a financial instrument.|
For a detailed glossary of terms utilised in this announcement please click here
GCR accords a fund rating* of AA+(ZA)(f) to Absa Money Market Fund; Outlook Stable.