Johannesburg, 23 March 2016 — Global Credit Ratings has today accorded Nedgroup Investments Core Income 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 Nedgroup Investments Core Income Fund (“NEDCIF”, “the fund”), key features of which are summarised below, based on the following key criteria:
|Fund currency||South African Rand|
|Fund data review date||31 January 2016|
|Assets under management (“AUM”)||R13.04bn|
|Net asset value (“NAV”)||Market value (variable NAV)|
|Fund benchmark||The Alexander Forbes Short Term Fixed Interest (“STeFI”) Composite Index|
Fund profile, objective and investment policy: NEDCIF has a fixed income mandate targeting total returns exceeding those offered by money market funds (“MMF”). The mandate is executed in favour of the fund’s investors, and prioritises capital preservation, low risk and high liquidity. NEDCIF complies with regulatory limits, investment policy, and the trust deeds, and features 1 day liquidity and a 6 month duration limit.
Asset manager profile: Nedgroup Collective Investments (RF) Proprietary Limited (“NCI”) manages the fund, while Taquanta Asset Managers (Proprietary) Limited (“Taquanta”) is mandated to perform investment management functions. Investor administration is outsourced. Based on the manager’s track record, it possesses the competence, capability and capacity to manage the fund. High quality management practices, compliance/risk monitoring, and operational and systems environments are aimed at meeting performance objectives within mandate constraints. Furthermore, the fund’s marketing, risk management, compliance and administration follow market best practice.
Investment performance: The fund’s 12 month rolling returns have exceeded the benchmark yields since inception. Volatility over 1, 3 and 5 year time horizons is assessed as low. AUM have been volatile in the past 3 years, partly due to the transfer of the fund’s holdings in African Bank Limited (“ABL”) debt to a ‘retention fund’, at the time of it being placed in curatorship. Investor flows may be volatile, but the fund has adequate strategies in place to simultaneously meet investment objectives and manage liquidity. Strategies include investor concentration limits, 1 day liquidity, and high levels of liquid assets (with minimum long-term ratings of ‘A-(ZA)’, or equivalent).
Portfolio quality and market risk: GCR has analysed the portfolio in terms of credit/concentration risk, tenor/duration (relative to limits), and NAV volatility (low) while considering additional sources of market risk. NEDCIF’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: High counterparty credit and investor concentrations, as well as the fund’s instrument profile (which has a weighted average maturity of 2.5 years) vs. the 1 day liquidity offered by the fund, are NEDCIF’s key risks. The portfolio’s duration is well inside the mandated limit (180 days). 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 fund manages this by adding selected corporate and structured instruments to the portfolio, while maintaining high credit quality.
An increase in the WACR of the portfolio, accompanied by a sustained reduction in tenor and stability or improvement in concentration risks, 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.
|Primary Analyst||Secondary Analyst|
|Omega Collocott||Kurt Boere|
|Sector Head: Financial Institution Ratings||Credit Analyst|
|(011) 784-1771||(011) 784-1771|
|Senior Credit Analyst|
APPLICABLE METHODOLOGIES AND RELATED RESEARCH
Global Master Criteria for Rating Funds and Asset Managers, updated March 2015
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.
Nedgroup Investments (Proprietary) Limited and Taquanta Asset Managers (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 Nedgroup Investments (Proprietary) Limited and Taquanta Asset Managers (Proprietary) Limited with no contestation of the rating.
The information received from Nedgroup Investments (Proprietary) Limited, Taquanta Asset Managers (Proprietary) Limited and other reliable third parties to accord the fund rating included:
- A breakdown of the fund investment portfolio, including information on investments (terms, conditions, 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 Nedbank Group Limited, and Nedgroup Collective Investments (RF) (Proprietary) Limited at 31 December 2014;
- Corporate governance and enterprise risk framework; and
- Industry comparative data and regulatory framework.
The ratings above were solicited by, or on behalf of, Nedgroup Investments (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.|
|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 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.|
|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.|
|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.|
|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.|
|Long-Term||Not current; ordinarily more than one year.|
|Maturity||The length of time between the issue of a bond or other security and the date on which it becomes payable in full.|
|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.|
|Rating Outlook||Indicates the potential direction of a rated entity’s rating over the medium term, typically one to two years. An outlook may be defined as: “Stable” (nothing to suggest that the rating will change), “Positive” (the rating symbol may be raised), “Negative” (the rating symbol may be lowered) or “Evolving” (the rating symbol may be raised or lowered).|
|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.|
|Short-Term||Current; ordinarily less than one year.|
|Tenor||The time from the value date until the expiry date of a financial instrument.|
|Yield||Percentage return on an investment or security, usually calculated at an annual rate.|
For a detailed glossary of terms utilised in this announcement please click here
GCR accords a fund rating* of AA(ZA)(f) to Nedgroup Investments Core Income Fund; Outlook Stable