Johannesburg, 29 November 2019 – GCR Ratings has affirmed the national scale fund rating of AA+(ZA)(f) on Absa Money Market Fund; with the outlook accorded as Stable.
|Rated Entity / Issue||Rating class||Rating scale||Rating||Outlook / Watch|
|Absa Money Market Fund||Fund Rating||National||AA+(ZA)(f)||Stable Outlook|
|Fund inception date||02 May 1997|
|Fund currency||South African Rand|
|Fund data review date||30 September 2019|
|Assets under management (“AUM”)||R77.9bn|
|Net asset value (“NAV”)||Targeted constant price of R1.00|
|Fund benchmark||Alexander Forbes Short Term Fixed Interest (“STeFI”) Composite Index|
In determining a fund rating, GCR qualitatively assesses the fund’s underlying asset quality, and performs an evaluation of management, the fund’s historical performance in terms of price/return volatility, and market and liquidity risks. The fund rating was based on the following key criteria:
Fund profile: Absa Money Market Fund (“Absa MMF”, “the fund”), 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 (“MM”) funds, investment policy, and the trust deeds.
Asset manager profile: Absa Asset Managers/Absa Fund Managers perform the investment/fund management functions in house, outsourcing selected administration activities. GCR assesses Absa MMF as being managed within a very strong fund management and control environment. Based on the managers’ track records, they possess the competence, capability and capacity to manage the fund. Very strong management practices, compliance and risk monitoring facilitate performance objectives within mandate constraints.
Investment performance: The fund’s return has largely matched or exceeded its benchmark over the past 3 years, and portfolio volatility over a 5-year time horizon is assessed as low. AUM grew by 8.3% during the 12-month period to 30 September 2019. Absa MMF is the largest MM fund in South Africa with AUM of R77.9bn at 30 September 2019. Investor concentration is high but acceptable, supported by the fund’s majority retail client base. Fund flows are volatile, however adequate strategies are in place to manage liquidity. Liquidity risk is therefore assessed as low. At 30 September 2019, 5.1% of fund assets were on 24-hour call (considered adequate), and cumulatively 50.9% maturing within 31 days.
Portfolio quality and market risk: Absa MMF’s stress-tested weighted average credit rating (“WACR”) was ‘AA(ZA)’ at 30 September 2019. Portfolio counterparty concentration is assessed as high. GCR notes that this (systemic) issue is likely to affect most/ all MM funds. This concentration risk is mitigated by exposure to highly rated financial institutions. The fund’s mandate limits investment to counterparties with a minimum short-term credit rating of ‘A1+(ZA)’ (or equivalent). Interest rate and spread risks are assessed as very low.
Key fund risks: High counterparty concentration is the fund’s key risk factor. High counterparty concentration is a systemic issue within the interest-bearing money market segment in South Africa, due to the high reliance on money market instrument issuances from the top five banks.
Positive ratings impact could result from an increase in the WACR of the underlying portfolio, accompanied by stability or improvement in credit concentration risk. Mandate breaches, and/or deterioration in credit, liquidity or concentration risks, could have a negative impact on the ratings.
|Primary analyst||Thandolwenkosi Mkwanazi||Financial Institutions Analyst|
|Johannesburg, ZA||ThandolwenkosiM@GCRratings.com||+27 11 784 1771|
|Committee chair||Godfrey Chingono||Deputy Sector Head: Insurance Ratings|
|Johannesburg, ZA||GodfreyC@GCRratings.com||+27 11 784 1771|
Related Criteria and Research
|Global Master Criteria for Rating Funds and Asset Managers, updated March 2017|
|Absa MMF rating reports, 2016-18.|
Absa Money Market Fund
|Rating class||Review||Rating scale||Rating class||Outlook||Date|
|Fund rating||Initial||National||AA+(ZA)(f)||Stable||November 2016|
|Fund rating||Last||National||AA+(ZA)(f)||Stable||November 2018|
|Asset||A resource with economic value that a company owns or controls with the expectation that it will provide future benefit.|
|Asset Quality||Refers primarily to the credit quality of a bank’s earning assets, the bulk of which comprises its loan portfolio, but will also include its investment portfolio as well as off balance sheet items. Quality in this context means the degree to which the loans that the bank has extended are performing (ie, being paid back in accordance with their terms) and the likelihood that they will continue to perform.|
|Capital||The sum of money that is invested to generate proceeds.|
|Cash||Funds that can be readily spent or used to meet current obligations.|
|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.|
|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.|
|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.|
|Risk||The chance of future uncertainty (i.e. deviation from expected earnings or an expected outcome) that will have an impact on objectives.|
|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.|
|Yield||Percentage return on an investment or security, usually calculated at an annual rate.|
Salient Points 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 and c.) such rating was an independent evaluation of the risks and merits of the rated entity, security or financial instrument.
Absa Fund Managers (RF) (Proprietary) Limited participated in the rating process via face-to-face management meetings 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 Fund Managers (RF) (Proprietary) Limited.
The information received from Absa Fund Managers (RF) (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 (where available);
- Details regarding the fund management, investment management and administration activities of the fund;
- Industry comparative data and regulatory framework.
The rating above was solicited by, or on behalf of, Absa Fund Managers (RF) (Proprietary) Limited, and therefore, GCR has been compensated for the provision of the ratings.