Johannesburg, 11 December 2019 – GCR Ratings (“GCR”) has affirmed the national scale fund rating of AA-(ZA)(f) on Ashburton Stable Income Fund; with the outlook accorded as Stable.
|Rated Entity / Issue||Rating class||Rating scale||Rating||Outlook / Watch|
|Ashburton Stable Income Fund||Fund Rating||National||AA-(ZA)(f)||Stable Outlook|
|Fund inception date||01 January 2009|
|Fund currency||South African Rand|
|Fund data review date||30 October 2019|
|Assets under management (“AUM”)||R13.5bn|
|Net asset value (“NAV”)||Market value (variable NAV)|
|Fund benchmark||STeFI Composite Index|
In determining a fund rating, GCR qualitatively assesses the fund’s management, and performs an evaluation of its historical performance in terms of price/return volatility, underlying asset quality, and market and liquidity risks. The fund rating was based on the following key criteria:
Fund profile: The fixed income mandate of the Ashburton Stable Income Fund (“Ashburton SIF”, “the 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 requirement for investable instruments is lower than that of rated 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 monthly annualised returns have exceeded the benchmark over the three-year review period, with moderately low volatility in returns. Fund flows have been particularly more volatile over the past 12 months, but the fund has adequate strategies in place, which include adequate levels of cash holdings (11.8% at 31 October 2019), to simultaneously meet investment objectives and manage any liquidity events. The AUM growth continues to be very strong, with the AUM growing 86.6% year on year to R13.5bn as at 31 October 2019 (FY18: R7.2bn).
Portfolio quality and market risk: GCR’s portfolio analysis considered 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. The fund’s strategy of holding only floating rate instruments resulted in low interest rate sensitivity as measured by the weighted average duration (“WAD”) which was 64.8 days (2-year WAD mandate limit) at 31 October 2019, which is lower than some rated peers. At the review date the weighted average maturity (“WAM”) was 2.74 years, reflecting a maturity profile in line with the fund’s profile and peers. The investment managers emphasize asset diversification as a key tool in risk mitigation, while considering only very high-quality credits so as to limit the potential for increased credit risk. As a result, the fund is still exposed to the structural issue of high counterparty concentration (very high allocations to the top 5 banks), but to a lesser degree with its exposure to the top 5 banks sitting at c. 59.6%. The fund also has better investor concentration with the top 20 investors accounting for 24.8% of the fund, while rated peers are in the 50% – 80% range. Albeit low, the fund does have exposure to subordinated debt instruments (c. 9.1%) which GCR views somewhat negatively.
Key fund risks: High counterparty concentration (albeit to a lesser extent than peers), and spread risk (due to the long WAM of the fund) remain as the main risk factors for the Ashburton SIF. Positively, investor concentration is considerably better than the market average.
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.
|Primary analyst||Thandolwenkosi Mkwanazi||Financial Institutions Analyst|
|Johannesburg, ZA||ThandolwenkosiM@GCRratings.com||+27 11 784 1771|
|Committee chair||Matthew Pirnie||Sector Head: Financial Institutions Ratings|
|Johannesburg, ZA||MatthewP@GCRratings.com||+27 11 784 1771|
Related Criteria and Research
|Global Master Criteria for Rating Funds and Asset Managers, updated March 2017|
|Ashburton SIF rating report, 2019.|
Ashburton Stable Income Fund
|Rating class||Review||Rating scale||Rating class||Outlook||Date|
|Fund rating||Initial/ Last||National||AA-(ZA)(f)||Stable||February 2019|
|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.
Ashburton Investments 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 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 2019;
- 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 ratings.