Johannesburg, 11 December 2019 – GCR Ratings (“GCR”) has affirmed the long-term national scale fund rating* accorded to Ashburton Money Market Fund (“Ashburton MMF”, “the fund”) of AA(ZA)(f); with the outlook accorded as Stable.
|Rated Entity||Rating class||Rating scale||Rating*||Outlook|
|Ashburton Money Market Fund||Fund rating||National||AA(ZA)(f)||Stable|
* 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).
|Fund inception date||01 November 2007|
|Fund currency||South African rand|
|Fund data review date||31 October 2019|
|Assets under management (“AUM”)||R3.6bn|
|Fund benchmark||STeFI 3-month Index|
|Net asset value (“NAV”)||Targeted constant price of R1.00|
|Association for Savings and Investment South Africa (“ASISA”) classification||South Africa – Interest Bearing – Money Market|
Fund rating factors: GCR performs a qualitative assessment on the fund’s management as well as a quantitative evaluation of the fund’s portfolio expected performance in terms of price/return volatility, underlying asset quality, and market and liquidity risks.
Fund profile: Ashburton MMF has a fixed income mandate and aims to maximise interest income whilst preserving capital and offering high liquidity to investors. While the fund’s mandate is considered to be broadly conservative given low duration and maturity limits, we view the somewhat lower credit quality limit on the fund’s allowable investment instruments relative to rated peers less positively. An increase in the proportion of lower rated instruments in the fund’s portfolio could bring down the weighted average credit rating (“WACR”) of the fund. Overall, the fund complies with regulatory requirements for money market funds (“MMF”), investment policy, the trust deeds, and features T+0 liquidity and duration not exceeding 3 months.
Asset manager profile: Ashburton Investments, the investment manager, performs fund and investment management functions in house while administration activities are outsourced. 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. We are of the opinion that 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. Average AUM for the fund has trended upwards over the past 3 years, with the fund registering a compound annual growth rate of 26.2% over the same period. Positively, we think that the fund has adequate strategies in place to simultaneously meet investment objectives and manage liquidity. Strategies include investor concentration limits, client relationships and communication, and high levels of liquid assets.
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 MMF’s stress-tested WACR of ‘AA(ZA)(f)’ in determining the fund rating. Interest rate risk is assessed as very low, supported by a weighted average duration (“WAD”) of 87 days at 31 October 2019. We consider Ashburton MMF’s sensitivity to spread risk to be low, given the fund’s weighted average maturity (“WAM”) of 86 days at the fund review date. The fund’s mandate caps WAD and WAM at 90 days and 120 days, respectively, and also limits final maturity of any individual portfolio asset to 13 months.
Key fund risks: High credit concentration within the fund is a systemic issue in South Africa, and affects most MMFs and other cash strategies, due to the typically high allocation of bank securities in these funds’ portfolios. The fund manages this by adding selected corporate and structured instruments to the portfolio, while maintaining high credit quality.
The Stable outlook balances our expectation that the fund will continue to perform within mandate limits.
More stringent guidelines on the minimum credit rating allowed on portfolio holdings could result in positive rating action. Mandate breaches or deterioration in credit quality due to the inclusion of lower rated instruments could negatively affect the rating.
|Primary analyst||Nyasha Chikwengo||Financial Institutions Analyst|
|Johannesburg, ZA||nyashac@GCRratings.com||+27 11 784 1771|
|Committee chair||Matthew Pirnie||Sector head: Financial Institution Ratings|
|Johannesburg, ZA||matthewp@GCRratings.com||+27 11 784 1771|
Related criteria and research
|Global Master Criteria for Rating Funds and Asset Managers, March 2017|
|Ashburton Money Market Fund Report, December 2018|
|Rating class||Review||Rating scale||Rating class||Outlook||Date|
|Fund rating||Initial||National||AA(ZA)(f)||Stable||December 2017|
|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.|
|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.|
|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.|
|Diversification||Spreading risk by constructing a portfolio that contains different investments, whose returns are relatively uncorrelated. The term also refers to companies which move into markets or products that bear little relation to ones they already operate in.|
|Downgrade||The assignment of a lower credit rating to a company or sovereign borrower’s debt by a credit rating agency. Opposite of upgrade.|
|Equity||Equity (or shareholders’ funds) is the holding or stake that shareholders have in a company. Equity capital is raised by the issue of new shares or by retaining profit.|
|Exposure||Exposure is the amount of risk the holder of an asset or security is faced with as a consequence of holding the security or asset. For a company, its exposure may relate to a particular product class or customer grouping. Exposure may also arise from an overreliance on one source of funding.|
|Fixed Deposit||Where funds are deposited in a savings account for a pre-determined period of time.|
|Interest Rate Risk||Interest rate risk in the banking book is the risk that earnings or economic value will decline as a result of changes in interest rates. The sources of interest rate risk in the banking book are repricing/mismatch, basis and yield curve risk.|
|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. 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 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.|
|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.|
|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.|
|Trustee||A person or firm that holds or administers property or assets for the benefit of a third party.|
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; 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.
The fund rating has been disclosed to Ashburton Investments. The rating above was solicited by, or on behalf of, the rated entity, and therefore, GCR has been compensated for the provision of the rating.
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 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.