Announcements Fund Rating Rating Alerts

GCR affirms Nedgroup Investments Core Income Fund’s rating of AA(ZA)(f), Outlook Stable.

Johannesburg, 27 March 2019 — Global Credit Ratings has affirmed the national scale fund rating accorded to Nedgroup Investments Core Income Fund of AA(ZA)(f); with the outlook remaining stable.

SUMMARY RATING RATIONALE

Global Credit Ratings (“GCR”) has affirmed the above fund rating on Nedgroup Investments Core Income Fund (“NEDCIF”, “the fund”), key features of which are summarised below.

Fund summary
Fund currency South African Rand
Fund data review date 31 January 2019
Assets under management (“AUM”) R44.2bn (Jan-18: R39.2bn)
Net asset value (“NAV”) Market value (variable NAV)
Fund benchmark STeFI Composite Index

Fund rating factors: GCR qualitatively assesses the fund’s management and performs an evaluation of the fund portfolio’s historical performance in terms of price/return volatility, underlying asset quality, market risk and liquidity risk.

Fund profile: The fixed income mandate of Nedgroup Investments Core Income Fund (“NEDCIF”, “the fund”) aims to deliver total returns exceeding those offered by money market (“MM”) funds. The mandate prioritises capital preservation, low risk and high liquidity, attracting corporate and institutional investors. Regulatory, mandate, and investment policy compliance are evident. NEDCIF features 1 day liquidity and a 6 month duration limit.

Asset manager profile: NCI is the fund manager and the investment management function is outsourced to Taquanta, a specialist cash and fixed income asset manager. GCR assesses NEDCIF as being managed within a very strong fund management and control environment. The capacity, capability and competence of the Manco and Taquanta facilitate achievement of performance objectives within mandate constraints. Marketing, risk/compliance and administration follow market best practices.

Investment performance: The fund’s return has consistently outperformed the benchmark since inception. Volatility over 1, 3 and 5 year time horizons is assessed as low. The fund has adequate strategies in place to simultaneously meet its objectives and manage liquidity through investor concentration monitoring, 1 day liquidity, and high levels of liquid assets (the majority rated at least ‘AA+(ZA)’ or equivalent).

Portfolio quality and market risks: GCR’s portfolio analysis considered credit/ concentration risk, tenor/duration (and limits), NAV volatility (low), and additional sources of market risk, in addition to NEDCIF’s stress-tested weighted average credit rating (“WACR”) of ‘AA(ZA)’ in determining the fund rating. The fund’s mandate has been changed to allow 7 year tenor instruments, which may increase the risk profile of the fund if the fund’s duration increases in the future.

Fund risks: Risks emanate from counterparty/investor concentrations, and tenor-based exposure. The mandated average duration limit (180 days) matches the fund’s investment horizon, while actual weighted average duration and maturity are well below mandated upper limits. NEDCIF’s long maturity profile (2.2 years actual, 3 years max.) compared with 120 days for MM funds, raises spread risk in our opinion. High investor concentration reflects the largely corporate and institutional client base. Credit concentration (assessed as high for NEDCIF) is a systemic issue in South Africa (“SA”), and affects most variable rate, short-term fixed income funds (i.e. MM funds 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.

Rating Triggers: The rating could be negatively affected by mandate breaches, increase in maturity and duration given the amendment to extend the maximum term to final maturity of instrument to 7 years, flexibility in mandate and/or significant deterioration in credit, liquidity and/or concentration risk metrics could negatively affect the rating. Positive move in the rating in unlikely.

NATIONAL SCALE RATINGS HISTORY

    
Initial rating (March 2016)   Last rating (March 2018)
Fund rating: AA(ZA)(f)   Fund rating: AA(ZA)(f)
Rating outlook: Stable   Rating outlook: Stable

ANALYTICAL CONTACTS

Primary Analyst   Secondary Analyst
Simbarake Chimutanda   Victor Matsilele
Credit Analyst   Credit Analyst
(011) 784-1771   (011) 784-1771
simbarakec@GCRratings.com

   victorm@GCRratings.com
Committee Chairperson    
Matthew Pirnie    
Sector Head: Financial Institutions Ratings    
(011) 784-1771    
matthewp@GCRratings.com    

APPLICABLE METHODOLOGIES AND RELATED RESEARCH

Global Criteria for Rating Funds and Asset Managers, updated March 2017

NEDCIF rating reports 2016 – 2018

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 and other written correspondence. Furthermore, the quality of information received was considered adequate and has been independently verified where possible.

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 the instruments, their terms, conditions and credit quality at 31 January 2019;
  • A breakdown of the fund investor portfolio, including fund flows and withdrawal terms at/for the three years ended 31 January 2018;
  • Detail on historical fund returns, fee structures, and expense ratios;
  • Details regarding the fund management, investment management and administration activities of the fund;
  • 31 December 2018 financial statements for Nedbank Group Limited;
  • Corporate governance and enterprise risk framework; and
  • Industry comparative data and regulatory framework.

The rating above was 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.
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.
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.
Interest Rate The charge or the return on an asset or debt expressed as a percentage of the price or size of the asset or debt. It is usually expressed on an annual basis.
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. 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.
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.
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.

For a detailed glossary of terms please click here

GCR affirms Nedgroup Investments Core Income Fund’s rating of AA(ZA)(f), Outlook Stable.

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ALL GCR CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS, TERMS OF USE OF SUCH RATINGS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS, TERMS OF USE AND DISCLAIMERS BY FOLLOWING THIS LINK:HTTP://GCRRATINGS.COM. IN ADDITION, RATING SCALES AND DEFINITIONS ARE AVAILABLE ON GCR’S PUBLIC WEB SITE AT WWW.GCRRATINGS.COM/RATING_INFORMATION. PUBLISHED RATINGS, CRITERIA, AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. GCR's CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, COMPLIANCE, AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THIS SITE.

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