Announcements Fund Rating Alerts

GCR affirms STANLIB Extra Income Fund’s rating of AA-(ZA)(f); Outlook Positive.

Johannesburg, 18 April 2019 — Global Credit Ratings has affirmed the national scale fund rating* accorded to STANLIB Extra Income Fund of AA-(ZA)(f); with the outlook accorded as Positive.

SUMMARY RATING RATIONALE

Global Credit Ratings (“GCR”) has affirmed the above fund rating accorded to STANLIB Extra Income Fund (“STANLIB EIF”, “the fund”), key features of which are summarised below.

Fund summary
Fund currencySouth African Rand
Fund data review date31 January 2019
Assets under management (“AUM”)R11.2bn
Net asset value (“NAV”)Market value (variable NAV)
Fund benchmarkSTeFI Composite Index

In determining a fund rating, 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, and market and liquidity risks. This fund rating was based on the following key criteria:

Fund profile: The fixed income mandate of STANLIB EIF aims to provide investors an opportunity to earn higher income than money market investments, while enjoying the stability associated with money market funds. Investments include a flexible mix of money market instruments, bonds, fixed deposits, listed debentures and other high yielding securities, subject to restrictions imposed by CISCA and Regulation 28 of the Pension Funds Act (Act No. 24 of 1956).

Asset manager profile: STANLIB performs fund and investment management in house. In our view, STANLIB EIF is managed within a strong fund management and control environment, supported by the manager’s track record. The fund has consistently achieved its performance objectives within the constraints of its mandate while adhering to quality management practices. In our opinion, the fund’s marketing, risk management, compliance and administration follow market best practice.

Investment performance: The fund’s performance has exceeded benchmark yields since inception while GCR assesses volatility over 1, 3 and 5 year time horizons as low. Albeit volatile, STANLIB EIF’s compound annual growth rate for AUM over the past 3 years is 18.4% (1 year: 37.2%). Investor flows tend to be volatile, given the fund’s ‘cash-like’ mandate and large institutional investor base. However, we believe that the fund has adequate strategies in place to simultaneously meet investment objectives and manage liquidity.

Portfolio quality and market risk: GCR’s portfolio analysis considered credit/ concentration risk, tenor/duration (and limits), NAV volatility (low), and additional sources of market risk, in addition to STANLIB EIF’s stress-tested weighted average credit rating (‘WACR’). The fund’s WACR at the review date was a higher AA+(ZA) (AA(ZA) at the prior review date), hence our view of outlook as positive. While the fund’s mandate caps weighted average duration at 2 years, the fund’s weighted average legal maturity is not restricted. Consequently, we view the fund’s relatively flexible mandate and the inclusion of long dated assets in the portfolio unfavourably, assigning the fund a moderate market risk assessment.

Key fund risks: GCR views high counterparty/investor concentrations and liquidity STANLIB CMMF’s key risks., with high investor concentration attributable to the fund’s corporate and institutional client structure. However, we recognise credit concentration as 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 instruments of corporates, state owned entities and securitisations to the portfolio, within Regulation 28 limits, while maintaining high credit quality.

A sustained reduction in tenor and improvement in concentration risks, accompanied by stability in the fund’s WACR could result in an upward rating action while mandate breaches, significant deterioration in credit, liquidity and concentration metrics, increased complexity of instruments and/or a deterioration in the fund’s WACR could result in a negative rating action.

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* 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).

Through STANLIB Asset Management Limited and STANLIB Collective Investments Limited.

NATIONAL SCALE RATINGS HISTORY  
   
Initial rating (April 2016)  
Fund rating: AA-(ZA)(f)   
Rating outlook: Stable  
   
Last rating (April 2018)  
Fund rating: AA-(ZA)(f)   
Rating outlook: Stable  

ANALYTICAL CONTACTS

Primary Analyst Committee Chairperson
Nyasha Chikwengo Matthew Pirnie
Credit Analyst Sector Head: Financial Institution Ratings
(011) 784-1771 (011) 784-1771
nyashac@gcrratings.com matthewp@gcrratings.com

APPLICABLE METHODOLOGIES AND RELATED RESEARCH

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

STANLIB EIF Rating Report (2016-18)

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 process 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.

STANLIB 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 STANLIB Limited.

The information received from STANLIB 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;
  • 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 STANLIB Extra Income Fund;
  • Corporate governance and enterprise risk framework; and
  • Industry comparative data.

The rating above was solicited by, or on behalf of, STANLIB 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

AssetA resource with economic value that a company owns or controls with the expectation that it will provide future benefit.
CapitalThe sum of money that is invested to generate proceeds.
Credit RatingAn 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.
ExposureExposure 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.
InterestScheduled 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 RateThe 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 RiskInterest 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 AssetsAssets, generally of a short term, that can be converted into cash.
LiquidityThe 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 RiskThe 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-TermNot current; ordinarily more than one year.
Long-Term RatingReflects 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.
MaturityThe length of time between the issue of a bond or other security and the date on which it becomes payable in full.
National Scale RatingProvides 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 ValueThe 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.
PortfolioA 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.
PrincipalThe total amount borrowed or lent, e.g. the face value of a bond, excluding interest.
Rating OutlookIndicates 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).
RiskThe chance of future uncertainty (i.e. deviation from expected earnings or an expected outcome) that will have an impact on objectives.
SecurityAn 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-TermCurrent; ordinarily less than one year.
TenorThe time from the value date until the expiry date of a financial instrument.

For a detailed glossary of terms please click here



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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