Rating Action
Johannesburg, 28 February 2020 – GCR Ratings has assigned a national scale fund rating of AA+(ZA)(f) to Momentum Money Market Fund; with the outlook accorded as Stable.
Rated Entity / Issue | Rating class | Rating scale | Rating | Outlook/Watch |
Momentum Money Market Fund |
Fund Rating |
National |
AA+(ZA)(f) |
Stable Outlook |
Rating Rationale
GCR Ratings (“GCR”) has assigned the above fund rating on Momentum Money Market Fund (“Momentum MMF”, “the fund”) key features of which are summarised below.
Fund summary | |
Fund inception date | 30 June 2000 |
Fund currency | South African Rand |
Fund data review date | 17 October 2020 |
Assets under management (“AUM”) | R10.1bbn |
Net asset value (“NAV”) | Market value |
Fund benchmark | STeFI Composite Index |
In determining a fund rating, GCR qualitatively assesses the fund’s management, and performs an evaluation of the fund portfolio’s Credit Quality, Management Assessment, liquidity risks and other risks. The fund rating was based on the following key criteria:
GCR performs a qualitative assessment on the fund’s management as well as a quantitative evaluation of the fund’s portfolio historical performance in terms of Credit Quality, Management Assessment, liquidity risks and other risks. The Momentum Money Market Fund (“the fund”) has a fixed income mandate and strives to deliver total returns exceeding those offered by call deposits. The mandate prioritises capital preservation, low risk and high liquidity, attracting retail, corporate and institutional investors.
Momentum MMF’s WACR (before stress tests) is AA+(ZA) with a score of 14.56. The fund passed the stress test of notching down the largest exposure (Nedbank 23.9%) by one notch, with a score of 14.32 after the stress test. It is a very strong AA.
Credit concentration is a systemic issue in South Africa (“SA”) and affects most money market (“MM”) funds, due to the high allocations of bank securities in these funds’ portfolios. Spread risk exposure is also very low, as regulation caps the fund’s weighted average legal maturity (“WAM”) at 120 days and limits final maturity of any individual portfolio asset to 13 months.
Management is a neutral factor to the rating. The fund is managed by Momentum Collective Investments Limited. Momentum Money market Fund is managed within a very strong fund management and control environment, which supports the rating. The fund attains its performance objectives within mandate constraints as a result of MCI’s capacity, capability and competence. Marketing, risk/compliance and administration follow market best practices.
Counterparty/investor concentrations and liquidity are the fund’s key risks. High investor concentration stems from the fund’s predominantly corporate and institutional client base. High investor concentration and the same day liquidity offering expose the fund to large and volatile fund (out)flows. Nonetheless, adequate liquidity management strategies are in place, including investor concentration monitoring, and holding adequate levels of liquid assets.
Regulation limits the weighted average duration (“WAD”) of the fund to 90 days, and as a result interest rate risk is assessed as very low. Returns have exceeded the benchmark since the fund’s inception, and portfolio volatility over a 1- and 5-year time horizon is assessed as very low and low respectively. Assets under management (“AUM”) increased by 23% from the previous year to R10.1bn at Feb-20 (Feb-19: R8.2bn).
Rating Triggers
An improvement in the rating is unlikely, but could result from an improvement in the WACR of the portfolio, a sustained track record of low volatility, above-benchmark returns and improving liquidity levels could enhance the rating. Mandate breaches, rising investor concentrations, and/or significant deterioration in credit, liquidity and/or market risks metrics could have a negative impact on the ratings.
Analytical Contacts
Primary analyst | Victor Matsilele | Credit Analyst |
Johannesburg, ZA | Victorm@GCRratings.com | +27 11 784 1771 |
Committee chair | Matthew Pirnie | Head of Group Ratings |
Johannesburg, ZA | Matthewp@GCRratings.com | +27 11 784 1771 |
Related Criteria and Research
Global Criteria for Rating funds and Asset Managers, updated March 2017 |
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 and c.) such rating was an independent evaluation of the risks and merits of the rated entity, security or financial instrument.
Momentum Investments 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 Momentum Investments Limited.
The information received from Momentum Investments 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, Momentum Investments Limited, and therefore, GCR has been compensated for the provision of the rating.
GLOSSARY
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. |