Feb 11 - Fitch Ratings has assigned Absa Money Market Fund a 'AA+(zaf)' National Fund Credit
Rating and a 'V1(zaf)' National Fund Volatility Rating. The fund is managed by Absa Investments.
KEY RATING DRIVERS:
The 'AA+(zaf)' Fund Credit Rating is driven by the fund's high credit quality,
as reflected by its weighted average rating factor (WARF) and rating
distribution. Consistent with the agency's rating criteria the Fund Credit
Rating factors in a one notch downward adjustment to take account of the fund's
concentrated counterparty risk. The adjustment reflects the structural
characteristics of the South African market, the high credit quality of the
issuers represented in the portfolio and the short asset maturities.
The 'V1(zaf)' Fund Volatility Ratings is driven by the fund's low exposure to
interest rate risk and spread risk, as reflected in its short maturity profile.
ASSET CREDIT QUALITY:
The fund's weighted average credit quality is high as indicated by the fund's
low WARF, which also reflects the short maturities of the fund's assets. Fitch's
review of historic portfolio holdings indicates that the fund has been stable
over time, maintaining high credit quality. The fund primarily invests in
issuers rated in the 'F1+(zaf)'/'AA(zaf)' rating category.
In Fitch's opinion, the fund is concentrated, like other South African money
market funds rated by the agency, with the top three issuer exposures in excess
of 50% of portfolio holdings. In line with its applicable rating criteria, Fitch
typically adjusts down the WARF-implied Fund Credit Rating of funds it deems
concentrated by one or more notches. Absent concentration risk, this fund could
achieve a 'AAA(zaf)' Fund Credit Rating.
The fund's concentrated holdings reflects its investment mandate and the
structural characteristics of the South African market, with a limited supply of
treasury bills, and the five largest banks having a combined market share of
around 90%, according to Fitch's estimates.
Without a structural evolution of the South African market which results in a
more diverse, high quality and liquid issuance market, it is highly unlikely
that Fitch could rate any money market fund higher than 'AA+(zaf)' in South
PORTFOLIO SENSITIVITY TO MARKET RISK:
The fund has low exposure to interest rate risk and spread risk, as reflected by
its short maturity profile, with the result that the fund's market risk factor
(i.e. a risk-adjusted duration measure) is also low, consistent with 'V1(zaf)'
ratings. As per regulation, the fund's weighted average duration (i.e. factoring
in next interest rate reset date) is capped at 90 days and its weighted average
life (i.e. based on portfolio securities' final maturity dates) at 120 days and
no investment may have a maturity of greater than 397 days.
The fund is regulated by South Africa's Financial Services Board under the
Collective Investment Schemes Control Act of 2002 (specifically Notice 80 of
The fund invests in fixed- and floating-rate money market instruments including
negotiable certificates of deposit, promissory notes and fixed deposits issued
primarily by the major South African and foreign banks with local operations.
As of end-December 2012 the fund's total assets under management were
approximately ZAR57.8bn. It was launched in May 1997 and as a result has one of
the longest-track records of any money market fund in South Africa.
Fitch considers Absa Investments suitably qualified, competent and capable of
managing the fund. Absa Investments is a subsidiary of Absa Group Limited
('A'/Stable/'F1', National 'AAA(zaf)'/Stable/'F1+(zaf)') which is majority owned
by Barclays Bank PLC ('A'/Stable/'F1'). Absa Group Limited is the highest rated
banking group in South Africa. The fund is co-managed by Juan Bekker and Rehana
Rungasamy, who have, respectively 24 and nine years' experience and have been
with Absa Investments since 2008. Fitch views positively the control environment
at Absa Investments, which comprises a well-resourced operations team of 13 and
industry using a suite of systems (Charles River, Barra Aegis, Statpro and
HiPortfolio) which Fitch views as in-line consistent with international best
As of end-December 2012 Absa Investments' total assets under management (AUM)
were ZAR192bn, with the Absa Money Market fund representing 30% of the total.
Absa Investments employed 315 staff as of December 2012.
Funds in the 'AA(zaf)' rating category are considered to have very high
underlying credit quality relative to other entities in the South African
market. The fund's assets are expected to maintain a weighted-average portfolio
rating of 'AA(zaf)'.
Funds rated 'V1(zaf)' are considered to have low sensitivity to market risk. On
a relative basis, total returns of funds rated 'V1(zaf)' are expected to exhibit
high stability, performing consistently across a broad range of market
scenarios. The Fund Volatility Rating does not address the sensitivity of a bond
fund to extreme risks that may result from reduced liquidity in secondary
markets during certain periods of time.
Comparisons between different national fund rating scales or between an
individual national and international scale are inappropriate.
The ratings assigned to the funds may be sensitive to material changes in the
credit quality or market risk profile of the funds. A material adverse deviation
from Fitch criteria for any key rating driver could cause ratings to be
downgraded by Fitch. Specifically, Fitch would expect to downgrade the Fund
Credit Ratings in the event of sustained deterioration in credit quality,
largely tied to its credit opinion on the South African banking industry. Given
the fund's short maturity profile the Fund Volatility Rating is expected to be
stable. However, should interest rates or market volatility in South Africa
structurally change then Fitch would expect to downgrade the Fund Volatility
Fitch rates MMFs in South Africa under its global bond fund rating criteria.
This reflects the differences the agency perceives between South African MMFs
and other Fitch-rated MMFs under its international and national MMF rating
criteria (see below). Specifically, the high level of concentration in these
funds, a structural characteristic of the South African market, is inconsistent
with Fitch's view of the risk profile of a MMF. The agency also notes regulatory
differences between the US and European MMFs international money market funds
(subject to Rule 2a-7 in the US and ESMA guidelines for MMFs in Europe) and the
regulatory regime in South Africa, in spite of proposed changes to applicable
regulation in South Africa. Specifically Fitch notes differences in required
mark-to-market frequency and escalation procedures between South African and
European and US money market funds, which are required to value more frequently
and to pursue formalised processes in the event that a funds mark-to-market net
asset value deviates from its book NAV.
For additional information about Fitch rating criteria applicable to bond funds,
please review the criteria referenced below, which can be found on Fitch's web
site at www.fitchratings.com.
Link to Fitch Ratings' Report: Absa Money Market Fund