Dec 03 - Standard & Poor's Ratings Services said today that it affirmed its 'A-f' fund credit quality rating (FCQ) on KLP Obligasjon Global I (the fund). At the same time, we raised the fund volatility rating (FVR) on the fund to 'S2' from 'S3'.
The raising of the FVR follows the annual review of management we conducted in November 2012 and our surveillance of historical monthly returns over the past 36 months. The FVR rating action reflects the expiry of the more-volatile return periods incurred from September to December 2008, reflecting the increase in market price volatility for corporate securities held within the portfolio at the time. During this period, we lowered the FVR to 'S3' from 'S2' (see "Sustained Market Volatility Prompts Rating Actions On 10 Fixed-Income Funds," published on Feb. 27, 2009). In support of that rating action, we cited the ongoing price markdowns and significant spread widening in fixed-income sectors due to persistent liquidity issues and deteriorating market and economic factors.
Standard & Poor's FVRs are designed to rank fixed-income funds according to their exposure to factors that ultimately lead to share-price or return volatility. Our analysis includes a portfolio risk assessment, historical return analysis, and management evaluation. The FVR analysis focuses on measuring quantifiable portfolio risk factors, including interest-rate risk, credit risk, liquidity risk, and concentration risk. Since the market disruption of 2008-2009, the pool of investments represented in the portfolio has become more diverse and the fund has maintained a credit quality policy in accordance with its 'A-f' FCQ. This has resulted in a fund volatility return profile more consistent with that of fund rated 'S2'. Funds that possess low to moderate sensitivity to changing market conditions are rated 'S2'. These funds possess an aggregate level of risk that is less than or equal to that of a portfolio comprised of government securities maturing within three to seven years and denominated in the base currency of the fund.
KLP Obligasjon Global I is a global credit fund with more than 50% invested in a portfolio of U.S. dollar-denominated corporate bonds that is hedged back into Norwegian kroner. Seeking to replicate a customized benchmark (titled Barclays Global Aggregate Corporate Index SR ex Norway ex Tobacco), the fund's stated objective is to derive the highest yield based on active stock picking and a high degree of credit quality above the benchmark. At each annual review since the rating was first assigned in 2007, Standard & Poor's has affirmed the FCQ 'A-f' rating it assigned to KLP Obligasjon Global I.
The KLP Obligasjon Global I fund is managed by a small, but experienced team in Oslo, Norway, with KLP Kapitalforvaltning AS (KLP Asset Management) acting as the fund's investment advisor. KLP Kapitalforvaltning AS (KLP Asset Management) is a wholly owned subsidiary of Kommunal Landspensjonskasse (KLP) (A-/Stable/--), which is Norway's largest life insurance company and has a dominant position in the Norwegian public-sector pensions market.
Standard & Poor's FCQ ratings, identified by the 'f' subscript, are current assessments of the overall credit quality of a fund's portfolio. The ratings reflect our views on the level of protection the fund provides against losses from credit defaults. The credit quality ratings scale ranges from 'AAAf' (extremely strong protection against losses from credit defaults) to 'CCCf' (extremely vulnerable to losses from credit defaults). The ratings from 'AAf' to 'CCCf' may be modified by the addition of a plus (+) or minus (-) sign to show relative standing within the major rating categories.
Standard & Poor's fund volatility ratings scale ranges from 'S1' (lowest sensitivity) to 'S6' (highest sensitivity) and expresses our current opinion of a fixed-income fund's sensitivity to changing market conditions. Fund volatility profiles of the first four categories ('S1' through 'S4') are measured and expressed on a relative basis to established government indices with different maturity bands to provide investors with market benchmarks for risk and return comparisons. For example, 'S1' rated funds possess low sensitivity to changing market conditions and an aggregate level of risk that is less than or equal to that of a portfolio comprised of government securities maturing within one to three years. Some funds within this category are assigned an 'S1+' volatility ratings, the '+' indicating extremely low sensitivity to changes in interest rates.
RELATED CRITERIA AND RESEARCH
All articles listed below are available on RatingsDirect on the Global Credit Portal.
-- Fund Credit Quality Rating Criteria, Feb. 2, 2007
-- Fund Volatility Rating Criteria, Feb. 2, 2007