April 4 - Fitch Ratings has affirmed Standard Bank Corporate Money Market
Fund's National Fund Credit Rating at 'AA+(zaf)' and National Fund Volatility
Rating at 'V1(zaf)'.
KEY RATING DRIVERS:
The affirmation of the Fund Credit Rating is driven by the fund's high and
stable credit quality, as reflected by the fund's weighted average rating factor
(WARF) and rating distribution.
The affirmation of the Fund Volatility Rating is driven by the fund's low
exposure to interest rate risk and spread risk, as reflected in its short
maturity profiles.
ASSET CREDIT QUALITY:
The weighted average credit quality of the fund is high, taking into
consideration the short maturities of the invested assets and has remained
relatively stable over time. The fund primarily invests in issuers rated in the
'F1+(zaf)'/'AA(zaf)' rating category. Approximately 70% of the fund was subject
to a Negative Outlook as of March 2012, reflecting the revision of the Outlook
on South Africa's long-term Issuer Default Ratings to Negative in January 2012
and the resulting impact on South African banks' rating Outlooks.
CONCENTRATION:
In Fitch's opinion, the fund incurs substantial concentration risk, with the top
three issuer exposures consistently in excess of 50% of portfolio holdings.
In-line with its applicable rating criteria, Fitch typically adjusts the
WARF-implied Fund Credit Rating of funds it deems concentrated down by one or
more notches. Without concentration risk, the fund could achieve a 'AAA(zaf)'
Fund Credit Rating.
The concentrated holdings reflects the fund's investment mandate, which limits
it to banking issuers, 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.
The fund's high natural liquidity mitigates concentration risk.
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
Africa
PORTFOLIO SENSITIVITY TO MARKET RISK:
The fund has low exposure to interest rate risk and spread risk, as reflected by
a short maturity profile, with the result that the market risk factor (i.e. a
risk-adjusted duration measure) for the fund is also low, consistent with a
'V1'(zaf) Fund Volatility Rating. As per current applicable regulation, the
fund's weighted average maturity is capped at 90 days and no investment may have
a maturity of greater than 365 days.
FUND PROFILE:
The fund is regulated by South Africa's Financial Services Board under the
Collective Investment Schemes Control Act of 2002 (specifically Notice 1503 of
2005). Fitch notes that amendments to this legislation have been proposed and
are expected to be implemented in 2012. Fitch believes that the fund is well
positioned to comply with the proposed new regulatory framework.
The fund invest in fixed- and floating-rate money market instruments including
negotiable certificates of deposit, promissory notes and fixed deposits issued
by the major South African banks. The size of the fund (combined with other
money market funds managed by Stanlib) allows the fund to negotiate preferential
rates and structures with issuers.
As of end-February 2012, the fund had ZAR30bn in assets under management (AUM).
Its sister funds, the Standard Bank Retail Money Market Fund (NR) and the
Standard Bank Institutional Money Market Fund (NR) had ZAR34bn and ZAR19bn in
AUM, respectively.
THE ADVISOR:
Fitch considers Stanlib suitably qualified, competent and capable of managing
these funds. Stanlib is owned by Liberty (NR) which was around 54% owned by the
Standard Bank Group ('BBB+'/Negative/'F2') as of December 2011. Stanlib's AUM
were around ZAR341bn as of end-December 2011, including ZAR150bn in fixed income
(around 44% of AUM), of which ZAR107bn was in money market funds and segregated
cash mandates. The fund is managed by Ansie van Rensburg who has deep experience
and tenure with Stanlib. The portfolio manager is part of Stanlib's fixed income
investment team consisting of 11 investment professionals with average
experience of around 16 years. Fitch views positively the depth of analysis and
frequency of review in Stanlib's credit process.
RATING SENSITIVITY:
Funds in the 'AA(zaf)' rating category are considered to have very high
underlying credit quality. The assets of the fund 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 fund may be sensitive to material changes in the
credit quality or market risk profile of the fund. 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 Rating in the event of sustained deterioration in credit quality, closely
related to the agency's credit opinion on the South African banking sector.
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 Rating.
RATING CRITERIA:
Fitch rates money market funds (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
(subject to Rule 2a-7 in the US and the ESMA guidelines on MMFs in Europe) and
the regulatory regime in South Africa, in spite of proposed changes to
applicable regulation in South Africa.
Additional information is available at www.fitchratings.com.
The ratings above were solicited by, or on behalf of, the issuer, and therefore,
Fitch has been compensated for the provision of the ratings.
The sources of information used to assess this rating were the public domain and
Stanlib.
Applicable criteria 'Global Bond Fund Rating Criteria', dated 16 August 2011, is
available at www.fitchratings.com.
Applicable criteria and related research:
'Global Bond Fund Rating Criteria', dated 16 August 2011
'South African Money Market Funds - Analysis under Updated Criteria - Amended',
dated 17 August 2011
'South Africa', dated 1 February 2012
'Money Market Fund Reform in South Africa', dated 29 February 2012
'Global Money Market Fund Rating Criteria', dated 29 March 2012
'National Scale Money Market Fund Rating Criteria', dated 15 March 2010
are available at www.fitchratings.com.
Note to Editors: Fitch's National ratings provide a relative measure of
creditworthiness for rated entities in countries with relatively low
international sovereign ratings and where there is demand for such ratings. The
best risk within a country is rated 'AAA' and other credits are rated only
relative to this risk. National ratings are designed for use mainly by local
investors in local markets and are signified by the addition of an identifier
for the country concerned, such as 'AAA(zaf)' for National ratings in South
Africa. Specific letter grades are not therefore internationally comparable.
National Fund Volatility ratings are an opinion of the relative sensitivity of
the total return, including market price, on a fund's shares to a broad array of
assumed interest rates, rate of mortgage prepayment, liquidity of the portfolio,
spreads, currency exchange rates, and other market conditions. Additional
information is available at www.fitchratings.com.
Applicable Criteria and Related Research:
National Scale Money Market Fund Rating Criteria
Global Bond Fund Rating Criteria
South African Money Market Funds - Analysis under Updated Criteria - Amended
Money Market Fund Reform in South Africa
Global Money Market Fund Rating Criteria
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