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Fitch Affirms Mega Diamond Money Market Fund at 'AA+f(twn)'.

Shanghai/Taipei: Fitch Ratings has affirmed Taiwan-based Mega Diamond Money Market Fund's (Mega Diamond MMF) National Fund Credit Quality Rating at 'AA+f(twn)' and its National Fund Market Risk Sensitivity Rating at 'S1(twn)'.

KEY RATING DRIVERS

The affirmation of the National Fund Credit Quality Rating reflects the fund's high credit quality and the short maturity profile of its assets. The weighted-average rating factor (WARF) indicated a National Fund Credit Quality Rating of 'AAAf(twn)' at end-September 2017. However, the fund is exposed to securities rated 'BBB(twn)' and is subject to a regulatory maximum weighted-average maturity of 180 days, so Fitch has decided to affirm the fund's ratings at 'AA+f(twn)' in line with its criteria, which takes into account the actual and prospective weighted-average credit quality of the underlying portfolio.

The affirmation of the National Fund Market Risk Sensitivity Rating is driven by the fund's low exposure to interest-rate and spread risk, as reflected in its short maturity profile.

WEIGHTED AVERAGE RATING FACTOR

The portfolio had a WARF of 0.23 at end-September 2017, with 96.5% of assets rated in the 'A(twn)' to 'AAA(twn)' range and 3.5% in 'BBB+(twn)'. The lower rated 'BBB+(twn)' assets have declined gradually over the last 12 months. The weighted average maturity was 138 days at end-September 2017.

The fund has high industry concentration in the Taiwanese banking and finance sector, whose credit outlook is broadly stable. The top-five issuers represent 51% of the fund's assets under management, higher than similarly rated peers.

PORTFOLIO SENSITIVITY TO MARKET RISK

The market risk factor was 0.48 at end-September 2017, implying a National Fund Market Risk Sensitivity Rating of 'S1(twn)'. The portfolio's weighted-average maturity has been longer than the average maturity of similarly rated peers.

INVESTMENT ADVISOR

The fund is advised by Mega International Investment Trust Co (MIT). The investment advisor is fully owned by the state-controlled Mega Financial Holdings Co, whose principal operating subsidiary is Mega International Commercial Bank. Fitch considers the investment advisor suitably qualified, competent and capable of managing the fund. The investment team is experienced and steady in implementing investment ideas.

FUND PROFILE

The fund invests in time deposits, certificates of deposit, commercial paper, repos and short-term bonds. It is Taiwan's second-largest money market fund, with TWD69.5 billion in assets under management as of end-September 2017 (equivalent to 9.0% of the domestic listed money fund market).

RATING SENSITIVITY AND SURVEILLANCE

The ratings may be sensitive to significant changes in the fund's credit quality or market risk profile. A large adverse deviation from Fitch's guidelines for any key rating driver could lead to a rating downgrade. Specifically, the increase of 'BBB(twn)' rated securities and extension of asset maturity could negatively affect the WARF. The fund's rating is also sensitive to deterioration in the credit quality of Taiwan's banking sector due to its large exposure to that sector. In one of Fitch's four stress tests, the WARF would indicate a credit quality rating of 'AA+f(twn)' while 'AAAf(twn)' is maintained in the other three stress tests.

Fitch expects the National Fund Market Risk Sensitivity Rating to remain stable, given the fund's short maturity profile. However, Fitch would expect to downgrade the National Fund Market Risk Sensitivity Rating if interest-rate or market volatility in Taiwan structurally changes or the fund's maturity profile is substantially extended.

MIT provides Fitch with monthly information, including details of the portfolio's holdings, credit quality and transactions, to maintain the fund's ratings. Fitch monitors the portfolio's credit composition, the credit counterparties used by the manager and the overall market risk profile of the investments.

RATING CRITERIA

Fitch rates money market funds (MMFs) in Taiwan under its global bond fund rating criteria. This reflects the differences the agency perceives between Taiwanese MMFs and other Fitch-rated MMFs under its international and national MMF rating criteria. Specifically, the liquidity profile, asset credit quality and maturity mismatch are inconsistent with Fitch's view of the risk profile of a MMF. Comparisons between different national fund rating scales or an individual national and international scale are inappropriate.
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Publication:Daily the Pak Banker (Lahore, Pakistan)
Geographic Code:9TAIW
Date:Jan 16, 2018
Words:684
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