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Fitch Affirms Paradigm PionMoney Market Fund at 'AA+f(twn)'.

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


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-October 2016. 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 rating 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.


The portfolio had a WARF of 0.22 at end-September 2017, with 95% of assets rated in the 'A(twn)' to 'AAA(twn)' range and 5% in 'BBB+(twn)'. The weighted average maturity was 116 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 48% of the fund's assets under management, comparable with domestic peers.


The market risk factor was 0.40 at end-September 2017, implying a National Fund Market Risk Sensitivity Rating of 'S1(twn)'. The fund has experienced substantial redemptions over the last 12 months. The portfolio's weighted-average maturity has accordingly decreased from around 130 days at end-2016 to 40 days in mid-2017 and increased again to 116 days at end-September 2017, comparable with domestic peers.


The fund is advised by Paradigm Asset Management Co., Ltd (PAM). The investment advisor is solely owned by Waterland Securities Corporation (WSC; BBB/A+(twn)/Stable), which is 58%-owned by and is a consolidated entity of Waterland Financial Holdings (BBB/A+(twn)/Stable). 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.


The fund invests in time deposits, certificates of deposit, commercial paper, repos and short-term bonds. The fund size has decreased from TWD17 billion at end-2016 to TWD6.3 billion at end-September 2017 (equivalent to 0.8% of the domestic listed money fund market).


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 two 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 two 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.

PAM 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.


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
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