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

Shanghai/Taipei: Fitch Ratings has affirmed Taiwan-based Union Money Market Fund's (Union 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) would indicate 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 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 holdings.

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


The portfolio has high average credit quality, as measured by its WARF of 0.22, with 98% of assets rated in the 'A(twn)' to 'AAA(twn)' range at end-September 2017 and 2% in 'BBB+(twn)' . The lower rated 'BBB+(twn)' assets have substantially declined over the last 12 months.

The fund has high industry concentration in the Taiwanese banking and finance sector, whose credit outlook is broadly stable. Union MMF is relatively concentrated with the top-five issuers representing roughly 52% of the fund's assets under management (AUM).


The market risk factor (MRF) of 0.57 at end-September 2017 implied a National Fund Market Risk Sensitivity Rating of 'S1(twn)'. The fund has low exposure to interest-rate and spread risks given the portfolio assets' short maturity. The weighted-average maturity has been relatively longer than similarly rated peers and was 164 days at end-September 2017.


The fund is advised by Union Securities Investment Trust Co., Ltd (USIT), which is 35% owned by Union Bank of Taiwan and 62.5% owned by the bank's associates. Fitch considers the investment advisor suitably qualified, competent and capable of managing the fund.


The fund invests in time deposits, certificates of deposit, commercial paper, repos or short-term bonds. It is a medium-sized money market fund in Taiwan with TWD18.4 billion of AUM at end-September 2017 (equivalent to 2.4% of the domestic listed money market fund market). Although the Taiwanese money fund market has been shrinking over the last year, Union MMF's AUM development has been stable and its market share has increased.


The ratings may be sensitive to significant changes in the credit quality or market risk profile of the fund. A significant 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 have significant negative impact on the WARF. The fund's rating would be sensitive to deterioration in the credit quality of the Taiwanese banking sector, given its large exposure to that sector. In three of Fitch's four stress tests, the WARF would indicate a credit quality rating of 'AA+f(twn)' while 'AAAf(twn)' would be maintained in the remaining stress test.

Fitch expects the National Fund Market Risk Sensitivity Rating to remain stable, given the fairly short maturity profile of the fund. However, Fitch would expect to downgrade the National Fund Market Risk Sensitivity Rating should interest rates or market volatility in Taiwan structurally change, or the maturity profile of the fund is substantially extended.

To maintain bond fund ratings, USIT, the manager of the fund, provides Fitch with monthly information, including details of the portfolios' holdings, credit quality and transactions. Fitch monitors the credit composition of the portfolios, 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 between 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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