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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 National Fund Market Risk Sensitivity Rating at 'S1(twn)'.


The affirmation of the National Fund Credit Quality Rating reflects the sustained high credit quality and short maturity profile of the fund's assets. Fitch bases the rating on the fund's actual and prospective credit quality. The fund's weighted-average rating factor (WARF) suggested a rating of 'AAAf(twn)' at end-September 2018; however, Fitch recognises that the fund manager may increase exposure to lower-quality securities or extend the maturity profile (within applicable regulatory limits), which could individually or in combination lower aggregate credit quality. Therefore, Fitch has affirmed the rating at 'AA+f(twn)'.

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 the short maturity profile of the fund's assets.


The portfolio has high average credit quality, as measured by its WARF of 0.23, higher than the 0.18 peer average, but still within the 'AAAf(twn)' rating range of 0.0-0.3. The portfolio has 97.5% of assets rated in the 'A(twn)' to 'AAA(twn)' category and 2.5% in the 'BBB+(twn)' range.

The fund has high industry concentration in the Taiwanese banking and finance sectors, whose credit outlook is broadly stable. Its top-five issuers represented roughly 49% of the fund's assets under management (AUM), below the peer average of 52%.


The market risk factor (MRF) of 0.53 at end-September 2018 was higher than the 0.43 peer average, implying a National Fund Market Risk Sensitivity Rating of 'S1(twn)'. The weighted-average maturity was 153 days, longer than the peer average of 130 days.


Fitch considers the investment advisor suitably qualified, competent and capable of managing the fund. The fund is advised by Union Securities Investment Trust Co., Ltd (USIT), which is 35.0% owned by Union Bank of Taiwan and 62.5% by the bank's associates. The previous portfolio manager left in mid-2018 and the fund is being temporarily managed by the head of fixed income. A new dedicated portfolio manager will be officially announced at end-2018.


The fund invests in time deposits, certificates of deposit, commercial paper, repos and short-term bonds. It is a medium-sized money market fund (MMF) in Taiwan, with TWD16 billion of AUM at end-September 2018; equivalent to 2.2% of the domestic listed money fund market.


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

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

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


Fitch rates 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 15, 2019
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