GCR affirms Investec STeFI Plus Fund’s rating* of AA(ZA)(f), Outlook Stable.

28 Mar 2019 In Rating Notifications

GCR affirms Investec STeFI Plus Fund’s rating* of AA(ZA)(f), Outlook Stable.

Johannesburg, 28 March 2019—Global Credit Ratings has affirmed the national scale fund rating* accorded to Investec STeFI Plus Fund of AA(ZA)(f); with the outlook remaining Stable.

 

SUMMARY RATING RATIONALE

Global Credit Ratings (“GCR”) has affirmed the above fund rating to Investec STeFI Plus Fund (“INCASH”, “the fund”), key features of which are summarised below.

Fund summary
Fund currency South African Rand
Fund data review date 31 January 2019
Assets under management (“AUM”) R7.1bn (Jan-18: R4.0bn)
Net asset value (“NAV”) Targeted constant price of R1.00
Fund benchmark STeFI Composite Index

Fund rating factors: GCR qualitatively assesses the fund’s management, and performs an evaluation of the fund portfolio’s historical performance in terms of price/return volatility, underlying asset quality, and market and liquidity risks.

Fund profile: The fixed income mandate of the fund aims to deliver yields exceeding those typical of money market (“MM”) funds. The mandate prioritises capital preservation, low risk and high liquidity, attracting primarily institutional investors. The internal investment guidelines are focused on MM instruments issued by high quality banks and the government of South Africa. Regulatory, mandate, and investment policy compliance are evident. INCASH features 1-2 day liquidity and an investment horizon of at least 3-6 months.

Asset manager profile: IAM performs fund/investment management functions in-house, outsourcing selected administration functions. GCR assesses INCASH as being managed within a very strong fund management and control environment, which supports the rating. IAM’s competence, capability and capacity facilitate achievement of performance objectives within mandate constraints. Marketing, risk/compliance and administration follow international best practices.

Investment performance: The fund’s return has consistently exceeded the benchmark (and Investec Money Market Fund majority of time) performances over the past 3 years. INCASH’s volatility over 1, 3 and 5 year time horizons is assessed as moderately low. AUM has grown significantly, after previously remaining flat (regressing at times) for a number of years till 2016 when investment guideline revisions were published. Investor flows are volatile, but the fund has adequate strategies in place to simultaneously meet its objectives and investors’ withdrawal needs. Strategies include investor concentration limits, investment/divesture periods for larger flows and sufficient levels of liquid assets (with a minimum rating of ‘A-(ZA)’, or equivalent).

Portfolio quality and market risk: GCR’s portfolio analysis considered credit/ concentration risk, tenor/duration (and limits), NAV volatility (moderately low), and additional sources of market risk. INCASH’s stress-tested weighted average credit rating (“WACR”) was ‘AA(ZA)’ on 31 January 2019.

Key fund risks: Counterparty/investor concentrations, and tenor-based exposure. The mandated duration limit (180 days) matches the fund’s investment horizon, while actual average duration and maturity are comfortably below mandated upper limits. INCASH’s long maturity profile (1.76 years actual) vs. 120 days for MM funds raises spread risk. Very high investor concentration reflects the fund’s institutional client base. Credit concentration (assessed as very high for INCASH) is a systemic issue in SA, and affects most variable rate, short-term fixed income funds (ie, MM funds and other cash strategies), due to the typically high allocation of established banks’ securities in these funds’ portfolios.

An increase in the WACR of the portfolio, accompanied by improvemed concentration/duration metrics, could enhance the rating. Mandate breaches, rising investor concentrations, and/or significant deterioration in credit, liquidity and/or market risk metrics, could negatively affect the rating.

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* Fund ratings provide an opinion regarding the fund’s ability to preserve principal value under varying market conditions; with reference to the relevant asset management environment (refer to published rating scales and definitions).

NATIONAL SCALE RATINGS HISTORY    
     
Initial rating (March 2016)   Last rating (March 2018)
Fund rating: AA(ZA)(f)   Fund rating: AA(ZA)(f)
Rating outlook: Stable   Rating outlook: Stable

 

ANALYTICAL CONTACTS

Primary Analyst   Secondary Analyst
Simbarake Chimutanda   Thandolwenkosi Mkwanazi
Credit Analyst   Junior Credit Analyst
(011) 784-1771   (011) 784-1771
.(JavaScript must be enabled to view this email address)   .(JavaScript must be enabled to view this email address)
     
Committee Chairperson    
Matthew Pirnie    
Sector Head: Financial Institutions    
(011) 784-1771    
.(JavaScript must be enabled to view this email address)    

 

APPLICABLE METHODOLOGIES AND RELATED RESEARCH

Global Master Criteria for Rating Funds and Asset Managers, updated March 2017

INCASH rating reports (2016-18)

 

RATING LIMITATIONS AND DISCLAIMERS

ALL GCR’S CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: http://GLOBALRATINGS.NET/UNDERSTANDING-RATINGS. IN ADDITION, GCR’S RATING SCALES AND DEFINITIONS ARE ALSO AVAILABLE FOR DOWNLOAD AT THE FOLLOWING LINK:  http://GLOBALRATINGS.NET/RATINGS-INFO. GCR’S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, PUBLICATION TERMS AND CONDITIONS AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE AT http://GLOBALRATINGS.NET.

 

SALIENT FEATURES OF ACCORDED RATINGS

GCR affirms that a.) no part of the rating was influenced by any other business activities of the credit rating agency; b.) the rating was based solely on the merits of the rated entity, security or financial instrument being rated; c.) such rating was an independent evaluation of the risks and merits of the rated entity, security or financial instrument; and d.) the validity of the rating is for a maximum of 12 months, or earlier as indicated by the applicable fund rating document.

Investec Asset Management (Proprietary) Limited participated in the rating process via face-to-face management meetings and other written correspondence. Furthermore, the quality of information received was considered adequate and has been independently verified where possible.

The fund rating has been disclosed to Investec Asset Management (Proprietary) Limited.

The information received from Investec Asset Management (Proprietary) Limited and other reliable third parties to accord the fund rating included:

  • A breakdown of the fund investment portfolio, including information on the instruments, their terms, conditions and credit quality;
  • A breakdown of the fund investor portfolio, including fund flows and withdrawal terms;
  • Detail on historical fund returns, fee structures, and expense ratios;
  • Details regarding the fund management, investment management and administration activities of the fund;
  • Corporate governance and enterprise risk framework; and
  • Industry comparative data and regulatory framework.

The rating above was solicited by, or on behalf of, Investec Asset Management (Proprietary) Limited, and therefore, GCR has been compensated for the provision of the rating.

 

 

GLOSSARY OF TERMS/ACRONYMS USED IN THIS DOCUMENT AS PER GCR’S FINANCIAL INSTITUTIONS GLOSSARY

Asset A resource with economic value that a company owns or controls with the expectation that it will provide future benefit.
Asset Quality Refers primarily to the credit quality of a bank’s earning assets, the bulk of which comprises its loan portfolio, but will also include its investment portfolio as well as off balance sheet items. Quality in this context means the degree to which the loans that the bank has extended are performing (ie, being paid back in accordance with their terms) and the likelihood that they will continue to perform.
Capital The sum of money that is invested to generate proceeds.
Corporate Governance Refers to the mechanisms, processes and relations by which corporations are controlled and directed, and is used to ensure the effectiveness, accountability and transparency of an entity to its stakeholders.
Credit Rating An opinion regarding the creditworthiness of an entity, a security or financial instrument, or an issuer of securities or financial instruments, using an established and defined ranking system of rating categories.
Credit Rating Agency An entity that provides credit rating services.
Interest Scheduled payments made to a creditor in return for the use of borrowed money. The size of the payments will be determined by the interest rate, the amount borrowed or principal and the duration of the loan.
Interest Rate The charge or the return on an asset or debt expressed as a percentage of the price or size of the asset or debt. It is usually expressed on an annual basis.
Interest Rate Risk Interest rate risk in the banking book is the risk that earnings or economic value will decline as a result of changes in interest rates. The sources of interest rate risk in the banking book are repricing/mismatch, basis and yield curve risk.
Liquid Assets Assets, generally of a short term, that can be converted into cash.
Liquidity The speed at which assets can be converted to cash. It can also refer to the ability of a company to service its debt obligations due to the presence of liquid assets such as cash and its equivalents. Market liquidity refers to the ease with which a security can be bought or sold quickly and in large volumes without substantially affecting the market price. 
Liquidity Risk The risk that a company may not be able to meet its financial obligations or other operational cash requirements due to an inability to timeously realise cash from its assets. Regarding securities, the risk that a financial instrument cannot be traded at its market price due to the size, structure or efficiency of the market.
Long-Term Not current; ordinarily more than one year.
Long-Term Rating Reflects an issuer’s ability to meet its financial obligations over the following three to five year period, including interest payments and debt redemptions. This encompasses an evaluation of the organisation’s current financial position, as well as how the position may change in the future with regard to meeting longer term financial obligations.
Maturity The length of time between the issue of a bond or other security and the date on which it becomes payable in full.
National Scale Rating Provides a relative measure of creditworthiness for rated entities only within the country concerned. Under this rating scale, a ‘AAA’ long term national scale rating will typically be assigned to the lowest relative risk within that country, which in most cases will be the sovereign state.
Net Asset Value The value of an entity’s assets less its liabilities. It is a reflection of the company’s underlying value and is usually quoted on a per share basis.
Portfolio A collection of investments held by an individual investor or financial institution. They may include stocks, bonds, futures contracts, options, real estate investments or any item that the holder believes will retain its value.
Principal The total amount borrowed or lent, e.g. the face value of a bond, excluding interest.
Provision The amount set aside or deducted from operating income to cover expected or identified loan losses.
Rating Outlook Indicates the potential direction of a rated entity’s rating over the medium term, typically one to two years. An outlook may be defined as: ‘Stable’ (nothing to suggest that the rating will change), ‘Positive’ (the rating symbol may be raised), ‘Negative’ (the rating symbol may be lowered) or ‘Evolving’ (the rating symbol may be raised or lowered).
Risk The chance of future uncertainty (i.e. deviation from expected earnings or an expected outcome) that will have an impact on objectives.
Risk Management Process of identifying and monitoring business risks in a manner that offers a risk/return relationship that is acceptable to an entity’s operating philosophy.
Securities Various instruments used in the capital market to raise funds.
Security An asset deposited or pledged as a guarantee of the fulfilment of an undertaking or the repayment of a loan, to be forfeited in case of default.
Short-Term Current; ordinarily less than one year.
Short-Term Rating An opinion of an issuer’s ability to meet all financial obligations over the upcoming 12 month period, including interest payments and debt redemptions.
Tenor The time from the value date until the expiry date of a financial instrument.

For a detailed glossary of terms please click here

 

 

 

 

 

 

ALL GCR CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS, TERMS OF USE OF SUCH RATINGS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS, TERMS OF USE AND DISCLAIMERS BY FOLLOWING THIS LINK:HTTP://GLOBALRATINGS.NET/UNDERSTANDINGRATINGS. IN ADDITION, RATING SCALES AND DEFINITIONS ARE AVAILABLE ON GCR’S PUBLIC WEB SITE AT WWW.GLOBALRATINGS.NET/RATINGSINFORMATION. PUBLISHED RATINGS, CRITERIA, AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. GCR'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, COMPLIANCE, AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE UNDERSTANDING RATINGS SECTION OF THIS SITE.

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