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Fitch Affirms Insight Liquid ABS Fund at 'AAAf'/'S2'
October 3, 2016 / 3:32 PM / a year ago

Fitch Affirms Insight Liquid ABS Fund at 'AAAf'/'S2'

(The following statement was released by the rating agency) LONDON/PARIS, October 03 (Fitch) Fitch Ratings has affirmed Insight Liquid ABS Fund's (Insight) ratings at Fund Credit Quality 'AAAf' and Fund Market Risk Sensitivity 'S2'. The fund is managed by Insight Investment and its subsidiaries. The affirmation of the Fund Credit Quality Rating is driven by the very high and stable credit quality of the fund as measured by its weighted average rating factor (WARF), which is consistent with a 'AAAf' Fund Credit Quality Rating. The rating also recognises the investment advisor's capabilities and resources managing asset-backed securities (ABS). The affirmation of the Fund Market Risk Sensitivity Rating is driven by the fund's low sensitivity to interest rate and spread risks, as reflected in the fund's maturity profile. The rating also recognises the potential exposure of the fund's ABS investments to weaker liquidity in stressed market conditions and the potential for increased spread risk given the ability of Insight to extend its weighted average life (WAL) profile. KEY RATING DRIVERS Weighted Average Credit Quality The fund's weighted average credit quality is very high, as indicated by the fund's WARF, which was 0.11 at end-August 2016. Investments are concentrated in the 'AAA' category, comprising approximately 90% of the portfolio at end-August 2016. The fund's investment guidelines contain a minimum 'AA-' rating on individual securities, based on Insight's methodology, which takes the highest rating of the three major international credit rating agencies. Fitch's methodology takes its own rating or, if not available, the lower of the other two major agencies. Portfolio Sensitivities to Market Risks The fund has a low exposure to interest rate risk given its investment in ABS securities (which are typically floating-rate with a three-month reset). Its weighted average maturity (WAM) was 60 days at end-August 2016. The fund's investment guidelines limit duration to 1.5 years above the fund's benchmark, 3m GBP LIBOR. The fund's investment guidelines allow for a maximum portfolio WAL of five years, with no limit on the WAL of individual ABS. The WAL of the fund has been maintained at around two years since launch. Fitch has calculated a market risk factor which implies a 'S1' Fund Market Risk Sensitivity Rating, based on end-August 2016 portfolio holdings. However, the 'S2' Fund Market Risk Sensitivity Rating also accounts for the potential for greater spread risk and longer WAL profile compared with other funds rated 'S1'. The possibility of extension risk has also been factored into the 'S2' Fund Market Risk Sensitivity Rating. The fund hedges non-base currency exposures to GBP via forward contracts, with a +/- 0.25% of net asset value (NAV) tolerance allowed. The fund does not utilise leverage. Fund Profile The fund seeks to achieve its investment objective through a portfolio of ABS securities, and aims to outperform 3m GBP LIBOR by 0.5% per annum. The fund invests across several ABS sectors, primarily prime RMBS, but also including autos, credit cards, buy-to-let, CMBS and CLOs. It focuses on European ABS, primarily UK and Dutch, although it also has small allocations to the US and Australia. The fund has daily dealing with a T-4 day settlement period. Liquidity risk is mitigated by a structural exposure to the Insight ILF GBP Liquidity Fund (AAAmmf), of between 5%-10% (around 5.3% as of end-August 2016). Furthermore, the prospectus allows the fund to be closed to redemption (gated) at the discretion of the board if redemptions exceed 10% on a given day. Nonetheless, fund liquidity will be somewhat reliant on the secondary ABS market, which may become limited during stressed market conditions. The fund is a UCITS-compliant sub-fund of the Ireland-domiciled ICVC Insight Global Funds II plc, which also includes an ABS-based fund launched in 2007, the Insight Libor Plus Fund. The fund had total assets of GBP935m as of end-August 2016. The Advisor Fitch assesses Insight as suitably qualified and capable of managing the fund. Insight was established in 2002, and is one of 13 specialist asset managers owned by Bank of New York Mellon (AA/Stable/F1+). Insight managed GBP499bn of assets as of end-June 2016, and the secured finance/ABS team managed GBP9.3bn as of end-August 2016. RATING SENSITIVITIES The rating may be sensitive to material changes in the fund's credit quality or market risk profile. A material adverse deviation from Fitch's guidelines for any key rating driver could cause Fitch to downgrade the rating. For example, if credit deterioration occurs such that the WARF increases beyond criteria levels for the rating assigned, the rating may be downgraded. Fitch's WARF stress testing shows that the rating is robust at the current rating level. Potential downgrades to the Fund Market Risk Sensitivity Rating are limited in scope, given the fund's low sensitivity to interest rate and spread risks, and the fund's investment guidelines. Contact: Primary Analyst Alastair Sewell, CFA Senior Director +44 20 3530 1147 Fitch Ratings Ltd 30 North Colonnade London E14 5GN Secondary Analyst Charlotte Quiniou, CFA Director +33 1 44 29 92 81 Committee Chairperson Gregory Fayvilevich Senior Director +1 212 908 8151 Media Relations: Rose Millburn, London, Tel: +44 203 530 1741, Email: rose.millburn@fitchratings.com. Additional information is available on www.fitchratings.com Applicable Criteria Global Bond Fund Rating Criteria (pub. 22 Aug 2016) here Additional Disclosures Solicitation Status here Endorsement Policy here ail=31 ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: here. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEB SITE AT WWW.FITCHRATINGS.COM. PUBLISHED RATINGS, CRITERIA, AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE, AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE CODE OF CONDUCT SECTION OF THIS SITE. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE. Copyright © 2016 by Fitch Ratings, Inc., Fitch Ratings Ltd. and its subsidiaries. 33 Whitehall Street, NY, NY 10004. Telephone: 1-800-753-4824, (212) 908-0500. Fax: (212) 480-4435. Reproduction or retransmission in whole or in part is prohibited except by permission. All rights reserved. In issuing and maintaining its ratings and in making other reports (including forecast information), Fitch relies on factual information it receives from issuers and underwriters and from other sources Fitch believes to be credible. Fitch conducts a reasonable investigation of the factual information relied upon by it in accordance with its ratings methodology, and obtains reasonable verification of that information from independent sources, to the extent such sources are available for a given security or in a given jurisdiction. The manner of Fitch's factual investigation and the scope of the third-party verification it obtains will vary depending on the nature of the rated security and its issuer, the requirements and practices in the jurisdiction in which the rated security is offered and sold and/or the issuer is located, the availability and nature of relevant public information, access to the management of the issuer and its advisers, the availability of pre-existing third-party verifications such as audit reports, agreed-upon procedures letters, appraisals, actuarial reports, engineering reports, legal opinions and other reports provided by third parties, the availability of independent and competent third- party verification sources with respect to the particular security or in the particular jurisdiction of the issuer, and a variety of other factors. Users of Fitch's ratings and reports should understand that neither an enhanced factual investigation nor any third-party verification can ensure that all of the information Fitch relies on in connection with a rating or a report will be accurate and complete. Ultimately, the issuer and its advisers are responsible for the accuracy of the information they provide to Fitch and to the market in offering documents and other reports. In issuing its ratings and its reports, Fitch must rely on the work of experts, including independent auditors with respect to financial statements and attorneys with respect to legal and tax matters. Further, ratings and forecasts of financial and other information are inherently forward-looking and embody assumptions and predictions about future events that by their nature cannot be verified as facts. 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