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Fitch Downgrades State Street Flexible Asset Allocation Plus Fund to 'Good'
September 29, 2016 / 4:16 PM / a year ago

Fitch Downgrades State Street Flexible Asset Allocation Plus Fund to 'Good'

(The following statement was released by the rating agency) PARIS, September 29 (Fitch) Fitch Ratings has downgraded State Street Flexible Asset Allocation Plus Fund's Fund Quality Rating to 'Good' from 'Strong'. The fund is managed by State Street Global Advisors (SSGA). KEY RATING DRIVERS The downgrade reflects difficulties experienced by the fund in time asset allocation adjustments and portfolio construction decisions, leading to disappointing performance in 2015 and so far in 2016 relative to its objective and peers. The fund's proprietary MRI (market regime indicator) efficiently identifies changes in risk regimes driving broad asset allocation bands but implementation windows and tactical asset allocation decisions prove challenging at times of volatile market conditions. Allocation bands have been updated recently to allow more judgmental flexibility. The fund rating was placed 'Under Review' in January 2016 to determine whether the recent underperformance reflected a temporary setback or a more structural deterioration in the ability of the investment process to navigate through the cycle and ultimately deliver on its ambitious performance objective to outperform cash by 4%. Fund Presentation State Street Flexible Asset Allocation Plus Fund is a sub-fund of SSGA Luxembourg SICAV with EUR73m of assets at end-August 2016. The fund is long-only, and invests globally in all major asset classes. It aims to outperform Euribor 1-month by at least 4% over five years (annualised), with controlled volatility (not exceeding 12%), while minimising drawdowns (maximum drawdown of 10%) in volatile markets. It has been managed under the current investment approach since December 2012. Prior to May 2015, the fund was a France-domiciled SICAV. Investment Process A key input in the portfolio construction is the MRI, a proprietary macro indicator developed in 2001. It systematically identifies prevailing market regimes and trends on the basis of investors' risk aversion across multiple markets and regions. In Fitch's view, the MRI approach fosters efficiency and discipline in the investment process. Portfolio construction is disciplined, and follows a predefined asset allocation mix corresponding to prevailing market regimes, as defined by the MRI. These were recently reviewed to allow more flexibility and leave more room to judgmental views on sub-asset classes and geographical regions, which drive tactical positions. The final portfolio is implemented through direct holdings, funds, ETFs and listed derivatives, primarily futures. Enhancements of option-based strategies are in the pipeline for more granular strategic timing and more robust drawdown management. Resources The fund is managed by a Paris-based team of four, led by Frederic Dodard, with 19 years of experience and Head of EMEA Investment Solutions Group at SSGA. Gregory Taieb is the fund's lead portfolio manager. The team is supported by a well-staffed research team. SSGA's investment resources are solid, including a global trading desk and an investment risk team. The fund benefits from SSGA's operational and risk control framework. The IT environment is built around a combination of third-party and proprietary systems, supporting well-controlled workflows. Track Record The fund returned minus 1% in 2016 to end-August (I share class), underperforming its reference index and Lipper peer group category. This was primarily due to untimely portfolio de-risking in January, February and June 2016, as reallocation decisions are typically implemented over a two-week period. The July market rebound was, however, better captured. The fund's three-year performance is above peers but lagging behind the cash + 4% objective. Fund Manager SSGA is the investment management arm of State Street Corporation (AA-/Stable/F1+). It is a global asset manager with USD2.3trn in assets under management as of mid-2016, including USD2bn in in absolute return/flexible strategies. It employs more than 2,500 staff globally. RATING SENSITIVITIES The rating may be sensitive to material changes in the investment or operational processes, or in resources dedicated to the fund. A material adverse deviation from Fitch's guidelines for any key rating drivers could result in a downgrade of the rating. For example, this may be manifested in significant structural deterioration in the fund's performance or an excessive deviation from risk objectives. Key person risk is limited for this fund, but model risk exists. Contact: Primary Analyst Charlotte Quiniou, CFA Director +33 1 44 29 92 81 Fitch France S.A.S. 60 rue de Monceau Paris 75008 Secondary Analyst Manuel Arrive, CFA Senior Director +33 1 44 29 91 77 Committee Chairperson Davie Rodriguez, CFA Senior Director +1 212 908 0386 Media Relations: Rose Millburn, London, Tel: +44 203 530 1741, Email: Additional information is available on Applicable Criteria Fund Quality Rating Criteria (pub. 16 Sep 2014) 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. As a result, despite any verification of current facts, ratings and forecasts can be affected by future events or conditions that were not anticipated at the time a rating or forecast was issued or affirmed. The information in this report is provided "as is" without any representation or warranty of any kind, and Fitch does not represent or warrant that the report or any of its contents will meet any of the requirements of a recipient of the report. A Fitch rating is an opinion as to the creditworthiness of a security. This opinion and reports made by Fitch are based on established criteria and methodologies that Fitch is continuously evaluating and updating. Therefore, ratings and reports are the collective work product of Fitch and no individual, or group of individuals, is solely responsible for a rating or a report. The rating does not address the risk of loss due to risks other than credit risk, unless such risk is specifically mentioned. Fitch is not engaged in the offer or sale of any security. All Fitch reports have shared authorship. Individuals identified in a Fitch report were involved in, but are not solely responsible for, the opinions stated therein. The individuals are named for contact purposes only. A report providing a Fitch rating is neither a prospectus nor a substitute for the information assembled, verified and presented to investors by the issuer and its agents in connection with the sale of the securities. Ratings may be changed or withdrawn at any time for any reason in the sole discretion of Fitch. Fitch does not provide investment advice of any sort. Ratings are not a recommendation to buy, sell, or hold any security. Ratings do not comment on the adequacy of market price, the suitability of any security for a particular investor, or the tax-exempt nature or taxability of payments made in respect to any security. Fitch receives fees from issuers, insurers, guarantors, other obligors, and underwriters for rating securities. Such fees generally vary from US$1,000 to US$750,000 (or the applicable currency equivalent) per issue. In certain cases, Fitch will rate all or a number of issues issued by a particular issuer, or insured or guaranteed by a particular insurer or guarantor, for a single annual fee. Such fees are expected to vary from US$10,000 to US$1,500,000 (or the applicable currency equivalent). The assignment, publication, or dissemination of a rating by Fitch shall not constitute a consent by Fitch to use its name as an expert in connection with any registration statement filed under the United States securities laws, the Financial Services and Markets Act of 2000 of the United Kingdom, or the securities laws of any particular jurisdiction. Due to the relative efficiency of electronic publishing and distribution, Fitch research may be available to electronic subscribers up to three days earlier than to print subscribers. For Australia, New Zealand, Taiwan and South Korea only: Fitch Australia Pty Ltd holds an Australian financial services license (AFS license no. 337123) which authorizes it to provide credit ratings to wholesale clients only. Credit ratings information published by Fitch is not intended to be used by persons who are retail clients within the meaning of the Corporations Act 2001

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