(The following statement was released by the rating agency)
July 02 - Fitch Ratings has assigned Paradigm Pion Money Market Fund (Paradigm Pion MMF), a Taiwan domiciled money-market fund managed by Paradigm Asset Management Co., Ltd (PAM), a Fund Credit Rating of ‘AA(twn)’ and a Fund Volatility Rating of ‘V1(twn)'.
The ratings reflect the fund’s strong credit quality based on Fitch’s National Rating scale and the portfolio assets’ short maturity profile, consistent with the fund’s investment objective of providing shareholders with stable capital and high liquidity.
The portfolio has high average credit quality with 91% of assets rated within ‘A(twn)’ to ‘AAA(twn)’ at end-May 2012. The Fund Credit Rating is capped at ‘AA(twn)’ to reflect the presence of low-rated securities in the fund’s portfolio with 8.98% of assets rated ‘BBB(twn)’ at end-May 2012. Nearly half of the fund’s repo transactions, which accounted for 45% of the portfolio at end-May 2012, are backed by government bonds or investment-grade corporate bonds. The other half of repos are backed by unrated collateral but the credit risk should be manageable given the satisfactory credit profile of associated counterparties.
The fund has a high industry concentration in the Taiwanese banking and finance sector, whose credit Outlook is broadly Stable. Single-name concentration is acceptable, with the top five borrowers - all of them rated above ‘A-(twn)’ - representing 37.6% of the fund’s AuM, generally in line with domestic peers.
The fund has low exposure to interest rate and spread risks given the portfolio assets’ short weighted-average maturity (at 94 days at end-May 2012).
The fund invests in time deposits, certificates of deposit, commercial papers, repos or short-term bonds. It is a small-sized money market fund in Taiwan with TWD2.4bn in AuM at end-May 2012 (approximating 0.3% of the domestic listed money market fund market).
Fitch considers the investment advisor, Paradigm Asset Management Co. (PAM), suitably qualified, competent and capable of managing the fund. The management team has mostly over a decade of experience in the field and investment process has remained stable despite its recent ownership change. PAM is solely-owned by Waterland Securities Co., Ltd (WSC: ‘BBB-'/‘A(twn)'/Stable), which itself is 58%-owned by and a consolidated entity of Waterland Financial Holdings Co., Ltd (‘BBB-'/‘A(twn)'/Stable). WSC fully acquired PAM in February 2011.
Fitch expects the Fund Credit Rating to remain stable. Although unlikely in the near term, downward pressure on the Fund Credit Rating could result from a material decline in asset quality due to increased risk appetite or deterioration in the credit quality of Taiwan’s banking and finance industry. Fitch also expects the Fund Volatility Rating to remain stable, underpinned by the fund’s short-maturity profile. Downside risk may arise from significant increase in risk appetite following growth of AuM. Fitch will closely monitor the fund’s growth and any material changes on a monthly basis.
To maintain bond fund ratings, PAM, the administrator of the fund, provides Fitch with monthly information, including details of the portfolios’ holdings, credit quality and transactions, and a risk management report. Fitch monitors the credit composition of the portfolios, the credit counterparties used by the manager and the overall market risk profile of the investments.
For a more detailed fund profile, please refer to Fitch’s report of the fund available shortly at www.fitchratings.com. For additional information about Fitch rating criteria applicable to bond funds, please review the criteria referenced below, which can be found on Fitch’s web site at www.fitchratings.com.
‘AA(twn)’ fund ratings indicate very high underlying credit quality based on Fitch’s national rating scale. Funds rated ‘V1(twn)’ are considered to have very low sensitivity to market risk. On a relative basis, total returns are expected to exhibit high stability, performing consistently across a broad range of market scenarios. The Volatility Rating does not address the sensitivity of a bond fund to extreme risks that may result from reduced liquidity in secondary markets during certain periods of time.
Comparisons between different national fund rating scales or between an individual national and international scale are inappropriate.