Fitch Updates Bond Fund Rating Criteria and Related Rating Scales
Some ratings may be affected by the criteria changes. Fitch will review within the next six months the ratings that are potentially affected by the criteria changes, taking into consideration any additional or new information provided by the funds in question, for example, changes in portfolio holdings or new investment guidelines. The criteria update is part of Fitch's periodic review of all rating criteria and it replaces the previous report of the same name, published on 12 December 2014.
Changes to the criteria and ratings scales include:
-- Revised weighted average rating factors (WARF) that are a primary determinant of the Fund Credit Quality Rating. In particular, the revised WARF give greater recognition to the reduced credit risk inherent in shorter maturity securities. Additionally, the ratings of securities and counterparties on Rating Watch Negative are automatically downgraded by one notch when calculating the WARF.
-- Clarification of counterparty risk assessment for custodian cash, notably in the context of UCITS V.
-- The addition of an 'f' suffix to Fund Credit Quality Ratings to better distinguish these ratings from traditional credit ratings assigned to individual issues and issuers
-- Fund Volatility Ratings have been renamed Fund Market Risk Sensitivity Ratings and the related rating scale has been revised to S1 to S6 (from V1 to V6). Fund Market Risk Sensitivity Ratings will be assigned subject to market relevance or regulatory demand, in addition to the Fund Credit Quality Rating.
-- Updated spread risk factors for the Market Risk Sensitivity Rating calculation.
-- Introduction of explicit stress tests to assess the sensitivity of WARF and Market Risk Sensitivity calculations to concentration risk and credit risk bar-belling
-- Minimum level of portfolio diversification for international scale ratings
-- Consolidation and homogenisation of existing national scale criteria in this master criteria report (as an Appendix), replacing former sub-sector criteria. It should be noted that in some national scale markets in Latin America, replacement of sub-sector criteria will not go into effect until criteria have been registered and approved by local market regulators.