Fitch Affirms Aberdeen Ultra Short Duration Sterling Fund at 'AAAf'/'S1'
The affirmation of the Fund Credit Quality Rating is driven by the high credit quality of the fund as measured by its weighted average rating factor (WARF), which is consistent with a 'AAAf' Fund Credit Quality Rating, and limited sensitivity to Fitch's stress testing analysis.
The affirmation of the 'S1' 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 short maturity profile.
KEY RATING DRIVERS
Weighted Average Credit Quality
The fund's weighted average credit quality is high, as indicated by the fund's WARF, which was 0.16 in early September 2016. The fund's investment guidelines allow a minimum credit quality of 'A' at purchase.
The fund invests in a diversified portfolio of assets, typically comprising certificates of deposit, commercial papers, time deposits, fixed - and floating-rate government and corporate bonds, including covered bonds, and asset-backed securities (ABS). Underlying counterparties and securities must carry a minimum rating of 'A-'/'F1' (or equivalent) at time of purchase.
In early-September 2016, 33% of the portfolio was rated 'AAA' and the minimum credit quality of assets was 'A-'. ABS investments are in prime European assets - typically UK - RMBS and credit card ABS, which carry a rating of 'AAA'.
Portfolio Sensitivities to Market Risks
The fund has low exposure to interest rate and spread risks. Interest rate risk is managed within a maximum duration of one year and is typically maintained well below that limit. The fund's weighted average maturity (WAM) was 108 days and its weighted average life (WAL) to final maturity date (which measures sensitivity to spread risk) was 370 days, resulting in a market risk factor well within the 'S1' Fund Market Risk Sensitivity Rating range as of early-September 2016.
Maturity of investments is limited to three and five years for fixed - and floating-rate instruments, respectively. The fund does not use leverage and is not exposed to currency risk as it only invests in sterling-denominated securities. Liquidity and spread risk stemming from ABS exposure is limited as the portfolio's allocation to these assets must not account for more than 15% of the portfolio's total assets (12.5% as at early-September 2016).
The fund is a sub-fund of Aberdeen Liquidity Fund (Lux) Luxembourg-domiciled UCITS SICAV. It is regulated by the Commission de Surveillance du Secteur Financier and is UCITS-compliant. The fund's total assets stood at GBP5.1bn as of early-September 2016.
Aberdeen Asset Management (A/Stable/F1), the fund's investment advisor, is a UK-based independent global asset management company. It managed GBP301bn of assets globally at end-June 2016, of which GBP94bn were fixed income assets.
The ratings 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 ratings. For example, if credit deterioration occurs such that the WARF increases beyond criteria levels for a 'AAAf' Fund Credit Quality Rating, the rating may be downgraded. Fitch's WARF stress testing analysis indicates that the fund's WARF is not particularly sensitive to the stress tests.
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.