OREANDA-NEWS. Fitch Ratings has affirmed Momentum Money Market Fund's National Fund Credit Quality Rating (NFCQR) at 'AA+(zaf)' and National Fund Volatility Rating (NFVR) at 'V1(zaf)' . The fund's investment advisor is Momentum Asset Management (Pty) Limited (Momentum).

KEY RATING DRIVERS

High Asset Credit Quality
The affirmation of the 'AA+(zaf)' NFCQR is driven by the fund's high current and prospective credit quality, as reflected in its weighted average rating factor (WARF),and rating distribution. The NFCQR factors in a one-notch downward adjustment from the WARF-implied rating to reflect concentration risk, a structural feature of the South African market.

In Fitch's opinion, rated South African MMFs are concentrated because the top three-issuer exposure is consistently in excess of 50% of portfolio holdings. In line with its applicable rating criteria, Fitch typically adjusts down the fund's WARF-implied NFCQR it deems concentrated by one or more notches. This reflects the fund's investment mandates and the structural characteristics of the South African market, with a limited supply of treasury bills, and the five largest banks having a combined market share of around 90%, according to Fitch's estimates. Without structural evolution of the South African market resulting in a more diverse, high quality and liquid issuance market, it is highly unlikely that Fitch would rate any MMF higher than 'AA+(zaf)' in South Africa.

Portfolio Sensitivity to Market Risk
The fund has low exposure to interest rate risk and spread risk, as reflected in its short maturity profile. As per regulation, the fund's weighted average duration (i.e. to next interest rate reset date) is capped at 90 days and weighted average life (i.e. to final maturity date) at 120 days, and no investment may have a maturity of more than 13 months. This enables the fund to achieve a NFVR of 'V1(zaf)'.

Fund Profile
The fund is regulated by South Africa's Financial Services Board under the Collective Investment Schemes Control Act of 2002 (CISCA, specifically Notice 90 of 2014).

Investment Advisor
Fitch considers Momentum suitably qualified, competent and capable of managing the fund. Momentum is a subsidiary of MMI Holdings Ltd (AA-(zaf)/Stable). In 2015 a number of Momentum's staff left the firm, along with some investment management contracts, to establish a new investment manager. A material sub-set of staff in the fixed income division, notably those with close involvement in the management of the money market fund, remained with Momentum. As a consequence, Fitch sees no material impact on the fund's ratings due to the continuity of staff, processes and systems supporting the fund.

Momentum had total assets under management (AUM) of ZAR24.2bn as of end-December 2015, with the Momentum Money Market Fund representing approximately 38% of the total.

RATING SENSITIVITIES
The ratings are sensitive to material changes in the fund's credit quality or market risk profile. A material adverse deviation from Fitch criteria for any key rating drivers could cause a rating downgrade. Specifically, Fitch would expect to downgrade the NFCQR in the event of a sustained deterioration in the fund's credit quality.

Fitch expects the NFVR to be stable given the fund's maturity profile and applicable regulatory limits. However, should interest rates or market volatility in South Africa structurally change then Fitch would expect to downgrade the rating.

RATING CRITERIA
Fitch rates money market funds (MMFs) in South Africa under its global bond fund rating criteria. This reflects the differences the agency perceives between South African MMFs and other Fitch-rated MMFs under its international and national MMF rating criteria. Specifically, the high level of concentration in these funds, a structural characteristic of the South African market, is inconsistent with Fitch's view of the risk profile of a MMF. The agency also notes regulatory differences between the US and European MMFs (subject to Rule 2a-7 in the US and ESMA guidelines for MMFs in Europe) and the regulatory regime in South Africa. MMFs in South Africa also have a greater reliance on secondary market liquidity than US and European MMFs, and often have mismatches between the largest investors and overnight liquidity.

Funds in the 'AA(zaf)' rating category are considered to have very high underlying credit quality relative to other entities in the South African market. The fund's assets are expected to maintain a weighted-average portfolio rating of 'AA(zaf)'.

Funds rated 'V1(zaf)' are considered to have low sensitivity to market risk. On a relative basis, total returns of funds rated 'V1(zaf)' are expected to exhibit high stability, performing consistently across a broad range of market scenarios. NFVR 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.