Fitch Reviews European Short-Term Bond Fund Sector
CCLA COIF Charities Deposit Fund (COIF)
CCLA CBF Church of England Deposit Fund (CBF)
Henderson Cash Fund (HENC)
Royal London Cash Plus Fund (RLCP)
Aberdeen Sterling Investment Cash Fund (ASICF)
Some investors are considering STBFs as an alternative to money market funds in light of recent reforms and the current low yield environment in Europe. Fitch discussed this in a recent WhyForum article, "Why Short-Term Bond Funds Warrant a Closer Look", at thewhyforum.com.
Short-term bond funds in general are not as standardised as money market funds, with duration, maturity and portfolio credit quality varying greatly. COIF and CBF limit weighted average maturity to reset (WAM) to below 120 days and maximum individual instrument maturity to 365 days. HENC limits WAM and weighted average life (to final maturity; WAL) to 180 days and 365 days, respectively.
Both RLCP and ASICF can invest in longer maturity instruments. RLCP can extend duration up to a maximum of three years, although this has typically been maintained under one year. ASICF has a maximum WAM of one year. Both funds have maintained a WAL of between 400 to 500 days over the past year. All five funds meet Fitch's rating criteria for a 'V1' Fund Volatility Rating.
All the funds are more homogenous in terms of minimum allowable credit quality. COIF, CBF and HENC have a minimum credit quality of 'A' at purchase, whilst RLCP and ASICF have a minimum credit quality of 'A-' at purchase. Both RLCP and ASICF (29% and 30% at end-May 2015 respectively) contain securities at the 'AAA' level, whilst the COIF, CBF and HENC contain greater percentages of securities at the 'A' level (51%, 50% and 53%, respectively, at end-May 2015). However, the weighted average rating factors (WARFs) of the COIF, CBF and HENC are lower than RLCP and ASICF, due to the shorter maturity profile of assets. All funds meet Fitch's rating criteria for a 'AAA' Fund Credit Quality Rating.
As of end-May 2015, the combined assets of the five funds were GBP8.2bn.
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