Fitch Ratings has affirmed the National Fund Credit Quality Ratings of Taiwan-based Taishin 1699 Money Market Fund and Taishin Ta-Chong Money Market Fund at 'AA+f(twn)'.

Fitch has also affirmed the funds' National Fund Market Risk Sensitivity Ratings at 'S1(twn)'.

KEY RATING DRIVERS

The affirmation of the National Fund Credit Quality Ratings reflects the sustained high credit quality and short maturity profile of the funds' assets. Fitch bases the rating on the actual and prospective credit quality of the funds. The funds' weighted-average rating factor (WARF) suggested a rating of 'AAAf(twn)' at end-September 2022, but Fitch recognises that the fund managers may increase exposure to lower-quality securities or extend the maturity profile (within applicable regulatory limits). This could individually or in combination lower aggregate credit quality. Therefore, Fitch affirmed the ratings at 'AA+f(twn)'.

The affirmation of the National Fund Market Risk Sensitivity Ratings is driven by the funds' sustained low exposure to interest rate and spread risk, as reflected in the short maturity profile of the funds' assets.

ASSET CREDIT QUALITY

Taishin 1699's portfolio had about 93% of assets rated in the 'A(twn)' to 'AAA(twn)' range and 7% in the 'BBB(twn)' range at end-September 2022, while Taishin Ta-Chong had 96% of assets rated in the 'A(twn)' to 'AAA(twn)' range and 4% in the 'BBB(twn)' range. Taishin 1699 had a WARF of 0.16 and Taishin Ta-Chong had a WARF of 0.15, higher than the 0.14 peer average.

The funds have high industry concentration in the Taiwanese banking and finance sectors, which have a stable credit outlook. The top-five issuers account for 29% of both funds' assets under management, lower than the peer average of 35%.

PORTFOLIO SENSITIVITY TO MARKET RISK

The market risk factor was 0.18 for Taishin 1699 and 0.17 for Taishin Ta-Chong at end-September 2022, implying a National Fund Market Risk Sensitivity Rating of 'S1(twn)' for both funds. The peer average market risk factor was 0.20. The weighted-average maturity was 53 days for Taishin 1699 and 50 days for Taishin Ta-Chong, both shorter than the peer average of 64 days.

FUND PROFILE

The funds invest in time deposits, commercial paper, repos and cash. Taishin 1699 is the largest money market fund in the local market, with total assets under management of TWD79.6 billion at end-September 2022, accounting for 10.4% of domestic listed money market fund assets. Taishin Ta-Chong is a medium-sized money market fund in Taiwan, with assets of TWD7 billion; equivalent to 0.9% of domestic listed money market fund assets.

INVESTMENT MANAGER

Fitch considers the investment manager to be suitably qualified, competent and capable of managing the funds. Both funds are managed by Taishin Securities Investment Trust Co., Ltd (TSIT). The investment manager is wholly owned by Taishin Financial Holding Co., Ltd. (BBB/A+(twn)/Stable).

TSIT ranks ninth among 39 asset managers in Taiwan and has TWD121 billion in mutual fund assets under management. These accounted for 2.6% of Taiwan's mutual fund market as of October 2022. TSIT has experienced asset-management staff and stable investment processes. Its investment ideas are research-driven and implementation is overseen by its investment committee.

RATING SENSITIVITIES

Factors that could, individually or collectively, lead to positive rating action/upgrade:

An upgrade of the National Fund Credit Quality Rating is possible if the credit quality of the underlying assets improves, the weighted-average maturity becomes shorter and the investment strategy supports the improvement in the long term.

Factors that could, individually or collectively, lead to negative rating action/downgrade:

The ratings are sensitive to significant changes in the funds' credit quality or market-risk profiles. A large, adverse deviation from Fitch's guidelines for any key rating driver could lead to a downgrade. Specifically, the increase of 'BBB(twn)' rated securities and an extension of asset maturity could negatively affect the WARF. The ratings are also sensitive to deterioration in the credit quality of Taiwan's banking sector due to the funds' large exposure. In all of Fitch's four stress tests, the WARF of both Taishin 1699 and Taishin Ta-Chong indicated a credit quality rating of 'AAAf(twn)'.

Fitch does not expect a change in the National Fund Market Risk Sensitivity Ratings due to the funds' short asset-maturity profiles, but a downgrade could stem from a structural change in Taiwan's interest rates or market volatility or if the funds' maturity profiles are substantially extended.

TSIT provides Fitch with monthly information, including details of the portfolios' holdings, credit quality and transactions, to maintain the funds' ratings. Fitch monitors the portfolios' credit composition, the credit counterparties used by the manager and the overall market risk profile of the investments.

RATING CRITERIA

Fitch rates money market funds in Taiwan under its global Bond Fund Rating Criteria. This reflects the differences the agency perceives between Taiwanese money market funds and other Fitch-rated money market funds under its Money Market Fund Rating Criteria. Fitch regards Taiwanese money market funds as less liquid, longer dated and with lower credit quality than those in other markets. Comparisons between different national fund rating scales or an individual national and international scale are inappropriate.

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