Fitch Ratings has affirmed Taiwan-based TCB Money Market Fund's (TCB MMF) National Fund Credit Quality Rating at 'AA+f(twn)' and National Fund Market Risk Sensitivity Rating at 'S1(twn)'.

KEY RATING DRIVERS

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

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

ASSET CREDIT QUALITY

The portfolio has high average credit quality, as measured by its WARF of 0.21 at end-September 2022, higher than the peer average of 0.14. The portfolio has 97% of assets rated in the 'A(twn)' to 'AAA(twn)' category and 3% in the 'BBB(twn)' category.

The fund has high industry concentration in the Taiwanese banking and finance sector, whose credit outlook is currently stable. Its top-five issuers represented roughly 43% of the fund's assets under management (AUM), above the peer average of 35%.

PORTFOLIO SENSITIVITY TO MARKET RISK

The market risk factor (MRF) of 0.38 at end-September 2022 was higher than the peer average of 0.2, implying a National Fund Market Risk Sensitivity Rating of 'S1(twn)'. The weighted-average maturity was 96 days, longer than the peer average of 64 days.

FUND PROFILE

The fund invests in time deposits, commercial paper, repos and cash. The fund ranks 20th among 36 money-market funds in Taiwan, with assets of TWD18.5 billion at end-September 2022, which were equivalent to 2.4% of the domestic listed money-market fund market.

INVESTMENT MANAGER

Fitch considers the investment manager suitably qualified, competent and capable of managing the fund. The fund is managed by Taiwan Cooperative Securities Investment Trust Co. Ltd (TCSIT), which is a wholly owned subsidiary of Taiwan Cooperative Financial Holding Co., Ltd. Taiwan Cooperative Bank is an important channel to distribute TCB MMF. TCSIT ranks 23rd among 39 asset managers in Taiwan and has TWD46 billion of mutual fund assets under management, which account for 1.0% of Taiwan's mutual funds market as of October 2022.

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 may be sensitive to significant changes in the fund's credit quality or market-risk profile. A large, adverse deviation from Fitch's guidelines for any key rating driver could lead to a rating downgrade. Specifically, the increase of 'BBB(twn)' rated securities and an extension of asset maturity could negatively affect the WARF. The fund's rating is also sensitive to deterioration in the credit quality of Taiwan's banking sector due to the large exposure to that sector. In one of Fitch's four stress tests, the WARF indicated a credit-quality rating of 'AA+f(twn)', while 'AAAf(twn)' was maintained in the other three stress tests.

Fitch expects the National Fund Market Risk Sensitivity Rating to remain stable due to the fund's short maturity profile. However, Fitch would expect to downgrade the rating should interest-rate or market volatility in Taiwan structurally change or if the fund's maturity profile is substantially extended.

TCSIT, the fund manager, provides Fitch with monthly information, including details of the portfolio's holdings, credit quality and transactions, to maintain the fund ratings. Fitch monitors the credit composition of the portfolio, 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 of lower credit quality than the money market funds in other markets. Comparisons between different national fund rating scales or an individual national and international scale are inappropriate.

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