OREANDA-NEWS. March 30, 2015. Fitch Ratings has upgraded SSGA Europe Small Cap Alpha Equity Fund Quality Rating to 'Excellent' from 'Strong' and affirmed SSGA EMU Alpha Equity Fund at 'Strong'. The funds are managed by State Street Global Advisors (SSGA).

KEY RATING DRIVERS

Funds Presentation
SSGA Europe Small Cap Europe Alpha Equity Fund is a French law investment fund (FCP) with EUR83.2m of assets at end-February 2015. It invests in European small capitalisation equities, and seeks to outperform the MSCI Europe Small Cap Index by 3%-4%, while limiting its tracking-error target to 4%-5%.

SSGA EMU Alpha Equity Fund is a French SICAV with EUR140.9m of assets at end-February 2015. It invests in eurozone equities and aims to outperform the MSCI EMU Index by 2%-3% with a tracking-error target of 3%-4%.

The upgrade of the Europe Small Cap Europe Alpha Equity Fund reflects its consistent and robust performance, supported by a proprietary quantitative stock selection model, which is particularly well adapted to the large and less efficient European small cap market. Both funds follow an active, systematic investment approach relying on quantitative model inputs. They are managed with tight deviation limits relative to their benchmarks, avoid capitalisation bias, and seek a beta close to one. Bottom-up stock selection drives the funds' performance.

Investment Process
SSGA's quantitative models, based on specific attributes of individual companies, allow a consistent, systematic assessment of a vast universe of companies, identifying those that are attractively valued and with growth prospects. This is complemented by a dynamic top-down approach to fine-tuning the portfolio's positioning.

SSGA's strong quantitative governance practices and resources support model developments and enhancements.

Portfolio construction is disciplined and builds diversified portfolios of small active stock positions, drawing on an optimisation model that combines the model's stock ranking with risk constraints and transaction costs consideration. Proposed trades are then reviewed by the lead portfolio manager (PM) against recent news flows that may not have been captured by the model.

Resources
The experienced lead PMs of the two funds are supported by a well-resourced active equity team, comprising 20 PMs and nine quantitative research analysts. Investment resources are solid, including a global trading desk and an investment risk team of 16. The funds benefit from SSGA's operational and risk control framework. The IT environment supports well-controlled, efficient workflows.

Track Record
SSGA Europe Small Cap Alpha delivered a return of 143.1% over five years to February 2015, outperforming the Lipper Equity Europe Small&Mid Cap category by 48.3%, and its reference index by 20.6%. The fund's reference index was the S&P Small Cap Europe Index until October 2013, when it switched to the MSCI Small Cap Europe Index (the latter index has returned 122.9% over five years to end February 2015). The fund has achieved the highest Lipper Leader of '5' over three, five and 10 years to February 2015, and is among the best performing quintile in its Lipper peer group over the same periods, as well as since its inception in 1998.

The second quarter of 2014 was challenging for the fund, but it has been able to recover rapidly, finding arbitrage and investment opportunities in a large and heterogeneous European small cap universe, which is less macro-driven than the large cap segment, illustrating the model's stock selection ability. This consistently strong track record enables the fund's rating upgrade to 'Excellent'.

SSGA EMU Alpha has outperformed the index by 6.2% over 10 years to February 2015 and achieved a Lipper Leader score for Consistent Return of '4', '3' and '5' over three, five and ten years, respectively. Last year proved difficult for the fund, especially during the second quarter, due to fund's value/momentum bias.

Asset Manager
SSGA is the asset management arm of State Street Corporation (AA-/Stable/F1+). It is a global asset manager with USD2.45trn in assets under management at end-2014, including the assets of the SPDR Gold ETF (approximately USD27.3bn at end-2014), for which State
Street Global Markets, LLC, an affiliate of SSGA, serves as the distribution agent. Assets in active quantitative European equities were USD3.9bn.

RATINGS SENSITIVITIES

The ratings may be sensitive to material changes in the investment or operational processes, or in resources dedicated to the funds. A material adverse deviation from Fitch's guidelines for any key rating drivers could result in a downgrade of the ratings. For example, this may be manifested in significant structural deterioration in the funds' performance, excessive risk deviation from objectives, or substantial turnover in the investment team. Key person risk is limited for these funds, but model risk exists.

Fitch's Fund Quality Ratings combine Fitch's experience in qualitative fund analysis with rankings and performance data from Lipper, a Thomson Reuters company. Fitch's Fund Quality Ratings offer an independent, forward-looking assessment of a fund's key performance and risk attributes and consistency of longer-term returns, relative to peer group or benchmarks. The ratings focus on the fund manager's investment process, key fund performance drivers, risk management, and the quality of the fund's operational infrastructure.

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