OREANDA-NEWS. Fitch Ratings has affirmed Insight Liquid ABS Fund's Fund Credit Quality Rating at 'AAA' and Fund Volatility Rating at 'V2'. The fund is managed by Insight Investment Management Ltd (Insight).

KEY RATING DRIVERS
The 'AAA' Fund Credit Quality Rating reflects the fund's high weighted average credit quality and distribution of ratings (primarily 'AAA' rated securities). The rating also recognises the investment advisor's capabilities and resources managing asset-backed securities (ABS). The Fund Volatility Rating reflects the fund's low sensitivity to interest rate risk as well as the potential for higher spread risk given the fund's potential weighted average life (WAL) profile.

ASSET CREDIT QUALITY
The fund meets Fitch's criteria for a 'AAA' Fund Credit Quality Rating. The weighted average rating factor of the fund was 0.20 at end-June 2015, well within Fitch's guideline WARF range for a 'AAA' rating (0.0-0.40).

Investments are concentrated in the 'AAA' category, comprising 86% of the portfolio as at end-June 2015. The fund's investment guidelines contain a minimum 'AA-' rating on individual securities, based on Insight's methodology for the fund, which takes the highest rating of the three major international credit rating agencies. Fitch's methodology takes its own rating, or if not available the lower of the other two major agencies.

The fund is well diversified, across around 60 issuers as of end-June 2015, with no material concentrations.

PORTFOLIO SENSITIVITY TO MARKET RISKS
The fund has a low exposure to interest rate risk given the investment in ABS securities (which are typically floating with a three-month reset). Its weighted average maturity was 44 days at end-June 2015. The fund's investment guidelines limit duration to +1.5 years compared with the fund's benchmark, 3m GBP LIBOR.

The fund's investment guidelines allow for a maximum portfolio weighted average life (WAL) of five years, with no limit on the WAL of individual ABS. The WAL of the fund has been maintained at around two years since launch. Fitch has calculated a market risk factor which implies a 'V1' Fund Volatility Rating, based on the model portfolio provided. However, the 'V2' Fund Volatility Rating accounts for the potential for greater spread risk and longer WAL profile compared with other funds rated 'V1'. The possibility of extension risk has also been factored into the 'V2' Fund Volatility Rating.

The fund will hedge underlying investments to GBP via forward contracts, with a +/- 0.25% of NAV tolerance allowed. The fund will not utilise leverage.

THE ADVISOR
Fitch considers Insight to be suitably qualified, competent, and capable of managing the fund. Insight was established in 2002, and is one of 13 specialist asset managers owned by Bank of New York Mellon (AA-/Stable/F1+). Insight managed GBP383bn of assets as of end-June 2015, and the secured finance/ABS team managed GBP6.8bn as of end-June 2015.

FUND PROFILE
The fund seeks to achieve its investment objective through investment in a portfolio of ABS securities, and aims to outperform 3m GBP LIBOR by 0.5% per annum. The fund invests across several ABS sectors, primarily prime RMBS, but also including autos, credit cards, buy-to-let, CMBS and CLOs. It focuses on European ABS, primarily UK and Dutch, although there will be small allocations expected to the US and Australia. At end-July 2015, the fund had GBP437m of total assets.

The fund has daily dealing with a T+4 day settlement period. Potential liquidity risk within the fund relating to ABS is partially compensated by a structural exposure to the Insight ILF GBP Liquidity Fund (AAAmmf), of between 5%-10% (around 6% as of end-June 2015). Furthermore, the prospectus allows the fund to be gated at the discretion of the board if redemptions exceed 10% on a given day. Nonetheless, fund liquidity will be somewhat reliant on the secondary ABS market, which may become limited during stressed market conditions.

The fund is a sub-fund of the existing Ireland domiciled ICVC Insight Global Funds II plc, which currently contains 10 sub-funds, including an ABS-based fund launched in 2007, the Insight Libor Plus Fund. The fund has received regulatory approval from the Central Bank of Ireland and will be UCITS-compliant.

RATING SENSITIVITIES
The ratings may be sensitive to material changes in the credit quality or market risk profiles of the fund. A material adverse deviation from Fitch's guidelines for any key rating driver could cause the ratings to be downgraded by Fitch. For additional information about Fitch's bond fund ratings guidelines, see the criteria referenced below. Fitch will consider downgrading the Fund Credit Quality Rating if the fund's credit profile is materially lower than that expected over time, and will consider downgrading the Fund Volatility Rating if the fund's WAL profile and exposure to interest rate risk and/or spread risk is materially greater than that expected over time.

To maintain the fund ratings, the fund's administrator, Northern Trust International Fund Administration Services, provides Fitch with monthly information, including details of the portfolio's holdings, credit quality, and WAL profile, among other pertinent information.