OREANDA-NEWS. Fitch Ratings has affirmed the National Fund Credit Quality Rating on Taiwan-based Paradigm Pion Money Market Fund (Paradigm Pion MMF) at 'AA+(twn)' and its Volatility Rating at 'V1(twn)'.

KEY RATING DRIVERS

The affirmation of the National Fund Credit Quality Rating reflects the fund's high credit quality with a weighted average rating factor (WARF) of 0.30 at end-September 2015 and assets with ratings ranging from 'BBB+(twn)' to 'AAA(twn)'. The WARF would imply a credit quality rating of 'AAA(twn)', however the rating has been capped at 'AA+(twn)' to reflect its exposure to 'BBB+(twn)'-rated securities and high issuer concentration in banking and finance sector.

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

ASSET CREDIT QUALITY

The portfolio has higher average credit quality compared with peers, as measured by its WARF of 0.30, with 98.2% of assets rated in the 'A(twn)' to 'AAA(twn)' range at end-September 2015 and a lowest issuer credit quality of BBB+(twn). The fund had 13% of its exposures on Negative Rating Outlook or Rating Watch Negative at end-September 2015. Fitch considers that rating downgrades for this exposure are unlikely to substantially alter the portfolio's credit quality, all else being equal, given most of the exposures are related to highly-rated issuers or counterparties.

Fitch considers the fund to be "moderately concentrated" in terms of issuers, based on the definitions in its rating criteria. The top five issuers represent slightly above 50% of the fund's assets under management (AUM). The fund also has high industry concentration in the Taiwanese banking and finance sector, whose credit Outlook is broadly Stable.

PORTFOLIO SENSITIVITY TO MARKET RISK

The fund has low exposure to interest rate and spread risks, given the portfolio assets' short weighted-average maturity of 118 days at end-September 2015.

INVESTMENT ADVISOR

The fund is advised by Paradigm Asset Management Co., Ltd (PAM). The investment advisor is solely owned by Waterland Securities Corporation (WSC; BBB/A+(twn)/Stable), which itself is 58%-owned by and is a consolidated entity of Waterland Financial Holdings (WFH: BBB/A+(twn)/Stable).
Fitch considers the investment advisor, PAM, suitably qualified, competent and capable of managing the fund. Most of the management team have over a decade of experience in the field and the investment process has remained stable.

FUND PROFILE

The fund invests in time deposits, certificates of deposit, commercial paper, repos or short-term bonds. The fund may engage in repurchase agreements backed by government-issued securities at collateralisation level below 100%. This is in line with the local-market practice. The fund has TWD28.3bn of assets at end-September 2015 (equivalent to 3.2% of the domestic listed money market fund assets).

RATING SENSITIVITY AND SURVEILLANCE

The ratings may be sensitive to significant changes in the credit quality or market risk profile of the fund. A significant adverse deviation from Fitch's guidelines for any key rating driver could lead to a rating downgrade. Specifically, Fitch would expect to downgrade the National Fund Credit Quality Rating if credit quality deteriorates or the fund changes its investment practices substantially to allow it to invest a larger portion of assets in lower-rated assets. The fund's rating would also be sensitive to deterioration in the credit quality of the Taiwanese banking sector, given its large exposure to that sector.

Fitch expects the National Fund Volatility Rating to remain stable, given the fairly short maturity profile of the fund. However, should interest rates or market volatility in Taiwan structurally change, or the maturity profile of the fund be substantially extended, then Fitch would expect to downgrade the National Fund Volatility Rating.

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

For additional information about Fitch rating criteria applicable to bond funds, see the criteria referenced below at www.fitchratings.com.

Comparisons between different national fund rating scales or between an individual national and international scale are inappropriate.