OREANDA-NEWS. Fitch Ratings has affirmed Taiwan-based Union Money Market Fund's (Union MMF) National Fund Credit Quality Rating 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 0.45 at end-September 2015 and assets that have ratings ranging from 'BBB+(twn)' to 'AAA(twn)'.

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 high average credit quality, with 88.2% of assets rated in the 'A(twn)' to 'AAA(twn)' range at end-September 2015. Credit risk is higher for Union MMF relative to similarly rated peers due to a higher proportion of assets rated 'BBB+(twn)' and their relatively longer maturities. The fund had 2% of its exposure on Negative Rating Outlook at end-September 2015. Fitch considers that a downgrade of this exposure is unlikely to substantially alter the portfolio's credit quality, all else being equal, given the exposure is limited and related to highly rated issuers or counterparties.

The fund has high concentration in the Taiwanese banking and finance sector, whose credit Outlook is broadly Stable. The top five issuers represent 42% of the fund's assets under management (AUM).

PORTFOLIO SENSITIVITY TO MARKET RISK

The fund has low exposure to interest rate and spread risks, given the portfolio assets' weighted-average maturity of 127 days at end-September 2015. However, the average-weighted maturity is higher than that for similarly rated peers.

INVESTMENT ADVISOR

The fund is advised by Union Securities Investment Trust Co., Ltd (USIT), which is 35% owned by Union Bank of Taiwan and 62.5% owned by the bank's associates. Union Bank of Taiwan is one of the smaller commercial banks in Taiwan.

Fitch considers the investment advisor suitably qualified, competent and capable of managing the fund. The investment team is experienced in implementing investment ideas.

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. It is a medium-sized money market fund in Taiwan with TWD23.0bn of assets at end-September 2015 (equivalent to 2.6% 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's investment practices change substantially to allow it to invest a larger portion of the portfolio 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 materially extended, then Fitch would expect to downgrade the National Fund Volatility Rating.

To maintain bond fund ratings, USIT, 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.