Fitch Ratings has assigned Taiwan-based CTBC Hua Win Money Market Fund a first-time National Fund Credit Quality Rating of 'AA+f(twn)' and National Fund Market Risk Sensitivity Rating of 'S1(twn)'.

KEY RATING DRIVERS

The National Fund Credit Quality Rating reflects the 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 weighted-average rating factor (WARF) suggested a rating of 'AAAf(twn)' at end-November 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 assigned the rating at 'AA+f(twn)'.

The National Fund Market Risk Sensitivity Rating is driven by the fund's very low exposure to interest-rate and spread risk, reflected in its short weighted-average and individual asset maturity profiles.

ASSET CREDIT QUALITY

The fund invests 98% of the assets in the 'A(twn)' to 'AAA(twn)' range and 2% in 'BBB(twn)' range. The WARF was 0.13 at end-November 2022, which is well within the 'AAAf(twn)' rating range of 0.0-0.3 and slightly lower than that of peers.

The fund has high industry concentration in the Taiwanese banking and finance sector, whose credit outlook is neutral. The top-five issuers represent 33% of the fund's assets under management, lower than the rated peer average of 35%.

PORTFOLIO SENSITIVITY TO MARKET RISK

The market risk factor was 0.25 at end-November 2022, which is well within the National Fund Market Risk Sensitivity Rating range of 0.0-2.0 for the 'S1(twn)' rating level.

The weighted-average maturity of the fund was 79 days at end-November 2022, longer than the peer average of 69 days.

FUND PROFILE

The fund mainly invests in time deposits, commercial papers and repurchase agreements. The fund had approximately TWD21 billion in assets under management as of November 2022. It ranks 16th among 36 money market funds (MMFs) in Taiwan, representing 2.8% of the domestic listed money-fund market.

INVESTMENT MANAGER

Fitch considers the investment manager suitably qualified, competent and capable of managing the fund. The fund is managed by CTBC Investments Co., Ltd., which was established in 1998 and acquired by CTBC Financial Holding Co., Ltd. (CTBC Holding; BBB+/Stable) in 2012 before becoming CTBC Holdings' wholly owned subsidiary in 2013.

CTBC Investments ranks fifth among 39 asset managers in terms of mutual fund size in Taiwan. It has TWD325 billion in mutual fund assets under management, which accounted for 6.7% of the local mutual fund market as of end-November 2022. CTBC Investments also manages about TWD64 billion in mandated assets. The portfolio managers and research analysts have an average industry tenure of over 10 years.

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, an increase in '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.

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

CTBC Investments provides Fitch with monthly information, including details of the portfolio's holdings, credit quality and transactions, to maintain the fund's ratings. Fitch monitors the portfolio's credit composition, the credit counterparties used by the manager and the overall market-risk profile of the investments.

RATING CRITERIA

Fitch rates MMFs in Taiwan under our global Bond Fund Rating Criteria. This reflects the differences the agency perceives between Taiwanese MMFs and other Fitch-rated MMFs under our Money Market Fund Rating Criteria. Fitch regards Taiwanese MMFs as less liquid, longer dated and with lower credit quality than the MMFs in other markets. Comparisons between different national fund rating scales or an individual national and international scale are inappropriate.

Date of Relevant Committee

13 January 2023

RATING ACTIONS

Entity / Debt

Rating

CTBC Hua Win Money Market Fund

Natl Fund Cr Qual

AA+f(twn)

New Rating

Natl Sensitivity

S1(twn)

New Rating

Page

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VIEW ADDITIONAL RATING DETAILS

Additional information is available on www.fitchratings.com

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