Fitch Ratings has affirmed Taiwan-based UPAMC James Bond Money Market Fund's National Fund Credit Quality Rating at 'AA+f(twn)' and National Fund Market Risk Sensitivity Rating at '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)' as of February 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 affirmed 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, as reflected in its short weighted-average and individual asset maturity profiles.

ASSET CREDIT QUALITY

The fund shows high credit quality with 100% of its assets rated in the 'A(twn)' to 'AAA(twn)' range. The WARF was 0.13 as of September 2022, which is well within the 'AAAf(twn)' rating range of 0.0-0.3 and lower than peers average of 0.14.

The fund has high industry concentration in the Taiwanese banking and finance sector, whose credit outlook is stable. The top-five issuers represent 52% of the fund's assets under management, higher than the rated peer average of 35%.

PORTFOLIO SENSITIVITY TO MARKET RISK

The market risk factor (MRF) was 0.16 at end-September 2022, lower than the peer average of 0.2, implying a National Fund Market Risk Sensitivity Rating of 'S1(twn)'. The weighted-average maturity of the fund is 95 days as of September 2022, longer than the peer average of 64 days.

FUND PROFILE

The fund mainly invests in time deposits, commercial paper and repurchase agreements. The fund has approximately TWD28 billion of assets under management as of September 2022. It ranks 8th among 36 money-market funds in Taiwan, representing 3.7% 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 Uni-President Assets Management Co., Ltd. (UPAMC). Established in 1992, the investment manager has long experience managing mutual funds including money-market funds. Over 50% of UPAMC's shares are held by Uni-President group (President Securities Corporation: 42.46%, President Chain Store Corp: 7.6%; Uni-President Enterprises: 1.6%).

UPAMC ranks 15th among 39 asset managers in Taiwan and has TWD88 billion of mutual fund assets under management, which account for 1.9% of Taiwan's mutual funds market as of October 2022. Senior management and investment professionals are experienced with an average 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, the increase of '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. In all of Fitch's four stress tests, the WARF indicated a credit-quality rating of 'AAAf(twn)'.

Fitch expects the National Fund Market Risk Sensitivity Rating to remain stable due to the fund's short maturity profile. However, Fitch would expect to downgrade the rating if interest-rate or market volatility in Taiwan structurally changed or the fund's maturity profile was substantially extended.

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

RATING ACTIONS

Entity / Debt

Rating

Prior

UPAMC James Bond Money Market Fund

Natl Fund Cr Qual

AA+f(twn)

Affirmed

AA+f(twn)

Natl Sensitivity

S1(twn)

Affirmed

S1(twn)

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VIEW ADDITIONAL RATING DETAILS

Additional information is available on www.fitchratings.com

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