ICRA Lanka reaffirms [SL] AAAmf mutual fund rating to NDB Wealth Management’s Gilt Edged Fund
Tuesday, 18 February 2014 00:01
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ICRA Lanka Ltd., a wholly-owned subsidiary of ICRA Ltd., an associate of Moody’s Investors Service, has reaffirmed its credit risk rating of ‘[SL] AAAmf’ issued to NDB Wealth Management’s Eagle Gilt Edged Fund. The rating indicates that the underlying portfolio has the lowest credit risk and the highest degree of safety from credit losses.
The rating in Sri Lanka is assigned on an eight-point scale developed specifically for the country, and ranges from ‘[SL] AAA’ to ‘[SL] D’. The suffix of “mf” is to denote that the rating pertains to the local mutual fund schemes. This rating scale ranks the relative default risk associated with issuers/debt/schemes in Sri Lanka.
The Eagle Gilt Edged Fund is part of the “myeaglefunds” family of mutual funds and is one of the fixed income funds managed and marketed by NDB Wealth Management Ltd. The asset management company is owned by the National Development Bank Plc (NDB Bank) and has over Rs. 66 billion of assets under management.
The Eagle Gilt Edged Fund was established in 1997 and has a track record of 15 years and has been established under the SEC Act No 36 of 1997 amended Act No 26 of 1991 and the Unit Trust Code of 1994. The NDB Wealth Management is the largest private sector fund management company, in Sri Lanka with over Rs. 66 billion of assets under management as at December 2013, of which mutual funds under management amounted to over Rs. 15.0 b. The company is licensed with and regulated by the Securities and Exchange Commission of Sri Lanka (SEC) as a Unit Trust Fund Manager.
The Fund is an open ended Government of Sri Lanka securities fund with an objective of maximising returns from investments in government securities and government guaranteed securities. The fund may also invest in short term deposits of commercial banks.
The funds/assets under management stood at Rs. 1,467 million as at December 2013 and had an average residual maturity of around 0.40 years as on that date. The rating factors in the commitment to restrict bank deposits to under 15% of the assets and such deposits to be placed for tenures of less than 3 months with banks having a high external credit rating of AA or above. As of December 2013 the fund constitutes entirely of Government Securities and Repos.
ICRA Lanka’s mutual fund rating methodology is based on evaluating the inherent credit quality of the fund’s portfolio. As a measure of the credit quality of a debt fund’s assets, ICRA Lanka uses the concept of “credit scores”. These scores are based on ICRA Lanka’s estimates of credit risk associated with each exposure of the portfolio taking into account its maturity. To quantify the credit risk scores, ICRA Lanka uses its database of historical default rates for various rating categories for various maturity buckets.
The credit risk ratings incorporate ICRA Lanka’s assessment of a debt fund’s published investment objectives and policies, its management characteristics, and the creditworthiness of its investment portfolio. ICRA Lanka reviews relevant fund information on an ongoing basis to support its published rating opinions. If the portfolio credit score meets the benchmark of the assigned rating during the review, the rating is retained.
In an event that the benchmark credit score is breached, ICRA Lanka gives a month’s time to the debt fund manager to bring the portfolio credit score within the benchmark credit score. If the debt fund manager is able to reduce the portfolio credit score within the benchmark credit score, the rating is retained. If the portfolio still continues to breach the benchmark credit score, the rating is revised to reflect the change in credit quality.
