Fitch Ratings has affirmed Taiwan-based Union 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 affirmation of the National Fund Credit Quality Rating reflects the sustained 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 fund's weighted-average rating factor (WARF) suggested a rating of 'AAAf(twn)' at end-September 2022, but Fitch recognises that the fund manager may increase exposure to lower-quality securities or extend the maturity profile (within applicable regulatory limits). This could individually or in combination lower aggregate credit quality and therefore Fitch affirmed the rating at 'AA+f(twn)'.

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

ASSET CREDIT QUALITY

The portfolio has high average credit quality, as measured by its WARF of 0.14 at end-September 2022, which was comparable with the peer average. The portfolio has about 98% of assets rated in the 'A(twn)' to 'AAA(twn)' category and 2% in the 'BBB(twn)' category.

The fund has high industry concentration in the Taiwanese banking and finance sector, which has a stable credit outlook. The fund's top-five issuers represented 29% of assets under management. This was lower than the peer average of 35%.

PORTFOLIO SENSITIVITY TO MARKET RISK

The market risk factor was 0.23 at end-September 2022, higher than the peer average of 0.20. This implies a National Fund Market Risk Sensitivity Rating of 'S1(twn)'. The weighted-average maturity was 68 days, slightly higher than the peer average of 64 days.

FUND PROFILE

The fund invests in time deposits, commercial paper and repos. It has total assets under management of TWD27 billion at end-September 2022; equivalent to 3.6% of the domestic listed money fund market.

INVESTMENT MANAGER

Fitch considers the investment manager to be suitably qualified, competent and capable of managing the fund. The fund is managed by Union Securities Investment Trust Co., Ltd, which is wholly owned by Union Bank of Taiwan. The fund manager ranks 27th among 39 asset managers in Taiwan based on mutual fund assets under management. It manages TWD36 billion of assets, accounting for 0.8% of Taiwan's mutual fund market as of October 2022.

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 are 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 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 its large exposure. In all of Fitch's four stress tests, the WARF indicated a credit-quality rating of 'AAAf(twn)'.

Fitch does not expect a change in the National Fund Market Risk Sensitivity Rating due to the fund's short maturity profile, but a downgrade could stem from a structural change in Taiwan's interest rates or market volatility or if the fund's maturity profile is substantially extended.

The fund manager provides Fitch with monthly information, including details of the portfolio's holdings, credit quality and transactions, to maintain the bond fund ratings. Fitch monitors the credit composition of the portfolio, 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 those 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

Union 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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