Fitch Ratings has affirmed the National Fund Credit Quality Ratings (NFCQRs) and National Fund Volatility Ratings (NFVRs) of six South African money market funds (MMFs) at 'AA+(zaf)'/'V1(zaf)'.

The funds are Absa Money Market Fund (AMMF), Investec Corporate Money Market Fund (ICMMF), Momentum Money Market Fund (MMMF), Nedgroup Investments Corporate Money Market Fund (NICMMF), Nedgroup Investments Money Market Fund (NIMMF) and STANLIB Corporate Money Market Fund (SCMMF).

The funds' investments advisors are Absa Asset Management, Investec Asset Management, Momentum Asset Management, Taquanta Asset Managers on behalf of Nedgroup Collective Investments, and STANLIB Asset Management, respectively.

As of end-February 2015, the combined assets under management of these funds were approximately ZAR117bn ($9.64bn).

Fitch said that the current ratings are driven by the “funds' high current and prospective credit quality, as reflected by their weighted average rating factors (WARF) and rating distributions”.

“The NFCQRs factor in a one-notch downward adjustment from their WARF implied ratings to reflect concentration risk, a structural feature of the South African market,” the agency said.

In Fitch's opinion, rated South African MMFs are concentrated because the top three-issuer exposure is consistently in excess of 50% of portfolio holdings.

In line with its applicable rating criteria, Fitch typically adjusts down the WARF-implied NFCQR of funds it deems concentrated by one or more notches.

This reflects the funds' investment mandates and the structural characteristics of the South African market, with a limited supply of treasury bills, and the five largest banks having a combined market share of around 90%, according to Fitch's estimates.

Without structural evolution of the South African market resulting in a more diverse, high quality and liquid issuance market, it is highly unlikely that Fitch would rate any MMF higher than 'AA+(zaf)' in South Africa.

The MMMF is less concentrated than rated peers primarily due to its greater exposure to corporate issuers.

In this case, Fitch views a single-notch adjustment as still appropriate to reflect both the moderate concentration risk posed by the fund and its exposure to lower credit quality issuers relative to peers.

Fitch added that the funds have low exposure to interest rate risk and spread risk, as reflected by their short maturity profiles.

As per regulation, the funds' weighted average duration (i.e. to next interest rate reset date) is capped at 90 days and weighted average life (i.e. to final maturity date) at 120 days, and no investment may have a maturity of greater than 13 months.

This enables the funds' to achieve a NFVR of 'V1(zaf)'.

The funds are regulated by South Africa's Financial Services Board under the Collective Investment Schemes Control Act of 2002.

The AMMF, ICMMF, MMMF, and the NICMMF are also compliant with Regulation 28 of the Pension Funds Act, making them eligible investments for South African pension schemes.

The ratings of the funds may be sensitive to material changes in the funds' credit quality or market risk profile.

Fitch would expect to downgrade the NFCQR in the event of a sustained deterioration in any of the funds' credit quality.

“Given the maturity profile of the funds and the regulatory limits, the NFVRs are expected to be stable. However, should interest rates or market volatility in South Africa structurally change then Fitch would expect to downgrade the ratings,” the agency said.