In addition to credit factors, changes in market conditions can affect the net asset value of a fund. So we developed an additional
Volatility Rating to complement the
Fund Credit Quality Rating. A
Fund Volatility Rating is not a credit rating.
The volatility rating scale, which ranges from 'S1' (lowest sensitivity) to 'S6' (highest sensitivity), expresses S&P Global Ratings' current opinion of a fixed-income fund's sensitivity to changing market conditions.
The
Volatility Ratings analysis focuses on measuring quantifiable portfolio risk factors including interest-rate, yield-curve, credit, liquidity, options and concentration risk. In addition, we also evaluate the fund's total return's historical volatility. The effects of various portfolio strategies, such as the use of leverage, hedging, and derivative instruments, are also factored into the rating.
Management Assessment
The fund's managers can have a significant impact on the fund's risk profile. This is why we conduct an assessment of the fund's management for all fund ratings. The primary goal of the assessment is to evaluate the managers' effectiveness in maintaining an investment policy that is consistent with the fund's stated investment goals.
We consider the following as part of the management assessment:
- Experience and track record
- Credibility and commitment to policies
- Operating policies and risk preferences
- Effectiveness of internal controls
Surveillance
We perform monthly surveillance of the fund to form a view on whether any changes in the portfolio and management operating policies may alter the fund's credit or market risk and, therefore, the rating. S&P Global Ratings also conducts an annual management review to identify any changes in management, policy, strategy, and operations.
