Impact of Moody's Downgrade on Money Markets

By Nedgroup Investments

Nedgroup Investments Cash Solutions’ funds continue to deliver on their proposition of fixed deposit type yields, with call account type access, offering a one-stop, diversified exposure to a range of high-quality issuers, via a range of highly regulated and independently rated funds.

Capital preservation remains the overriding driver of all we do. Our fund managers are being ultra-cautious and have been accumulating high levels of liquidity as we go into month-end with market uncertainty surrounding the downgrade and COVID19. Despite the lockdown transacting remains convenient, and exactly as it has always been. Alternative methods of transacting are available and can be discussed with our team.

Below is commentary from our fund managers, Taquanta, about the effects of Friday’s downgrade of South Africa on the money markets. For a more coverage of the downgrade please use the link below to view a report by Nedbank CIB: Credit Insight: Moody’s downgrades SA to Sub-IG.
https://www.nedbank.co.za/content/dam/nedbank-crp/reports/Credit/2020/Moody%27s%20downgrades%20SA%20to%20sub-IG_200330.pdf

On the subject of ratings, we are delighted that all of the Nedgroup Investments Cash Solutions funds have had their ratings reaffirmed.

Finally, in today’s note we remind clients working remotely to be particularly vigilant   about Coronavirus-themed phishing attacks and hacking campaigns which are on the increase. Please read the piece below and look after yourselves and your liquid assets.

Impact of Moody’s Downgrade

On Friday night, as expected, Moody’s downgraded South Africa to a sub-investment grade rating of Ba1, with a negative outlook.  As previously communicated to all investors in the Nedgroup Investments’ Cash Solutions range of funds over many months, this was an inevitable consequence of the lack of growth in the domestic economy and a sharp increase in expected borrowing by Government, hence our move to de-risk all the portfolios in 2019 already, in anticipation of an early downgrade this year. 

As a reminder, the de-risking entailed:

• Liquidity risk :  We increased cash or near-cash balances and increased the holding of vanilla, tradeable, bank issued NCD’s and floating rate notes, which in our experience are the most liquid and tradable instruments available in the South African market. 
• Credit risk:  We moved credit exposures in favour of large banks, and the Nedgroup Investments cash fund range now holds in excess of 95% of the portfolio in local and international bank assets, with the bulk of that (>90%) exposed to the big 5 domestic banks in South Africa.  We do not believe the portfolios can be positioned much more conservatively from a credit and liquidity perspective without severely impacting on yields.
• Interest rate risk:  The Nedgroup Investments cash fund range is effectively 100% invested in floating rate assets - largely immunizing the portfolios against interest rate volatility
 
As a result of the COVID19 crisis, we recently further increased liquidity levels in all funds.  We are also cautiously optimistic that a large portion of the market panic and related bond selling that would naturally have occurred as a result of a downgrade, has already been priced into the market as a result of the Coronavirus crisis.  The move to delay the FTSE World Government Bond Index (WGBI) rebalancing date by a month, to the end of April, will also hopefully bring some relief to a “liquidity impaired” market, by allowing index funds to delay the necessary bonds sales, which are expected to be material – at least for a while. 
 
As I write this note, the USDZAR rate remains stable around the R18/$ level and the yield on the R186 bond is slightly lower than Friday’s close of 10.475%, which looks promising for now.  We do however, have a number of liquidity raising plans in place should there be any further market fall-out from the downgrade, but we will continue to monitor the liquidity situation and respond appropriately should it be required.  This too shall pass.

Ray Wallace – CIO Taquanta Asset Managers (Portfolio Managers of the Nedgroup Investments Cash Solutions fund range)
 
Nedgroup Investments Cash Solutions Fund Ratings Affirmed

All four Nedgroup Investments Cash Solutions funds are independently rated by GCR Ratings. We are pleased to report that GCR recently completed their annual review of our funds and processes, in line with the ratings review cycle, and we have been advised that all four funds have retained their ratings.

The fund ratings assigned by GCR to the Nedgroup Investments Cash Solutions fund range  from 1 April 2020 are as follows:

• Nedgroup Investments Prime Money Market Fund AAA
• Nedgroup Investments Corporate Money Market Fund AA+
• Nedgroup Investments Money Market Fund AA+
• Nedgroup Investments Core Income Fund AA

Please contact us should you wish to receive a full copy of the latest ratings certificates.


Beware: Coronavirus-themed phishing attacks and hacking campaigns

Cybercriminals are aiming to take advantage of fears over the Coronavirus as a means of conducting phishing attacks and spreading malicious software (malware), along with stealing login credentials and credit card details.

While people across the globe are beginning to restrict their movements in the hope of flattening the curve of the spread of the Coronavirus, spammers and phishers are out in full force. They want to take advantage of the online demand for information about the pandemic.

We urge you to think very carefully before clicking on any link or attachment in any email purporting to be from the World Health Organisation (WHO) or a similar supposedly trusted source, claiming to contain information about a cure for Covid-19, new platforms for threat map information or offers that sound too good to be true. Chances are it will be a hacker preying on your understandable anxiety about the Coronavirus pandemic.

Just as you would avoid touching objects and surfaces that may not be clean, so you should also avoid opening emails and text messages from unknown parties or visiting untrusted websites.

Please take note of the following tips to avoid falling victim to these criminals:
• Do not click on links or icons in unsolicited emails or SMSs, and never reply to these emails or SMSs. Delete them immediately.
• Do not blindly accept the content of unsolicited emails or SMSs as being the truth. If you are concerned about what is being alleged in such emails or SMSs, please verify the sender’s details through their website, before contacting them to confirm the legitimacy of a message.
• Use trusted sources, such as government websites for up-to-date, fact-based information about Covid-19.
• Do not reveal personal or financial information in any email or SMS, and do not respond to email solicitations for this information.
• Regard urgent security alerts, offers or deals as warning signs of a hacking attempt.
• If an email makes you feel anxious, fearful, curious or sounds too good to be true, rather follow your gut feel, stop and verify before clicking on anything.