Fund managers in Taiwan could this year find it challenging to maintain yields without scarifying portfolio credit quality compared with last year, while keeping their credit profiles stable, Taiwan Ratings Corp (中華信評) said yesterday.
“It will be increasingly difficult this year for local fund managers to balance the risks and returns of their investment decisions as uncertainty builds up,” credit analyst Caroline Shih (施佳吟) said in a note.
A major risk is whether Taiwan’s central bank will adjust interest rates this year, Shih said.
Fund managers have to stabilize volatility in fund credit scores when they adjust the weighted average durations and manage liquidity preparation and concentration, Shih said.
The local arm of Standard & Poor’s Global Ratings said that it views fund managers’ investment strategies — including liquidity preparation, weighted average durations and concentration — as crucial factors in achieving their investment goals.
These choices will differentiate investment returns and portfolio credit profiles as the market evolves, the analyst said.
The agency also pointed out that the central bank could raise its policy rate later this year, as is widely expected, and rate changes could reverse the downtrend of fund sizes in Taiwan.
Individual fund portfolios could remain largely unchanged this year, while the weighted average maturity could stay at the current high level or higher, depending on the timing of interest rate changes, Taiwan Ratings said.
Nonetheless, the agency maintains a “stable” outlook on the various money market funds under its purview, in line with its stable outlook regarding Taiwan’s financial services and corporate sectors, Shih said.
The consistent investment guidelines of domestic fund houses and strict regulatory rules in Taiwan also lend support to the ratings agency’s opinion, the analyst said.
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