Fund Credit Quality Ratings

We assign Fund Credit Quality and Fund Volatility Ratings to actively or passively managed fixed-income funds, as well as to other collectively managed pools or segregated mandates holding fixed-income assets. These include exchange traded funds, short-duration funds, EU regulated ‘Standard VNAV’ money market funds, fixed-income hedge funds, sovereign wealth funds, local government investment pools, unit investment trusts, and preferred shares trusts.

S&P Global Ratings has been rating global FCQRs since 1994. Identified by the 'f' suffix, FCQRs are distinguished from an S&P Global Ratings traditional issue or issuer credit rating, which by comparison, reflects our view of a borrower's ability to fully and timely meet its financial obligations. When assigning an FCQR to a fund, we focus on quantitative and qualitative areas, including:

• Overall credit quality, diversification, maturity, and liquidity of a fixed-income investment.
• The strengths and weaknesses of the fund's management and organization, risk management & compliance, credit culture and credit research.
• The fund’s sensitivity to interest rate risk, credit risks, concentration risk, counterparty risk and liquidity risk. FCQRs are typically accompanied by Fund Volatility Ratings (FVR) (i.e., 'Af/S3') -- when fund volatility ratings can be assigned--to communicate our opinion about certain risks not addressed by a FCQR.

We consider the following as part of the management assesment:

• Experience and track record
• Credibility and commitment to policies
• Operating policies and risk preferences
• Effectiveness of internal controls

Our Fund Credit Quality and Fund Volatility Ratings provide an independent view, based on a set of objective, public criteria, on:

• The overall credit quality of a fixed-income investment fund.
• A fund's sensitivity to interest rate risk, credit risk and liquidity risk, as well as other factors that may affect returns such as the use of derivatives, use of leverage, exposure to foreign currency risk, and investment concentration and fund management.
• The strengths and/or weaknesses of management and their associated mechanisms (credit research, internal controls, pricing, etc.) utilized to assess whether the fund meets its objective.