Fitch Affirms Two Invesco Money Market Funds at 'AAAmmf'

Published: 2025-01-16 05:57:13 ET IVZ

Fitch Ratings has affirmed the 'AAAmmf' ratings of two U.S. money market funds (MMFs) managed by Invesco Ltd following a regularly scheduled review of the sector.

KEY RATING DRIVERS

The funds' overall credit quality and diversification;

Low exposure to interest rate and spread risks;

Holdings of daily and weekly liquid assets consistent with shareholder profiles;

Asset maturity profiles meeting Fitch's rating criteria; and

The capabilities and resources of the investment advisor.

PORTFOLIO CREDIT QUALITY/DIVERSIFICATION

Consistent with Fitch's criteria for rating MMFs at 'AAAmmf', the funds maintain high credit quality portfolios by investing exclusively in short-term securities rated at least 'F1' by Fitch or the equivalent.

MMFs rated 'AAAmmf' seek to manage their portfolios to limit exposure to individual issuers at less than or equal to 10% of net asset value (NAV), with no more than 5% of assets for those exposures above seven days in tenor. Minor and temporary deviations from these parameters may occur from time to time, mainly due to cash outflows. The funds also seek to limit their individual repurchase agreement (repo) exposures to individual counterparties to 25% of NAV, provided the counterparties are rated 'F1' or higher and such repos are fully collateralized by high credit quality and liquid government securities.

In the case of repo with counterparties rated 'F2', funds seek to limit their exposure to individual counterparties to 10% of NAV, as long as the repo is collateralized by high quality government securities and matures in one week or less. MMFs also seek to limit their exposure to government agencies, with exposures above 35% of NAV to any one agency limited to short-dated securities.

The funds' Portfolio Credit Factors (PCFs) were in line with Fitch's 'AAAmmf' rating criteria of 1.50 or less at the time of this review. PCF is a risk-weighted measure that considers the credit quality and maturity profile of the portfolio securities.

MATURITY PROFILE

MMFs rated 'AAAmmf' seek to limit interest rate and spread risk by maintaining their weighted average maturities (WAM) and weighted average lives (WAL) below 60 days and 120 days, respectively.

LIQUIDITY PROFILE

MMFs rated 'AAAmmf' seek to maintain sufficient levels of daily and weekly liquidity to meet redemption requests. Specifically, taxable MMFs rated 'AAAmmf' invest at least 10% of total assets in securities offering daily liquidity and at least 30% of total assets in securities providing weekly liquidity. Furthermore, the Fitch-rated taxable MMFs regulated under 'Rule 2a-7' adhere to increased daily and weekly liquidity requirements of 25% and 50%, as a result of recent reforms that went into effect in 2024.

Fitch's rating criteria for MMFs also considers the degree of shareholder diversification and the manager's distribution platform and investor-related risk controls.

SURVEILLANCE

Fitch receives bi-weekly fund portfolio holdings information including the credit quality and maturity of the individual securities to conduct surveillance against the MMF Rating criteria. For additional information about Fitch MMF rating criteria, please review the criteria referenced below, which can be found on Fitch's website.

MMF Reforms

The Securities and Exchange Commission (SEC) has implemented changes to MMF regulation, including increased liquidity requirements, mandatory liquidity fees for institutional prime and tax-exempt funds and other measures. Fitch updated its rating criteria for MMFs in July 2024 based on these structural changes to MMFs. As detailed in the updated MMF rating criteria, the presence of mandatory or discretionary redemption gates or liquidity fees do not in itself affect a fund's rating.

However, the activation of voluntary gates or fees could negatively impact a fund's rating. Conversely, the activation of mandatory fees prescribed by regulation, as means to be supportive of funds' NAV in the event of large net redemptions or market stress, would not be viewed by Fitch as having negative rating impact, as these mechanisms are a feature of the fund and known to investors investing in the fund.

INVESTMENT MANAGER

Invesco serves as the funds' investment advisor and is a wholly owned, indirect subsidiary of Invesco Ltd. As of Nov. 30, 2024, Invesco Ltd had $1.8 trillion in assets under management.

Fitch views the investment advisor's capabilities, resource commitments, operational controls, corporate governance, and compliance procedures as consistent with the ratings assigned to the funds.

RATING SENSITIVITIES

Factors that Could, Individually or Collectively, Lead to Negative Rating Action/Downgrade

Material declines in credit quality that would lead to sustained breaches of PCF or exposure to 'F2'-rated securities;

Significant outflows that lead to materially reduced liquidity, and would lead to sustained breaches of liquidity metrics outlined in Fitch's criteria;

Material and sustained breaches of other metrics outlined in the criteria for 'AAAmmf' MMFs.

Factors that Could, Individually or Collectively, Lead to Positive Rating Action/Upgrade

Not applicable as the assigned ratings are the highest rating outcome under the MMF rating scale.

SOURCES OF INFORMATION

The sources of information used to assess these ratings were the funds' investment advisor and/or fund administrator and the public domain.