Standard & Poor's assigns two types of ratings to bond funds and other managed pools of fixed income assets with fluctuating net asset values, including cash-enhancement funds, fix-income hedge funds, local government investment pools, and unit investment trusts:
Credit Quality Ratings address the level of protection that the fund's portfolio holdings provide against losses from credit defaults.
They are derived from Standard & Poor's historical default and transition studies and are based on an analysis of the fund's overall portfolio credit quality.
Rating categories range from 'AAAf' (highest level of protection against losses from credit defaults) to 'CCCf' (for funds that are extremely vulnerable to losses from credit defaults).
Volatility Ratings address the fund's sensitivity to changing market conditions.
They are based on an analysis of a fund's investment strategy and portfolio level risk— including interest rate, credit, liquidity, concentration, call-and-option and currency risks.
Rating categories range from 'S1' (lowest volatility) to 'S6' (highest volatility).
Credit Quality and Volatility Ratings help investors by:
Identifying the risks inherent in each fund and determining how they interact to produce an aggregate risk.
Understanding a fund's exposure to changing market conditions.
Assessing the managers of a fund and their investment strategies.
Benchmarking several funds with different characteristics in a systematic way with an easy-to-use rating system.
