Fitch: Stable Outlook for Bond Funds in 2015

The Rating Outlook for the bond investment fund sector (BIF) in Mexico is Stable, according to a Fitch Ratings special report: '2015 Outlook: Bond Funds, Increase of Assets Under Management and Profitability Linked to Macro Conditions'.

The report specifies the main factors that determine the trend of the BIF sector in Mexico for the following year based on information recorded during the past year. The report also highlights the presence of several risk factors, both macroeconomic and geopolitical, that could affect the bond fund market in Mexico.

The report shows how the industry could benefit from diverse regulatory changes. Among these changes is the simplification of administrative processes, which would entail a reduction of costs, a broadening of services offered by including trustees, the implementation of an open architecture which would increase the offer of funds of other agents in the market, and the specification of guidelines for the merger and demerger process of funds.

Fitch also highlights the favorable development of investment funds (IF) throughout the past 12 months and the investment mainly in Mexican BIFs. The latter is reflected in the attraction of net average assets (NAA) of MXN1,332.3 billion, a scenario that will continue thru 2015.

Furthermore, Fitch's report includes the trajectory of BIFs and investors graphically, showing an insignificant decrease of 5.3% and 6.2%, respectively. However, assets under management (AuM) by BIF totaled MXN1,421.7 billion and registered an annual growth of 10.5%. This result exceeded the results of the previous period of 7.8%.

The report also highlights the group of operators that manage, jointly, most of the resources of BIFs (83.6%) as of September 2014. Three of these stood out since they reached an annual growth rate above the industry's rate (10.5%), while another eight operators had a significant growth in their AuMs.

Fitch emphasizes the conservative position maintained by agents as of the third quarter of 2014 (3Q'14), shown in the securities portfolio composition. Government bonds continue to prevail, with 77.2% participation as of September 2013, and 79.8% as of September 2014. This aspect explains the limited average yield obtained by the BIFs, which is similar to inflation.

Fitch highlights how at the close of September 2014, most of the BIFs it rates (81.8% of the total) have the lowest risk of default prospect. However, the adjustments to market risk ratings for the following year will be due to the modifications made by the operators to the investment strategies and/or the portfolio composition.

The special report '2015 Outlook: Bond Funds, Increase of Assets Under Management and Profitability Linked to Macro Conditions' is available at www.fitchratings.com and www.fitchratings.mx.

Additional information available at: www.fitchratings.com or www.fitchratings.mx.

Applicable Criteria and Related Reports:

--'Special Report: Significant Events of the Bond Funds Rated by Fitch, August 2013 - September 2014' (Nov. 26, 2014);

--'Special Report: Return According to Market Risk Rating, Bond Investment Funds (First-Half 2014)' (Oct. 3, 2014);

--'Outlook Report: 2014 Outlook: Bond Funds, Moderate Growth, and Conservative Investment Strategies' (Dec. 13, 2013).

Applicable Criteria and Related Research: 2015 Outlook: Bond Funds

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=838448

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