Risks

Investments in Triodos Microfinance Fund are subject to several risks, which are described in detail in the particulars relating to the sub-fund included in the prospectus of Triodos SICAV II. Some of the relevant risks are highlighted below.

Currency risk

The reference currency for Triodos Microfinance Fund is the euro, whereas investments may be denominated either in euros or in foreign currencies. The fund may invest up to 90% of its total assets in non-euro denominated assets. Currency exchange rates may fluctuate significantly over time, which may, among other things, cause the fund’s total assets to fluctuate as well.

The currency risk is mitigated by restrictions on the relevant exposures and by the use of hedging instruments. Currency exposures in the loan portfolio are mostly hedged, whereas currency exposures resulting from equity holdings are mainly unhedged. The currency risk is mitigated by restricting the fund’s investments denominated in unhedged local currencies to a maximum of 60% of the fund’s total assets.

Liquidity risk

Liquidity risk is the risk that the fund cannot meet its obligations to redeeming shareholders. As Triodos Microfinance Fund is a semi open-end fund, it may face large redemptions on each valuation day. If this should occur, investments need to be sold quickly in order to comply with the repayment obligation towards the redeeming shareholders. In general, the fund invests in non-listed assets that may take time to be converted into cash.

Hedged and unhedged positions
(% of fund’s total assets), December 31, 2016

Hedged and unhedged positions (% of fund's total assets)

Allocation unhedged positions
(% of unhedged positions), December 31, 2016

Allocation unhedged positions (% of unhedged positions)

Exposure by currency (% of fund’s total assets), December 31, 2016

Download XLS

 

 

 

USD

48.4%

 

Hedged

 

97.5%

Unhedged

 

2.5%

Local currency

33.0%

 

Hedged

 

33.4%

Unhedged

 

66.6%

EUR

18.6%

 

The following measures are in place to mitigate the liquidity risk:

  • The investments in the fund are illiquid in nature but can nevertheless be sold on a secondary market. The fund has included assignment rights in its legal documentation.
  • The fund aims to retain sufficient buffers in the form of cash or cash equivalents or arrange sufficient other guarantees. The cash buffers are determined on a monthly basis, based on historical in- and outflows, inflow forecasts and the results of certain stress tests.

The fund may decide to temporarily close for redemptions or subscriptions by suspending or restricting the purchase and issue of shares of the fund. The fund performs monthly stress tests to assess this risk.

On December 31, 2016, the fund held 17.6% of its net assets in cash and cash equivalents (2015: 22.5%). In 2016, Triodos Microfinance Fund received repayments of maturing loans representing 11.2% of the fund’s total assets and received interest and dividend income on a quarterly basis. In 2016, liquidity was considered more than adequate for the fund to meet its payment obligations and facilitate the monthly subscriptions and redemptions of its shares.

Country risk

Triodos Microfinance Fund invests in countries that may be subject to substantial political risks, countries that may be suffering from an economic recession, perhaps entailing high and rapidly fluctuating inflation, countries that often have poorly developed legal systems and countries where the standards for financial auditing and reporting may not always be in line with internationally accepted standards.

To limit the country and political risks, Triodos Microfinance Fund has set the upper limit for securities and financing instruments issued by or provided to entities that operate in any one country at 20% of its total assets.

On December 31, 2016, the country where the fund had the highest exposure was Cambodia, where 14.7% of the fund’s total assets are invested (2015: 12.7%). Country risks are mitigated by diversifying the geographical exposure across a larger number of countries. In 2016, Triodos Microfinance Fund added three new countries to the portfolio: Costa Rica, Pakistan and Belarus. The economies of Azerbaijan, Tajikistan and Kyrgyz Republic continued to feel the effects of the downturn of the Russian economy, low oil prices and weaker currencies. The fund has scaled back its exposure to countries in this region by actively reducing positions by means of voluntary repayments and by not renewing loans. As per December 31, 2016 the fund’s exposure in Azerbaijan, Tajikistan, Kazakhstan and Kyrgyzstan is 9.1% of the fund’s total assets (2015: 14.1%). In Nigeria, shortages of hard currencies forced the authorities to let the peg of the Nigerian naira to the US dollar go, leading to a strong depreciation of the currency.

Top ten country allocations (% of fund’s total assets), December 31, 2016

Download XLS

Country

Percentage

 

 

Cambodia

14.7%

India

11.9%

Ecuador

6.7%

Paraguay

4.8%

Georgia

3.4%

Panama

3.4%

Kyrgyzstan

3.4%

Bolivia

3.1%

Sri Lanka

2.9%

Peru

2.9%

 

 

 

 

Total

57.2%

 

 

Credit risk

The fund provides debt instruments to financial institutions. In 2016, the fixed-income portfolio (including accrued interest) represented 60.8% of the fund’s total assets. Triodos Microfinance Fund is therefore exposed to credit default and concentration risks. The fund manages the credit risk among other things by monitoring the Portfolio-at-Risk (PAR) ratios (the percentage of non-performing loans in the total loan portfolio) of FIs in the Triodos Microfinance Fund portfolio. This ratio can be an indicator of increased credit risks in the portfolio and is closely monitored on a continuous basis.

The risk that an MFI will fail to meet its obligation to repay a loan upon maturity is mitigated by carefully selecting financial institutions and is further limited by closely managing the relationship. The concentration risk is mitigated by limiting the single obligor exposure to 15% of the fund’s total assets.

Five largest outstanding positions (% of fund’s total assets), December 31, 2016

Download XLS

Institution

Country

Percentage

 

 

 

ACLEDA Bank

Cambodia

10.8%

Credo

Georgia

3.4%

Banco Pichincha

Ecuador

3.3%

BancoSol

Bolivia

2.7%

LOLC Micro Credit

Sri Lanka

2.1%

 

 

 

On December 31, 2016, the weighted average PAR over thirty days was 5.6% (at year-end 2015: 4.7%). This increase is mainly the result of the ongoing recession in Central Asian countries.

Create your own report

Chart Generator – Create your own charts (teaser)

Chart Generator

Easily digested facts and figures,
for you to create and download.

Create your own charts