Policy clause
"No more than 10% below investment grade": how to write it, test it and evidence it
A sub-investment-grade cap limits the weight of holdings rated below BBB-. It becomes testable once the policy names the denominator, the rule for split ratings and the treatment of unrated bonds. Acclimetry's credit quality floor reads each grade on the S&P and Fitch ladder, with Moody's symbols aliased, and caps the weight below it.
No more than 10% of the portfolio may be invested in securities rated below investment grade.
credit_qualityQuestions to settle before it can be tested
- Of what: 10% of the whole portfolio, or of the bonds? Exempt classes leave the count but stay in the denominator; for the bond sleeve, narrow the rule's measured population to bond classes.
- Split ratings: median, lowest or highest? The organisation's credit-quality policy decides; the shipped default is the middle of three and the lower of two.
- Unrated bonds: by default they leave the rule not evaluated. A rule can instead count them as below the minimum, exclude them or map them to a grade.
- Downgrades: a fallen angel breaches from the first run after the downgrade. A grace period in days lets the case's clocks wait while it is sold.
As a testable rule
Credit quality floor template, minimum grade BBB-, with ratings from the organisation's named providers and the lowest applied where they differ. Hard maximum 10% and warning maximum 8% over net market value, with equities and cash exempt but still in the denominator. Unrated bonds count as below the minimum, and a 90-day grace period delays the case's clocks after a downgrade.
A testable wording
No more than 10% of the portfolio's market value may be held in bonds rated below BBB-. Where agencies differ, the lowest rating applies. Unrated bonds count as below investment grade. A downgraded bond may be held for up to 90 days.
The split ratings note and the unrated bonds clause settle the last two questions.
Worked example
Under the lowest-rating rule, a split-rated bond and the B bond are 9% of the 6m portfolio, a warning; under the median rule, 4%.
Rule template:credit_quality minimumGrade: BBB-exemptClassNames: Equities, CashunratedTreatment: below_minimum
Bounds: warn max 8% · hard max 10%
| Holding | Class | Market value | RATING_SP | RATING_MOODYS | RATING_FITCH |
|---|---|---|---|---|---|
| Global equity fund | Equities | 2,400,000 | (blank) | (blank) | (blank) |
| Cash | Cash | 200,000 | (blank) | (blank) | (blank) |
| Corporate 4.5% 2031 | Corporate bonds | 1,000,000 | A | A2 | A |
| Corporate 5% 2030 | Corporate bonds | 1,360,000 | BBB | Baa2 | BBB |
| Corporate 5.5% 2032 | Corporate bonds | 500,000 | BBB- | Baa3 | BBB- |
| Corporate 6% 2029, split-rated | Corporate bonds | 300,000 | BBB- | Baa3 | BB+ |
| High-yield 7.5% 2028 | Corporate bonds | 240,000 | B | B2 | B |
| Rating providers | Split ratings | Watch / outlook notching |
|---|---|---|
| SP (RATING_SP), MOODYS (RATING_MOODYS), FITCH (RATING_FITCH) | lowest | off |
| Group | Status | Value | Bounds | Headroom to the hard bound | Code |
|---|---|---|---|---|---|
| Credit quality | Warning | 9% | ≤ 10% warning ≤ 8% | 1% -1% to warning | ABOVE_WARNING_MAXIMUM |
ABOVE_WARNING_MAXIMUM: The measured value has crossed the early-warning maximum but not the hard limit.
Largest contributors: Credit quality → Corporate 6% 2029, split-rated (BB+) 5%, High-yield 7.5% 2028 (B) 4%
Computed at build time by the Acclimetry rule engine (backend commit 8197063); the same code runs in the product.
What each monitoring run records
Each run stores the weight below the floor, its state, headroom and the offending bonds with their grades. The result states the credit-quality policy applied, whether it was stated or the provisional default, and how many holdings were unrated or notched. A breach opens a case with its root cause.