Investment grade

Investment grade covers ratings of BBB- and above on the S&P and Fitch scales, and Baa3 and above on Moody’s. Ratings of BB+ and below are high yield. Many policies and indices treat the two groups differently.

Policies use the line in three ways:

• as an eligibility test: “investment grade only”;
• as a cap: “no more than 10% below investment grade”;
• as a trigger to review a holding after a downgrade.

Each use needs a rule for split ratings, negative watches and unrated bonds.

Acclimetry works on the long-term AAA to D ladder, with Moody’s symbols aliased onto it. Its worked cases treat AAA, AA, A and BBB as the investment-grade bucket, and BB+ as below a BBB- floor. Example: investment-grade holdings of 700 in a 1,000 portfolio are 70%, meeting a 60% minimum (rating distribution limits).