WE CONTINUE TO PROTECT YOU AND YOUR INVESTMENT

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1 Takaful myafdhal Annual Performance Review 2009/2010 I Page 1

2 WE CONTINUE TO PROTECT YOU AND YOUR INVESTMENT Takaful myal Afdhal plan is a 5 year closed ended investment linked plan that allows participants to invest in a Shariah compliant structured investment product. With its principal protected feature, participants will enjoy coverage throughout the term while profiting from investment returns in the form of Annual Profits* from their lump sum Single Contribution. The Shariah compliant structured investment portfolio is provided by Citibank Berhad ( Citibank ) which has a credit rating of AAA/P1 financial institutional ratings, with a stable outlook by RAM Holdings Berhad ( RAM ) as at 17 th November * Subject to the actual performance of the investment. The returns on the structured product investment will be based on the performance of the Reference Assets whilst the principal will only be protected if investment is held to maturity. Takaful myafdhal Annual Performance Review 2009/2010 I Page 2

3 DISCLAIMER: This report is for information purposes only. The opinion contained in this report is based on information obtained or derived from sources that we believe are reliable. Syarikat Takaful Malaysia Berhad makes no representation or warranty, expressed or implied, as to the accuracy, completeness or reliability of the information contained therein and it should not be relied upon as such. * Sources of information: Reuters, Bloomberg, and Other Agencies Takaful myafdhal Annual Performance Review 2009/2010 I Page 3

4 STATEMENT FROM THE GROUP MANAGING DIRECTOR In the Name of Allah, the Most Compassionate, the Most Merciful It is a pleasure to reach our valuable myal Afdhal investors for its second annual performance review for the period ended 19 June The previous year has generally been quite a challenging year for many investors, having to withstand the volatility arising from the effort to support the global economy from melting down due to the financial crisis. We observed that most investments with global asset exposure were not able to resist the battered sentiments trickling down from the poor performance of almost all asset classes be it equity or commodity markets. The fragility of performance caused by the slump in the asset prices has affected the performance of most funds including structured products. Despite the challenging year, for the past one year the investment performance of myal Afdhal have shown strong recovery in most of the Reference Assets. This recovery has been reflected in the Net Asset Value (NAV) reaching a high of RM0.972 on 3 December 2009 as compared to last year s closing of RM It is important to highlight that the declaration of annual profits is dependent on the performance of the Growth Overweight or Defensive Overweight portfolios. To recap, the Growth Overweight portfolio comprises of 60% weight on Growth Basket and the remaining 40% on Defensive Basket whilst the Defensive Portfolio consists of 60% and 40% weights on Defensive and Growth Baskets respectively. During the period under review, the Defensive Basket with fixed 25% allocation into European Sovereign Fixed Income Index and 75% of Precious Metal Index has recorded positive return. Nevertheless, the positive performance has been eclipsed by the large negative performance from the Growth Basket which consists 50% of Copper, 25% of Asian Blue Chip Equity Index and 25% of Japanese REITs Index. As a result, both Growth Overweight and Defensive Overweight portfolios recorded negative returns of 14.38% and 6.79% respectively as shown in the table below: Takaful myafdhal Annual Performance Review 2009/2010 I Page 4

5 Growth Basket Average Cum ulative Return fo r 8 Quarters % weight in t he basket Perform ance o f basket Copper S p ot (30.65) 50% Asian Blue Chip Equ ity In d e x (22.33) 25% Ja pa ne se REITs Index (34.55) 25% (29.55) Defensive B asket Average Cum ulative Return fo r 8 Quarters % weight in t he basket Perform ance o f basket European Sovereign Fixed Incom e In d e x % 8.38 Precious M e ta l In d e x % Portfolio P erformance 1 Growth B asket Defensive Basket Perform ance o f Portfolio Growth Overw eight Portfolio (17.73) 3.35 (14.38) 60% x (29.55) 40% x 8.38 (17.73) Defensive Overweight Portfolio (11.82) 5.03 (6.79) 40% x (29.55) 60% x 8.38 (11.82) Hence, with both portfolios recorded negative returns, no annual profit is available for distribution with the NAV of myal Afdhal registered at RM0.940 for the financial year ended 19 June Going forward, we have seen concerted efforts from governments all over the world putting in place necessary measures in bringing back the world economy into growth trajectory. It is positive that the world is currently on the track for recovery, in which International Monetary Fund (IMF) has projected the world output to grow by 4.6% in 2010 as opposed to a contraction of 0.6% recorded in Whilst we are optimistic with the recovery, economic uncertainties remain with major concerns on European sovereign debt crisis and change in economic policy in certain major economies especially China could affect the global economic growth. We believe that your investment is able to withstand any challenges ahead considering that the capital is protected if it is held until maturity in In addition to that, you will also continue to enjoy our Takaful protection. Takaful myafdhal Annual Performance Review 2009/2010 I Page 5

6 Thank you for your strong support and we will continue to give our best of service to you. Let us invest in a better year ahead. May Allah give us His guidance, Amin. DATO HASSAN KAMIL Group Managing Director Takaful myafdhal Annual Performance Review 2009/2010 I Page 6

7 FUND PERFORMANCE Highest NAV: 3 Dec 09 RM Net Asset Value (NAV) Lowest NAV: 10 Sept 08 RM Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun 10 Annual Fund Performance Review for the period ended 19 June 2010 myal Afdhal entered into its second year with a great hope that concerted efforts by the global economies to reduce interest rates and spur lending activities, as well as the introduction of massive amount of stimulus package to support economic activities would support the underlying assets to perform better and improve the net asset value of the fund. To recap, myal Afdhal is a 5 year Shariah compliant capital protected investment link fund which performance is linked to the international multi asset classes covering European sovereign bonds, Asian equity market, precious metal, copper and Japanese property market. As such, the performance of myal Afdhal is determined by the state of global markets. During the period under review, supported by those fiscal measures, major economies have been back on their feet to steer the global economies into recovery track. Asian economies especially China, appears to be on a fast trajectory mode and hailed as the leader in the economic recovery process. Unfortunately, as global business and consumers confidence being built up, the world was stunned by the emergence of European sovereign debt crisis early this year, causing expectation that global recovery may be slower than expected and higher market volatility. Takaful myafdhal Annual Performance Review 2009/2010 I Page 7

8 Growth Overweight Portfolio Defensive Basket, 40% Growth Basket 60% Growth Basket Defensive Basket Performance of Portfolio (17.73) 3.35 (14.38) Defensive Overweight Portfolio Growth Basket Defensive Basket Performance of Portfolio Defensive Basket, 60% Growth Basket, 40% (11.82) 5.03 (6.79) Despite the challenging year, the investment performance of myal Afdhal had shown recovery in most Reference Assets. This recovery has been reflected in the Net Asset Value (NAV) of my Al Afdhal which recorded its high of RM0.972 on 3 December 2009 before settling down for the year to close at RM0.940 which is an increase by 4.9% as compared to first year s closing of RM The Defensive Basket with fixed 25% allocation into European Sovereign Fixed Income Index and 75% of Precious Metal Index has recorded positive return during the period under review. Nevertheless, the positive performance has been eclipsed by the large negative performance from the Growth Basket which consists 50% of Copper, 25% of Asian Blue Chips Equity Index and 25% of Japanese REITs Index. Takaful myafdhal Annual Performance Review 2009/2010 I Page 8

9 At the close of the 2 nd Anniversary, both Growth Overweight and Defensive Overweight Portfolios recorded negative performance of 14.38% and 6.79% respectively. It is important to highlight that the declaration of annual profits is dependent on the performance of the Defensive Overweight or Growth Overweight portfolios. As the performances since inception of both portfolios are still negative, no annual profit is available for distribution for the period ended 19 June Details of computation of each underlying are given in Appendix A and B. Performance of Underlying Since Inception % % Inception % Base % 80.00% 60.00% 40.00% 20.00% 0.00% 6/16/08 9/16/08 12/16/08 3/16/09 6/16/09 9/16/09 12/16/09 3/16/10 QW1A Index SPGCPMP Index DJTGR Index LOCADY Comdty TSEREIT Index Outlook Various measures have been introduced globally in order to ensure that economic recovery momentum is sustainable. It is thus expected for monetary policy to remain highly accommodative across the globe, where low interest rate is likely to be maintained. In the US, the Federal Open Market Committee (FOMC) in its recent meeting on 23 June 2010 maintained its key short term lending rate near 0%, and reiterated that the rate would remain exceptionally low for an extended period. Takaful myafdhal Annual Performance Review 2009/2010 I Page 9

10 In the wake of the Europe s sovereign financial crises, government in major economies is already taking appropriate measures to restore fiscal disciplines. An obvious example would be in the UK, where the new government unveiled the latest budget plan of 40 billion fiscal tightening in order to provide the necessary support to the country. Consequently, the European Governments may also have to reinstate its fiscal discipline by trimming or balancing their budget deficits and containing further rise in borrowings. In China, the People's Bank of China continues to tighten liquidity and signaled that it remains focused on reigning in liquidity and stemming inflation in the effort to maintain a healthy state of its economy. With the appropriate monetary and fiscal policies in place, global economy is expected to continue on its recovery. Economic forecast by the International Monetary Fund (IMF) on the world output is on an uptrend where it is expected to increase to 4.6% in 2010 as opposed to a contraction of 0.6% recorded in Anticipation for a better performance of each asset classes has been built based on the expectation that economic recovery would restore business and consumers confidence. As such, the underlying assets that have lost more than 50% of its initial value may need more uplift for it to off set the negative performance and in turn allow the Growth basket in particular to record positive return. With the understanding that the underlying assets performance move in tandem with the global recovery, hopes remains that the respective asset classes will be able to restore its value beyond its initial level. Going forward, it is hope that the concerted efforts from government all over the world would be able to bring back the world economy into growth trajectory which is expected to bring more positive momentum to performance of myal Afdhal. On the other hand, while it is positive on the global recovery momentum, economic uncertainties remain with major concerns on sovereign debt crisis and changes in economic policy in some major economies especially China, could lead to slower recovery than expected. The performance review and outlook of each underlying asset classes is detailed out in Appendix B of the report. Takaful myafdhal Annual Performance Review 2009/2010 I Page 10

11 APPENDICES Appendix A Detailed computation of portfolio performance Appendix B Performance review & outlook on individual asset class 1. European Sovereign Fixed Income Index 2. Precious Metal Index 3. Copper Spot 4. Asian Blue Chip Equity Index 5. Japanese REITs Index Takaful myafdhal Annual Performance Review 2009/2010 I Page 11

12 APPENDIX A The computation of performance payout is based on the average of cumulative return for 8 quarters starting from 16 September 2008 up to 16 June Growth Basket Average Cumulative Return for 8 Quarters % weight in the basket Performance of basket Copper Spot (30.65) 50% Asian Blue Chip Equity Index (22.33) 25% Japanese REITs Index (34.55) 25% (29.55) Defensive Basket Average Cumulative Return for 8 Quarters % weight in the basket Performance of basket European Sovereign Fixed Income Index % 8.38 Precious Metal Index % Portfolio Performance 1 Growth Basket Defensive Basket Performance of Portfolio Growth Overweight Portfolio (17.73) 3.35 (14.38) 60% x (29.55) 40% x 8.38 (17.73) Defensive Overweight Portfolio (11.82) 5.03 (6.79) 40% x (29.55) 60% x 8.38 (11.82) The performance of each portfolio is calculated as the total of the performance of both baskets, calculated based on the weights of each basket for the portfolio. Takaful myafdhal Annual Performance Review 2009/2010 I Page 12

13 APPENDIX B PERFORMANCE REVIEW & OUTLOOK OF INDIVIDUAL ASSET CLASS 1. EUROPEAN SOVEREIGN FIXED INCOME INDEX % % % % % 6/16/2008 7/16/2008 8/16/2008 9/16/ /16/ /16/ /16/2008 1/16/2009 2/16/2009 3/16/2009 4/16/2009 5/16/2009 6/16/2009 7/16/2009 8/16/2009 9/16/ /16/ /16/ /16/2009 1/16/2010 2/16/2010 3/16/2010 4/16/2010 5/16/2010 6/16/2010 Change in investment values (%) Initial Strike ( ) Quarter 1 ( ) Quarter 2 ( ) Quarter 3 ( ) Quarter 4 ( ) Quarter 5 ( ) Quarter 6 ( ) Quarter 7 ( ) Quarter 8 ( ) Average Cumulative Return for 8 Quarters (+4.21%) (+8.63%) (+9.78%) (+10.50%) (+14.37%) (+15.74%) (+17.21%) (+17.32%) % * Percentage change of price in value is computed by comparing to the Initial Strike Review The European Sovereign Fixed Income Index recorded a positive average cumulative return of 12.22%, reflecting its defensive nature to withstand the financial market turbulence for the period under review. Despite the European sovereign debt crisis Takaful myafdhal Annual Performance Review 2009/2010 I Page 13

14 sparked in Greece early 2010, the index performed considerable well even when investors shifted their risk appetite and fled to safe haven assets. In tackling the current crisis faced by Greece, European Central Bank (ECB) and IMF announced an unprecedented package included up to 500 billion euro European Stabilization Mechanism from Euro area governments with an additional International Monetary Fund contribution of up to 250 billion euro. Outlook While the European Stabilization Mechanism and ECB asset purchases helped to contain the spill over of the sovereign debt crisis, additional austerity measures in the fiscally most strained countries will increase the GDP growth differentials between the euro area countries in Concerns remain over the long term solvency of sovereign borrowers in the Europe s periphery (notably Greece, Spain, Portugal and Ireland). It is expected for the index to be resilience even though much effort need to be introduced by the European bloc as poor competitiveness, weak growth and soaring public debts are not expected to be fully addressed from the rescue package alone. Takaful myafdhal Annual Performance Review 2009/2010 I Page 14

15 2. PRECIOUS METAL INDEX % % Change in investment values (%) % 80.00% 60.00% 6/16/2008 7/16/2008 8/16/2008 9/16/ /16/ /16/ /16/2008 1/16/2009 2/16/2009 3/16/2009 4/16/2009 5/16/2009 6/16/2009 7/16/2009 8/16/2009 9/16/ /16/ /16/ /16/2009 1/16/2010 2/16/2010 3/16/2010 4/16/2010 5/16/2010 6/16/2010 Initial Strike ( ) Quarter 1 ( ) Quarter 2 ( ) Quarter 3 ( ) Quarter 4 ( ) Quarter 5 ( ) Quarter 6 ( ) Quarter 7 ( ) Quarter 8 ( ) Average Cumulative Return for 8 Quarters ( 16.28%) ( 10.32%) ( 1.18%) (0.29%) (+10.85%) (+22.02%) (+20.28%) (+31.10%) +7.09% * Percentage change of price in value is computed by comparing to the Initial Strike Review After plunging to its low during the second half of 2008, Precious Metal Index rebounded and persistently on an upward trend as investors shifted to gold for safe haven investments and recorded a positive average cumulative return of 7.09%. During the financial crisis, gold continued to offer insurance for investors concerned about a potential W shape recovery. For the period under review, the price of gold was well supported driven by the USD weakness, demand from China and inflation expectations. Late in 2009, World Gold Council released data which showed identifiable gold demand improved by more than 10% quarter on quarter basis in 3Q09 driven primarily by the strong jewelry demand. Takaful myafdhal Annual Performance Review 2009/2010 I Page 15

16 Outlook On the global front, it is expected for gold to remain resilient as concerns on the sustainability of economic recovery with sovereign debt crisis remain an issue on the European bloc. Supply is likely to remain tight given that expansion plans for mining companies in Australia, the second largest gold producing nation, which will also benefit the price for gold and hence the Precious Metal Index. Economic wise, even though inflationary pressures cease to become a major issue globally, prices for gold and other precious metal believed to maintain as strong as investors shift preference to safe haven investment. Takaful myafdhal Annual Performance Review 2009/2010 I Page 16

17 3. COPPER SPOT % % Change in investment values (%) 80.00% 60.00% 40.00% 20.00% 6/16/2008 7/16/2008 8/16/2008 9/16/ /16/ /16/ /16/2008 1/16/2009 2/16/2009 3/16/2009 4/16/2009 5/16/2009 6/16/2009 7/16/2009 8/16/2009 9/16/ /16/ /16/ /16/2009 1/16/2010 2/16/2010 3/16/2010 4/16/2010 5/16/2010 6/16/2010 Initial Strike ( ) Quarter 1 ( ) Quarter 2 ( ) Quarter 3 ( ) Quarter 4 ( ) Quarter 5 ( ) Quarter 6 ( ) Quarter 7 ( ) Quarter 8 ( ) Average Cumulative Return for 8 Quarters 8, , ( 17.13%) 3, ( 63.41%) 3, ( 55.30%) ( 38.84%) 6, ( 23.49%) 6, ( 15.86%) 7, ( 11.07%) 6, ( 20.14%) 30.65% * Percentage change of price in value is computed by comparing to the Initial Strike Review With the downtrend from its inception until the end of 2008, Copper Spot had rallied and was exceptionally strong in the second half of In China, it was initially observed that consumption has increase rapidly boosted by restocking. Weakening USD, a flight to hard assets such as gold and precious commodities, fund investment and leverage to the Organisation for Economic Co operation and Development (OECD) recovery have all supported and propelled the price of copper. Nevertheless, US copper futures have fallen in response to weaker than expected US jobs data and debt contagion fears in the Euro zone has resulted in the Copper Spot to head south towards the end of period under review. Takaful myafdhal Annual Performance Review 2009/2010 I Page 17

18 Hence, Copper Spot registered an average cumulative return of negative 30.65%. Outlook The weak market is expected to continue going forward with the lower demand for copper from the possible potential risk of the European debt issues to the copper consuming regions. For example, a slower economic growth in China may dampen industrial activities which are expected to stale the demand for copper and reflect a downside impact to the Copper Spot price. Based on the study undertaken by International Copper Study Group, an intergovernmental organisation that serves to increase copper market transparency and promote international discussions and cooperation on issues related to copper, recognised that there is still much uncertainty imposed on the price of copper going forward in consideration of the slower rate of the economic recovery especially in the copper consuming regions that have experienced a severe recessions in the period. Takaful myafdhal Annual Performance Review 2009/2010 I Page 18

19 4. ASIAN BLUE CHIP EQUITY INDEX % % Change in investment values (%) 80.00% 60.00% 40.00% 6/16/2008 7/16/2008 8/16/2008 9/16/ /16/ /16/ /16/2008 1/16/2009 2/16/2009 3/16/2009 4/16/2009 5/16/2009 6/16/2009 7/16/2009 8/16/2009 9/16/ /16/ /16/ /16/2009 1/16/2010 2/16/2010 3/16/2010 4/16/2010 5/16/2010 6/16/2010 Initial Strike ( ) Quarter 1 ( ) Quarter 2 ( ) Quarter 3 ( ) Quarter 4 ( ) Quarter 5 ( ) Quarter 6 ( ) Quarter 7 ( ) Quarter 8 ( ) Average Cumulative Return for 8 Quarters ( 22.60%) ( 39.26%) ( 46.82%) ( 25.97%) ( 10.54%) ( 8.77%) ( 10.77%) ( 13.92%) 22.33% * Percentage change of price in value is computed by comparing to the Initial Strike Review Asian Blue Chip Equity Index have shown an uptrend during the period under review albeit with high volatility, as it tracked the positive rise in the US equity markets led by positive data outflows from the US. The last two quarters in Asia (Q42009 and Q12010), where growth predominantly surprised positively, saw a more meaningful upturn in domestic demand across the region leading to the recovery of the index. Nevertheless, the concern over the European sovereign debt crisis had caused the volatility and weakness in the Asian equity market. For the period under review, Asian Blue Chip Equity Index recorded an average cumulative return of negative 22.33%. Takaful myafdhal Annual Performance Review 2009/2010 I Page 19

20 Outlook Generally, trading momentum from the Asia equity market could be affected by how much confidence deteriorates and the broader implications on the financial systems following concern over the impacts from European sovereign debt crisis. With the Asian Blue Chip Equity Index composition consists of stocks mainly from Hong Kong, Taiwan and Singapore, of which the latter two countries are among the biggest exports contributor to the Europe in 2009, it is expected for the index to remain volatile going forward. Nevertheless, subject to efficient measures being implemented by the European bloc, investors confidence is also expected to improve further which would in turn reflect a better performance for the Asian Blue Chip Equity Index. Takaful myafdhal Annual Performance Review 2009/2010 I Page 20

21 5. JAPANESE REITs INDEX % 95.00% Change in investment values (%) 85.00% 75.00% 65.00% 55.00% 45.00% 6/16/2008 7/16/2008 8/16/2008 9/16/ /16/ /16/ /16/2008 1/16/2009 2/16/2009 3/16/2009 4/16/2009 5/16/2009 6/16/2009 7/16/2009 8/16/2009 9/16/ /16/ /16/ /16/2009 1/16/2010 2/16/2010 3/16/2010 4/16/2010 5/16/2010 6/16/2010 Initial Strike ( ) Quarter 1 ( ) Quarter 2 ( ) Quarter 3 ( ) Quarter 4 ( ) Quarter 5 ( ) Quarter 6 ( ) Quarter 7 ( ) Quarter 8 ( ) Average Cumulative Return for 8 Quarters ( 17.30%) ( 36.73%) ( 45.09%) ( 37.89%) ( 29.58%) ( 39.16%) ( 34.90%) ( 35.74%) 34.55% * Percentage change of price in value is computed by comparing to the Initial Strike Review Signs of recovery in the Japanese property market continue to emerge during the period under review, starting from the second quarter of 2009, in line with the better performance in its GDP, from negative 8.9% year on year during the 1Q2009, to negative 1.0% year on year during the 4Q2009. Nevertheless, the performance has been quite volatile owed to the impact from the slowing down of global economic activities. With the large negative performance recorded earlier, the Japanese REITs Index registered a negative average cumulative return of 34.55%. Takaful myafdhal Annual Performance Review 2009/2010 I Page 21

22 Outlook The government s stimulus package, coupled with strengthening in business profitability and improvements in employment is expected to play a major part to boost the domestic demand across all sectors including property. On this positive note, it was reported that the Japanese economic growth is forecasted to be around 2.6% for the year to March 2011, from an earlier projection of 1.4%, which would see Japan achieving GDP growth of more than 2% for the first time since The government also recently unveiled a long term fiscal management policy which aims to achieve a primary balance surplus in fiscal 2020 in a bid to avoid a Greece style debt crisis. With proper implementation of the policies introduced, positive outlook remains for the Japanese economy to achieve GDP growth of more than 2% as forecasted, hence supporting the property market to recover. Takaful myafdhal Annual Performance Review 2009/2010 I Page 22