RHB thematic growth fund

Transcription

1 RHB thematic growth fund INTERIM REPORT 2018 For the financial period ended 30 June 2018 RHB Asset Management Sdn Bhd ( X) Head Office Level 8, Tower 2 & 3, RHB Centre Jalan Tun Razak Kuala Lumpur, Malaysia Tel : Fax :

2 Name, Category and Type GENERAL INFORMATION ABOUT THE FUND Fund Name - RHB Thematic Growth Fund Fund Category - Mixed asset fund Fund Type - Growth fund Investment Objective, Policy and Strategy Objective of the Fund The Fund aims to provide investors with medium to long term* capital appreciation through investments in securities of Malaysian companies that will benefit from evolving domestic and / or global trends. *Note: medium to long term in this context refers to a period of between 3-7 years. Strategy The Fund will focus on a minimum of three (3) themes from the evolving domestic and / or global trends identified by the Manager as having strong potential to outperform the benchmark return of 8.00% growth per annum in Net Asset Value of a unit. The asset allocation of the Fund will be as follows: Up to 98% of Net Asset Value 2% - 100% of Net Asset Value - Investments in equity and equity-related securities of Malaysian companies that will benefit from evolving domestic and / or global trends. - Investments in fixed income securities, money market instruments, cash and deposits with financial institutions. Hence, the Fund will generally have an equity exposure of up to 98% of its Net Asset Value to generate returns to the Fund. However, the Manager may lower the equity exposure of the Fund in favour of fixed income securities such as government bonds and corporate debt securities which include money market instruments in order to help achieve the benchmark return and/or to help preserve capital #. Accordingly, the Fund s exposure to fixed income securities may increase up to 100% of the Net Asset Value. # Note: Although the Fund aims to preserve its value, the Fund is not a capital guaranteed fund or a capital protected fund. 1

3 Investment Philosophy Our investment philosophy describes the approach that the investment team will adhere to when constructing an equity or fixed income portfolio. The fund managers invest in well-managed companies with strong balance sheets that possess competitive advantages that should enable them to outperform their peers over economic cycles. The fund managers are active investors that make high conviction security selection decisions, but at the same time do not take unnecessary or excessive risks nor take speculative positions. The fund managers seek to outperform their peers and beat their benchmark by buying mispriced or cheap securities. Following our disciplined sell strategy, they would then exit positions when our target price is reached. Concurrently, the fund managers understand the Fund s risk profile and act within the Fund s mandate. 2

4 Investment Approach Whenever the Fund invests in equities and / or fixed income securities, the Manager s investment approach will evolve around the following principles:- Equities Fixed Income Securities 3

5 Performance Benchmark The performance of the Fund is benchmarked against the targeted 8.00% growth per annum in Net Asset Value of a unit over the medium to long term. This is not a guaranteed return and is only a measurement of the Fund s performance. The Fund may not achieve the aforesaid 8% per annum growth rate in any particular financial period but targets to achieve this growth over the medium to long term. Permitted Investments This Fund may invest in securities traded on the Bursa Malaysia or any other market considered as an eligible market, unlisted securities, collective investment schemes, financial derivatives, structured products, liquid assets (including money market instruments and deposits with any financial institutions), participate in the lending of securities and any other investments permitted by the Securities Commission Malaysia from time to time. Distribution Policy Consistent with the Fund s objective which aims to achieve medium to long term* capital appreciation, distributions will therefore be of secondary importance. Distributions, if any, after deduction of taxation and expenses will be reinvested. * Note: medium to long term in this context refers to a period of between 3 7 years. 4

6 MANAGER S REPORT EQUITY MARKET REVIEW The market rallied at the start of the year, riding on a build-up in positive sentiment and strong growth data from both the local and regional front. On 18 January 2018, China announced that its Gross Domestic Product ( GDP ) in year 2017 picked up to 6.9% Year-on-Year ( YoY ), the first annual acceleration for its economy since year The FTSE Bursa Malaysia KLCI Index ( FBM KLCI ) sailed through the 1,800 points ( pts ) mark in the first week of the year and hit 1,871 pts on 29 January In view of the strong macroeconomic growth outlook, Bank Negara Malaysia s ( BNM ) Monetary Policy Committee ( MPC ) took a stance to raise overnight policy rate ( OPR ) to 3.25% (from 3%) on 25 January The combination of robust growth, improvement in oil prices and strengthening of the Malaysian Ringgit ( MYR ) continued to fuel market sentiment. The Dow Jones tumbled 600 pts on 2 February 2018 as investors switched out of equities on rising bond yields. This marked the biggest plunge since the beginning of United States ( US ) President Donald Trump s administration. Regional stock markets slid, as the Dow Jones slumped 1,175 pts on 5 February 2018, its largest points drop in history. On the domestic front, the FBM KLCI fell a total of 58 pts over two consecutive days to close at 1,812 pts on 6 February There was some mild relief for the market when the Employees Provident Fund declared a 6.9% dividend on 11 February 2018 the highest in two decades. BNM also announced on 14 February 2018 that 2017 s GDP growth remained robust at 5.9% YoY, near to its strongest pace in three years. On 1 March 2018, Mr Trump unveiled US plans to impose tariffs of 25% and 10% on steel and aluminium imports respectively. This was followed through with the President signing off on the controversial order on 8 March 2018, but exemptions were given to allies Canada and Mexico. In a widely-anticipated move, the US Federal Reserve ( Fed ) also raised interest rates to 1.75% (from 1.50%) on 21 March This marks the sixth rate hike since the Federal Open Market Committee began raising rates in December The Dow Jones plunged more than 700 pts on 22 March 2018, as trade tensions escalated with President Trump announcing tariffs on over United States Dollar ( USD ) 50 billion worth of Chinese imports. Tensions continued into the following month, as China announced on 4 April 2018 that it would levy 25% reciprocal tariffs on USD50 billion of US imports. In turn, this prompted the Trump Administration to call for new China tariffs worth an additional USD100 billion. The historic win by the Pakatan Harapan ( PH ) coalition in the 14 th general election ( GE14 ) on 9 May 2018 led the capital market into uncharted territory. Following the maiden election victory by this coalition, foreign investors shifted to risk-off mode amidst policy uncertainties. On 16 May 2018, PH kept to its 5

7 manifesto promise to eliminate Goods and Services Tax ( GST ) by amending the rate to 0%. News also began to emerge in the following days on the parlous state of government finances after it was revealed that the national debt now stood above MYR1 trillion. The benchmark stock index fell 4.2%, or 78 pts, in the subsequent days to close at 1,775 pts on 24 May On 28 May 2018 and 30 May 2018, the Government announced the cancellation of the Kuala Lumpur-Singapore High Speed Rail ( HSR ) and Mass Rapid Transit Line ( MRT3 ) projects. While anticipated, the market still reacted negatively by sliding 3.18% to close at 1,719 pts on 30 May The decline was also in line with regional bourses over concerns on Italy s political and debt crises, with fresh worries on the China-US trade conflict. On 13 June 2018, the US Fed hiked interest rates by another 25 basis points ( bps ) to 2.00% (from 1.75%) and maintained its signal for two more increases this year. From net buyers of domestic equities up to May 2018, foreign portfolio funds have begun to sell post GE14 having been caught off-guard by the shock poll results as country risk premiums spiked higher. The new Government s policy imperatives and fiscal concerns arising meant the stocks that saw the brunt of the selling included those in the construction sector and firms perceived to have political links and/or are dependent on the previous administration. Despite Brent crude oil maintaining above the USD70 per barrel mark, the selling was exacerbated by the hawkish tone at US Fed s June 2018 meeting, as the market s baseline adjusted to four rate hikes in year 2018 and the USD moved higher. The local market sell-off has brought the FBM KLCI down 5.8% year-to-date ( YTD ) to close at 1,691.5 pts as at end of June 2018 while the broader FTSE Bursa Malaysia EMAS Index ( FBM EMAS ) corrected 7.6% to close at 11, over the same period. Despite the declines, both indices are still trading close to their long-term mean price to earnings ( P/E ). Higher crude oil prices would be net positive for Malaysia, given the fiscal benefits contributed by elevated petroleum income tax, royalties and Petronas dividends. Higher oil revenues will help the Government meet the fiscal deficit target of 2.8% of GDP in year 2018 and contribute positively to the country s current account surplus. This, in turn, is likely to be supportive of the MYR. EQUITY MARKET OUTLOOK AND STRATEGY GOING FORWARD We identified the US-China trade situation and tightening global monetary policy environment as two factors with the greatest potential to disrupt markets. They have been largely responsible for the heightened risk aversion in Emerging Markets ( EM ) equities. The trade tensions between the two nations have been constantly evolving since President Trump announced intentions to impose tariffs on USD 50 billion of Chinese goods. 6

8 The Malaysia government s proposed cut-backs on public spending to plug the revenue loss from the GST and contain its burgeoning debt and liability burden and reviews of some projects could pose a drag to growth. The new administration also stated it was reviewing the nation s infrastructure projects and has since scrapped several mega developments to rationalise spending and reduce the elevated government debt and liability levels. The move to cut expenditure and review government project spending is likely to impact construction and economic growth, especially in year This is as second half of year 2018 is likely to be cushioned by higher consumption spending on the 3-month tax holiday. Still, we believe it is necessary for Malaysia to go through short-term pain for long-term gain to improve the financial health of the public sector. As a result, we are foresee a downside risk to our year 2019 real GDP growth. While the Government seems to be able to contain the budget deficit for year 2018, we see challenges for next year s budget. As it has already committed to keeping the budget deficit at 2.8% of GDP for year 2018, there is not much of leeway for the Government to manoeuvre in year We believe it may have to present a deficit of not more than 2.8% of GDP for next year s budget. We continue to overweight banks, consumer, gaming and healthcare sectors which are proxy to resilient private consumption growth amid a slowdown in public consumption in the near term. We foresee near-term trading opportunities as many stocks have not sufficiently recovered from the post-ge14 shock sell-down. REVIEW OF FUND PERFORMANCE AND STRATEGY DURING THE PERIOD For the 6 months period under review, the RHB Thematic Growth Fund registered a negative return of 11.04%* against its benchmark positive return of 3.89%*. The Fund underperformed its benchmark during the period under review. The under performance of the Fund was on the back of higher equity asset allocation, and sector allocation. The Fund overweight in construction sector and this sector were badly hit after the GE14. The Fund remained invested to as we believe that the new government will be able to bring better transparency and corporate governance. Hence, we opined that foreign investors will re-look at Malaysia once the new government announce measures to reduce the nation debt. The investment strategy and policy employed during the period under review were in line with the investment strategy and policy as stated in the prospectus. The Fund has not meet its objective of providing long term growth through capital appreciation. During the period, there were no cross trade transactions for the Fund. 7

9 PERFORMANCE DATA % Annual Total Returns Financial Year Ended 31 December % % % % % RHB Thematic Growth Fund - Capital Return (11.04) 8.20 (2.78) (3.60) (10.93) (5.56) - Income Return Total Returns (11.04) Targeted Benchmark Return (based on 8.00% growth per annum in NAV of a unit) Year % Average Annual Returns 3 Years 5 Years % % 10 Years % RHB Thematic Growth Fund (13.47) Targeted Benchmark Return (based on 8.00% growth per annum in NAV of a unit)

10 Performance of RHB Thematic Growth Fund for the period from 30 June 2008 to 30 June 2018 Cumulative Return Over The Period (%) * Source: Lipper IM, 14 July 2018 The abovementioned performance figures are indicative returns based on daily Net Asset Value of a unit (as per Lipper Database) since inception. The calculation of the above returns is based on computation methods of Lipper. Note : Past performance is not necessarily indicative of future performance and unit prices and investment returns may go down, as well as up. The abovementioned performance computations have been adjusted to reflect distribution payments and unit splits wherever applicable. 9

11 As at As At 31 December Fund Size 30 June Net Asset Value (RM million) * * Units In Circulation (million) Net Asset Value Per Unit (RM) * * Financial Year Ended December Historical Data Unit Prices NAV - Highest (RM)* Lowest (RM)* Distribution and Unit Split Gross Distribution Per Unit (sen) Net Distribution Per Unit (sen) Distribution Date NAV before distribution (cum) NAV after distribution (ex) Unit Split Others Management Expense Ratio (MER) (%) # Portfolio Turnover Ratio (PTR) (times) ## * The figures quoted are ex-distribution # The MER for the financial period was lower compared with the previous financial period due to lower expenses incurred during the financial period under review (refer to Note 10). ## The PTR for the financial period was higher compared with the previous financial period due to more investment activities during the financial period under review (refer to Note 11). DISTRIBUTION For the financial period under review, no distribution has been proposed by the Fund. 10

12 PORTFOLIO STRUCTURE The asset allocations of the Fund as at reporting date were as follows: As at As at 31 December 30 June Sectors % % % % Equities Construction Consumer Products Finance Industrial Products Infrastructure Project Companies Plantation Properties Technology Trading/Services Liquid assets and other net current assets The asset allocation was reflective of Manager s stance to risk manage its portfolio in an environment of volatile markets. 11

13 BREAKDOWN OF UNIT HOLDINGS BY SIZE Account Holders No. Of Units Held* Size of Holdings No. % ( 000) % 5,000 and below ,001 to 10, ,001 to 50, , ,001 to 500, , ,001 and above , Total , * Excluding Manager s stock SOFT COMMISSION The Fund Manager may only receive soft commission in the form of research and advisory services that assist in the decision-making process relating to the Fund s investments. During the financial period under review, the soft commission received from the brokers had been retained by the Manager as the goods and services provided are of demonstrable benefit to the unitholders. 12

14 RHB THEMATIC GROWTH FUND UNAUDITED STATEMENT OF FINANCIAL POSITION AS AT 30 JUNE 2018 Note RM RM ASSETS Investments 5 21,121,466 25,181,893 Deposits with a licensed financial institution 985,275 1,578,430 Bank balance 2,184 4,943 Dividends receivable 135,376 68,778 Other receivables 3,470 3,470 TOTAL ASSETS 22,247,771 26,837,514 LIABILITIES Amount due to Manager 33,125 78,850 Accrued management fee 27,885 35,735 Amount due to Trustee 1,115 1,429 Other payables and accruals 11,027 14,240 TOTAL LIABILITIES 73, ,254 NET ASSET VALUE 22,174,619 26,707,260 EQUITY Unitholders capital 14,749,125 16,515,328 Retained earnings 7,425,494 10,191,932 22,174,619 26,707,260 UNITS IN CIRCULATION (UNITS) 6 101,602, ,851,414 NET ASSET VALUE PER UNIT (EX-DISTRIBUTION*) (RM) * The accompanying notes are an integral part of the financial statements. 13

15 RHB THEMATIC GROWTH FUND UNAUDITED STATEMENT OF INCOME AND EXPENSES FOR THE FINANCIAL PERIOD ENDED 30 JUNE Note RM RM INCOME Dividend income 337, ,134 Interest income from deposits with licensed financial institutions 56,087 35,020 Net (loss)/gain on investments 5 (2,871,844) 4,210,539 (2,478,740) 4,643,693 EXPENSES Management fee 7 (189,248) (217,476) Trustee s fee 8 (7,570) (8,699) Audit fee (3,149) (3,175) Tax agent s fee (1,488) (1,900) Transaction costs (70,302) (47,346) Other expenses (15,941) (21,671) (287,698) (300,267) Net (loss)/income before taxation (2,766,438) 4,343,426 Taxation Net (loss)/income after taxation (2,766,438) 4,343,426 Net (loss)/income after taxation is made up of the following: Realised amount 3,046, ,480 Unrealised amount (5,812,452) 3,829,946 (2,766,438) 4,343,426 The accompanying notes are an integral part of the financial statements. 14

16 RHB THEMATIC GROWTH FUND UNAUDITED STATEMENT OF CHANGES IN NET ASSET VALUE FOR THE FINANCIAL PERIOD ENDED 30 JUNE 2018 Unitholders capital Retained earnings Total net asset value RM RM RM Balance as at 1 January ,440,424 7,945,468 25,385,892 Movement in net asset value: Net income after taxation - 4,343,426 4,343,426 Creation of units arising from applications 5,383,593-5,383,593 Cancellation of units (4,181,579) - (4,181,579) Balance as at 30 June ,642,438 12,288,894 30,931,332 Balance as at 1 January ,515,328 10,191,932 26,707,260 Movement in net asset value: Net loss after taxation - (2,766,438) (2,766,438) Creation of units arising from applications 1,387,082-1,387,082 Cancellation of units (3,153,285) - (3,153,285) Balance as at 30 June ,749,125 7,425,494 22,174,619 The accompanying notes are an integral part of the financial statements. 15

17 RHB THEMATIC GROWTH FUND UNAUDITED STATEMENT OF CASH FLOWS FOR THE FINANCIAL PERIOD ENDED 30 JUNE RM RM CASH FLOWS FROM OPERATING ACTIVITIES Proceeds from sale of investments 11,685,597 7,974,028 Purchase of investments (10,565,651) (8,145,693) Dividends received 270, ,304 Interest received from deposits with licensed financial institutions 56,087 35,020 Management fee paid (197,098) (210,173) Trustee s fee paid (7,884) (8,407) Payment for other fees and expenses (25,456) (31,871) Net cash generated from/(used in) operating activities 1,216,014 (11,792) CASH FLOWS FROM FINANCING ACTIVITIES Cash proceeds from units created 1,387,082 5,304,648 Cash paid on units cancelled (3,199,010) (4,255,652) Net cash (used in)/generated from financing activities (1,811,928) 1,048,996 Net (decrease)/increase in cash and cash equivalents (595,914) 1,037,204 Cash and cash equivalents at the beginning of the financial period 1,583,373 1,278,634 Cash and cash equivalents at the end of the financial period 987,459 2,315,838 The accompanying notes are an integral part of the financial statements. 16

18 RHB THEMATIC GROWTH FUND NOTES TO THE UNAUDITED FINANCIAL STATEMENTS FOR THE FINANCIAL PERIOD ENDED 30 JUNE THE FUND, THE MANAGER AND THEIR PRINCIPAL ACTIVITIES The RHB Thematic Growth Fund (hereinafter referred to as the Fund ) was constituted pursuant to the execution of a Deed dated 16 August 2007 as amended via its First Supplemental Deed dated 4 September 2013, Second Supplemental Deed dated 16 February 2015 and Third Supplemental Deed dated 25 May 2015 (hereinafter referred to as the Deeds ) between RHB Asset Management Sdn Bhd ( the Manager ) and HSBC (Malaysia) Trustee Berhad ( the Trustee ). The Fund was launched on 26 September 2007 and will continue its operations until terminated according to the conditions provided in the Deeds. The principal activity of the Fund is to invest in Permitted Investments as defined in the Deeds. All investments will be subject to the Securities Commission Malaysia s ( SC ) Guidelines on Unit Trust Funds, SC requirements, the Deeds, except where exemptions or variations have been approved by the SC, internal policies and procedures and objective of the Fund. The main objective of the Fund is to achieve medium to long term (between 3 7 years) capital appreciation through investments in securities of Malaysian companies that will benefit from evolving domestic and/or global trends. The Manager, a company incorporated in Malaysia, is a wholly-owned subsidiary of RHB Investment Bank Berhad, effective 6 January Its principal activities include rendering of investment management services, management of unit trust funds and private retirement schemes and provision of investment advisory services. These financial statements were authorised for issue by the Manager on 28 August

19 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES 2.1 Basis of preparation of the financial statements The financial statements have been prepared under the historical cost convention, as modified by financial assets and financial liabilities (including derivative instruments) at fair value through profit or loss, except as disclosed in the summary of significant accounting policies, and in accordance with Malaysian Financial Reporting Standards ( MFRS ) and International Financial Reporting Standards ( IFRS ). The preparation of financial statements in conformity with MFRS and IFRS requires the use of certain critical accounting estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the financial period. It also requires the Manager to exercise its judgement in the process of applying the Fund s accounting policies. Although these estimates and judgement are based on the Manager s best knowledge of current events and actions, actual results may differ. (a) The Fund has applied the following standards and amendments for the first time for the financial period beginning on 1 January 2018: (i) Financial period beginning on/after 1 January 2018 MFRS 9 Financial Instruments (effective from 1 January 2018) will replace MFRS 139 Financial Instruments: Recognition and Measurement. MFRS 9 retains but simplifies the mixed measurement model in MFRS 139 and establishes three primary measurement categories for financial assets: amortised cost, fair value through profit or loss and fair value through other comprehensive income ( OCI ). The basis of classification depends on the entity s business model and the cash flow characteristics of the financial asset. Investments in equity instruments are always measured at fair value through profit or loss with an irrevocable option at inception to present changes in fair value in OCI (provided the instrument is not held for trading). A debt instrument is measured at amortised cost only if the entity is holding it to collect contractual cash flows and the cash flows represent principal and interest. 18

20 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) 2.1 Basis of preparation of the financial statements (continued) (a) The Fund has applied the following standards and amendments for the first time for the financial period beginning on 1 January 2018: (continued) (i) Financial period beginning on/after 1 January 2018 (continued) For liabilities, the standard retains most of the MFRS 139 requirements. These include amortised cost accounting for most financial liabilities, with bifurcation of embedded derivatives. The main change is that, in cases where the fair value option is taken for financial liabilities, the part of a fair value change due to an entity s own credit risk is recorded in other comprehensive income rather than the profit or loss, unless this creates an accounting mismatch. MFRS 9 introduces an expected credit loss model on impairment that replaces the incurred loss impairment model used in MFRS 139. The expected credit loss model is forward-looking and eliminates the need for a trigger event to have occurred before credit losses are recognised. The above standards and amendments to published standards are not expected to have a significant impact on the Fund s financial statements. 2.2 Financial assets Classification Financial assets are designated as fair value through profit or loss when they are managed and their performance evaluated on a fair value basis. The Fund designates its investments in quoted investments as financial assets at fair value through profit or loss at inception. Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market and have been included in current assets. The Fund s loans and receivables comprise cash and cash equivalents, dividends receivable and other receivables which are all due within 12 months. 19

21 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) 2.2 Financial assets (continued) Recognition and measurement Regular purchases and sales of financial assets are recognised on the trade date, the date on which the Fund commits to purchase or sell the asset. Investments are initially recognised at fair value. Subsequent to initial recognition, financial assets at fair value through profit or loss are measured at fair value. Financial assets are de-recognised when the rights to receive cash flows from the investments have expired or have been transferred and the Fund has transferred substantially all risks and rewards of ownership. Unrealised gains or losses arising from changes in the fair value of the financial assets at fair value through profit or loss category including the effects of currency translation, are recognised in profit or loss in the financial period in which they arise. Quoted investments in Malaysia are valued at the last done market price quoted on Bursa Malaysia Securities Bhd ( Bursa Malaysia ) at each financial period. If a valuation based on the market price does not represent the fair value of the securities, for example during abnormal market conditions or when no market price is available, including in the event of a suspension in the quotation of the securities for a period exceeding 14 days, or such shorter period as agreed by the Trustee, then the securities are valued as determined in good faith by the Manager, based on the methods or bases approved by the Trustee after appropriate technical consultation. Deposits with licensed financial institutions are stated at cost plus accrued interest calculated on the effective interest method over the period from the date of placement to the date of maturity of the respective deposits, which is reasonable estimate of fair value due to the short-term nature of the deposits. Loans and receivables are subsequently carried at amortised cost using the effective interest method. 20

22 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) 2.2 Financial assets (continued) Impairment of financial assets For assets carried at amortised cost, the Fund assesses at the end of the financial period whether there is objective evidence that a financial asset or group of financial assets is impaired. A financial asset or a group of financial assets is impaired and impairment losses are incurred only if there is objective evidence of impairment as a result of one or more events that occurred after the initial recognition of the asset (a loss event ) and that loss event (or events) has an impact on the estimated future cash flows of the financial asset or group of financial assets that can be reliably estimated. 2.3 Financial liabilities Financial liabilities are classified according to the substance of the contractual arrangements entered into and the definitions of a financial liability. Financial liabilities, within the scope of MFRS 139 Financial Instrument: Recognition and Measurement, are recognised in the statement of financial position when, and only when, the Fund becomes a party to the contractual provisions of the financial instrument. The Fund s financial liabilities which include amount due to Manager, accrued management fee, amount due to Trustee and other payables and accruals are recognised initially at fair value and subsequently measured at amortised cost using the effective interest method. A financial liability is de-recognised when the obligation under the liability is extinguished. Gains and losses are recognised in the profit or loss when the liabilities are de-recognised, and through the amortisation process. 21

23 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) 2.4 Unitholder s capital The unitholders contributions to the Fund meet the criteria of the definition of puttable instruments to be classified as equity instruments under MFRS 132 Financial Instruments: Presentation. Those criteria include: the units entitle the holder to a proportionate share of the Fund s net assets value; the units are the most subordinated class and class features are identical; there is no contractual obligations to deliver cash or another financial asset other than the obligation on the Fund to repurchase; and the total expected cash flows from the units over its life are based substantially on the profit or loss of the Fund. The outstanding units are carried at the redemption amount that is payable at each financial period if unitholder exercises the right to put the units back to the Fund. Units are created and cancelled at prices based on the Fund s net asset value per unit at the time of creation or cancellation. The Fund s net asset value per unit is calculated by dividing the net assets attributable to unitholders with the total number of outstanding units. 2.5 Income recognition Dividend income from quoted investments is recognised when the Fund s right to receive payment is established. Interest income from deposits with licensed financial institutions is recognised on an accrual basis using the effective interest method. Realised gain or loss on sale of quoted investments is arrived at after accounting for cost of investments, determined on the weighted average cost method. Net income or loss is the total of income less expenses. 2.6 Taxation Current tax expense is determined according to Malaysian tax laws and includes all taxes based upon the taxable income earned during the financial period. 22

24 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) 2.7 Cash and cash equivalents For the purpose of the statement of cash flows, cash and cash equivalents comprise bank balance and deposits with a licensed financial institution which are subject to an insignificant risk of changes in value. 2.8 Presentation and functional currency Items included in the financial statements of the Fund are measured using the currency of the primary economic environment in which the Fund operates (the functional currency ). The financial statements are presented in Ringgit Malaysia, which is the Fund s presentation and functional currency. 2.9 Segmental information Operating segments are reported in a manner consistent with the internal reporting used by the chief operating decision-maker. The operating results are regularly reviewed by the Manager and the Investment Committee. The Investment Committee assumes the role of chief operating decision maker, for performance assessment purposes and to make decisions about resources allocated to the investment segment based on the recommendation by the Investment & Security Selection Committee. 23

25 3. FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES The Fund is exposed to a variety of risks, which include market risk, price risk, interest rate risk, credit risk, liquidity risk and capital risk. Financial risk management is carried out through internal control processes adopted by the Manager and adherence to the investment restrictions as stipulated in the Securities Commission Malaysia Guidelines on Unit Trust Funds. Market risk Securities may decline in value due to factors affecting securities markets generally or particular industries represented in the securities markets. The value of a security may decline due to general market conditions which are not specifically related to a particular company, such as real or perceived adverse economic conditions, changes in the general outlook for corporate earnings, changes in profit or currency rates or adverse investors sentiment generally. They may also decline due to factors that affect a particular industry or industries, such as labour shortages or increased production costs and competitive conditions within an industry. Equity securities generally have greater price volatility than fixed income securities. The market price of securities owned by a unit trust fund might go down or up, sometimes rapidly or unpredictably. Price risk Price risk is the risk that the fair value of an investment of the Fund will fluctuate because of changes in market prices. The Fund is also exposed to quoted equity security price risk (other than those arising from interest rate risk) for its investments of RM21,121,466 ( : RM25,181,893) in quoted investments. The sensitivity analysis is based on the assumption that the price of the quoted equity security fluctuate by +/(-) 5% with all other variables held constant, the impact on profit or loss and net asset value is +/(-) RM1,056,073 ( : RM1,259,095). Interest rate risk Interest rate risk is the risk that the cost or the value of the financial instruments will fluctuate due to changes in market interest rates. The Fund s exposure to the interest rate risk is mainly from short term placements with financial institutions. The Manager overcomes the exposure by way of maintaining deposits on short term basis. Therefore, exposure to interest rate fluctuation is minimal. 24

26 3. FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES (CONTINUED) Credit risk Credit risk refers to the ability of an issuer or a counter party to make timely payments of profit, principal and proceeds from realisation of investments. The credit risk arising from placements of deposits with licensed financial institutions is managed by ensuring that the Fund will only place deposits in reputable licensed financial institutions. The settlement terms of the proceeds from the creation of units receivable from the Manager are governed by the SC Guidelines on Unit Trust Funds. The following table sets out the credit risk concentration of the Fund: Cash and cash equivalents Other financial assets* Total RM RM RM Financial institutions: AAA 987, ,459 Others - 138, , , ,846 1,126, Financial institutions: AAA 1,583,373-1,583,373 Others - 72,248 72,248 1,583,373 72,248 1,655,621 * Comprise dividend receivable and other receivables. The financial assets of the Fund are neither past due nor impaired. 25

27 3. FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES (CONTINUED) Liquidity risk Liquidity risk is the risk that the Fund will encounter difficulty in meeting its financial obligations. Liquidity risk exists when particular investments are difficult to sell. As such, the Fund may not be able to sell such illiquid investments at an advantageous time or price to meet its liquidity requirements. Unit trust funds with principal investment strategies that involve securities or securities with substantial market and/or credit risk tend to have the greater exposure to liquidity risk. As part of its risk management, the Manager will attempt to manage the liquidity of the Fund through asset allocation and diversification strategies within the portfolio. The Manager will also conduct constant fundamental research and analysis to forecast future liquidity of its investments. The table below summarises the Fund s financial liabilities into relevant maturity groupings based on the remaining period from the statement of financial position date to the contractual maturity date. The amounts in the table are the contractual undiscounted cash flows. Between Less than 1 month 1 month to 1 year RM RM Amount due to Manager 33,125 - Accrued management fee 27,885 - Amount due to Trustee 1,115 - Other payables and accruals - 11,027 62,125 11, Amount due to Manager 78,850 - Accrued management fee 35,735 - Amount due to Trustee 1,429 - Other payables and accruals - 14, ,014 14,240 26

28 3. FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES (CONTINUED) Capital risk The capital of the Fund is represented by equity consisting of unitholders capital of RM14,749,125 ( : RM16,515,328) and retained earnings of RM7,425,494 ( : RM10,191,932). The amount of equity can change significantly on a daily basis as the Fund is subject to daily subscriptions and redemptions at the discretion of unitholders. The Fund s objective when managing capital is to safeguard the Fund s ability to continue as a going concern in order to provide returns for unitholders and benefits for other stakeholders and to maintain a strong capital base to support the development of the investment activities of the Fund. 4. FAIR VALUE ESTIMATION Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (i.e. an exit price). The fair value of financial assets and liabilities traded in an active market (such as publicly traded derivatives and trading securities) are based on quoted market prices at the close of trading on the financial period end date. An active market is a market in which transactions for the assets or liabilities take place with sufficient frequency and volume to provide pricing information on an ongoing basis. The fair value of financial assets that are not traded in an active market is determined by using valuation techniques. The Fund uses a variety of methods and makes assumptions that are based on market conditions existing at each period end date. Valuation techniques used for non-standardised financial instruments such as options, currency swaps and other over-the-counter derivatives, include the use of comparable recent arm s length transactions, reference to other instruments that are substantially the same, discounted cash flow analysis, option pricing models and other valuation techniques commonly used by market participants making the maximum use of market inputs and relying as little as possible on entity-specific inputs. 27

29 4. FAIR VALUE ESTIMATION (CONTINUED) The fair values are based on the following methodologies and assumptions: (i) For bank balances, deposits and placements with financial institutions with maturities less than 1 year, the carrying value is a reasonable estimate of fair value. (ii) The carrying value less impairment of receivables and payables are assumed to approximate their fair values due to their short term nature. Fair value hierarchy The Fund adopted MFRS 13 Fair Value Measurement in respect of disclosures about the degree of reliability of fair value measurement. This requires the Fund to classify fair value measurements using a fair value hierarchy that reflects the significance of the inputs used in making the measurements. The fair value hierarchy has the following levels: Level 1: Quoted prices (unadjusted) in active market for identical assets or liabilities Level 2: Inputs other than quoted prices included within level 1 that are observable for the asset or liability, either directly (that is, as prices) or indirectly (that is, derived from prices) Level 3: Inputs for the asset and liability that are not based on observable market data (that is, unobservable inputs) The following table analyses within the fair value hierarchy the Fund s financial assets (by class) measured at fair value: Level 1 Level 2 Level 3 Total RM RM RM RM Investments: - Quoted investments 21,121, ,121, Investments: - Quoted investments 25,181, ,181,893 Investments in active listed equities, i.e. quoted investments whose values are based on quoted market prices in active markets are classified within Level 1. The Fund does not adjust the quoted prices for these instruments. The Fund s policies on valuation of these financial assets are stated in Note

30 5. INVESTMENTS RM RM Investments: - Quoted investments 21,121,466 25,181, RM RM Net (loss)/gain on investments comprised: - Net realised gain on sale of investments 2,940, ,593 - Net unrealised (loss)/gain on changes in fair values (5,812,452) 3,829,946 (2,871,844) 4,210,539 Investments as at 30 June 2018 are as follows: % of net Name of Counter Quantity Cost Fair value asset value RM RM % QUOTED INVESTMENTS ACE MARKET Technology Mexter Technology Bhd 1,000, , , MAIN MARKET Construction Econpile Holdings Bhd 775, , , Gamuda Bhd 100, , , HSS Engineers Bhd 800, , , IJM Corporation Bhd 180, , , Pintaras Jaya Bhd 261, , , YTL Corporation Bhd 300, , , ,829,474 2,830,

31 5. INVESTMENTS (CONTINUED) Investments as at 30 June 2018 are as follows: (continued) % of net Name of Counter Quantity Cost Fair value asset value RM RM % QUOTED INVESTMENTS (CONTINUED) MAIN MARKET (CONTINUED) Consumer Products British American Tobacco Bhd 22, , , Carlsberg Brewery Malaysia Bhd 71, ,953 1,374, Yong Tai Bhd 500, , , ,964,767 2,874, Finance Alliance Bank Malaysia Bhd 120, , , AMMB Holdings Bhd 270,000 1,378,461 1,012, CIMB Group Holdings Bhd 230,313 1,405,307 1,255, Malayan Banking Bhd 165,175 1,593,633 1,486, Public Bank Bhd 77,350 1,415,611 1,806, ,313,722 6,045, Industrial Products DRB-Hicom Bhd 500, , , Lafarge Malaysia Bhd 100, , , Petronas Chemicals Group Bhd 100, , , ,102,288 2,131, Infrastructure Project Company Lingkaran Trans Kota Holdings Bhd 180, , , Properties Sime Darby Property Bhd 300, , , Titijaya Land Bhd 1,100, , , ,283, ,

32 5. INVESTMENTS (CONTINUED) Investments as at 30 June 2018 are as follows: (continued) % of net Name of Counter Quantity Cost Fair value asset value RM RM % QUOTED INVESTMENTS (CONTINUED) MAIN MARKET (CONTINUED) Trading/Services AirAsia Group Bhd 350, ,455 1,046, Bermaz Auto Bhd 100, , , Bumi Armada Bhd 400, , , Kawan Food Bhd 363, , , Malaysia Resources Corporation Bhd 700, , , Petronas Dagangan Bhd 30, , , Tenaga Nasional Bhd 80, ,299 1,181, Velesto Energy Bhd 2,000, , , ,589,214 5,332, TOTAL INVESTMENTS 20,302,225 21,121,

33 5. INVESTMENTS (CONTINUED) Investments as at 31 December 2017 are as follows: % of net Name of Counter Quantity Cost Fair value asset value RM RM % QUOTED INVESTMENTS ACE MARKET Technology Mexter Technology Bhd 1,000, , , MAIN MARKET Construction Econpile Holdings Bhd 1,500, ,750 1,815, Econpile Holdings Bhd - Bonus 375, , Pintaras Jaya Bhd 261, , , ,527,230 3,239, Consumer Products Carlsberg Brewery Malaysia Bhd 71, ,953 1,089, Pecca Group Bhd 113, , , Salutica Bhd 235, , , ,389 1,609, Finance AMMB Holdings Bhd 270,000 1,378,461 1,190, CIMB Group Holdings Bhd 267,363 1,364,520 1,748, Malayan Banking Bhd 155,175 1,431,712 1,520, Public Bank Bhd 77,350 1,242,099 1,607, ,416,792 6,067, Industrial Products DRB-Hicom Bhd 1,300,000 1,174,180 2,379,

34 5. INVESTMENTS (CONTINUED) Investments as at 31 December 2017 are as follows: (continued) % of net Name of Counter Quantity Cost Fair value asset value RM RM % QUOTED INVESTMENTS (CONTINUED) MAIN MARKET (CONTINUED) Infrastructure Project Company Lingkaran Trans Kota Holdings Bhd 180, ,640 1,001, Plantation Sime Darby Plantation Bhd 172, ,759 1,036, Properties Sime Darby Property Bhd 172, , , Titijaya Land Bhd 1,100, , , Titijaya Land Bhd ICPS 1,650, , , UEM Sunrise Bhd 700, , , ,088,368 1,978, TSR & Warrants Econpile Holdings Bhd - Warrant 375, Trading/Services Air Asia Bhd 400, ,000 1,340, Genting Malaysia Bhd 180,000 1,054,749 1,013, Ikhmas Jaya Group Bhd 1,000, , , Karex Bhd 450, , , Kawan Food Bhd 493, ,500 1,450, Petronas Dagangan Bhd 30, , , Sime Darby Bhd 172, , , Tenaga Nasional Bhd 80, ,299 1,231, ,502,842 7,289, TOTAL INVESTMENTS 18,550,200 25,181,

35 6. UNITS IN CIRCULATION Units Units As at beginning of the period/year 108,851, ,914,000 Creation of units during the financial period/year: Arising from applications 5,646,000 22,598,000 Arising from distribution - 5,165,414 Cancellation of units during the financial period/year (12,895,000) (30,826,000) As at end of the financial period/year 101,602, ,851, MANAGEMENT FEE In accordance with the Prospectus, the management fee provided in the financial statements is 1.50% ( : 1.50%) per annum based on the net asset value of the Fund, calculated on a daily basis for the financial period. 8. TRUSTEE S FEE In accordance with the Prospectus, the Trustee s fee provided in the financial statements is 0.06% ( : 0.06%) per annum based on the net asset value of the Fund, calculated on a daily basis for the financial period. The minimum Trustee s fee is waived as agreed by the Trustee and Manager. 34

36 9. TAXATION (a) Tax charge for the financial period RM RM Current taxation - local - - (b) Numerical reconciliation of income tax expense The numerical reconciliation between the net (loss)/income before taxation multiplied by the Malaysian statutory income tax rate and the tax expense of the Fund is as follows: RM RM Net (loss)/income before taxation (2,766,438) 4,343,426 Tax calculated at a tax rate of 24% (663,945) 1,042,422 Tax effects of: - Investment loss not deductible for tax purposes/ 594,898 (1,108,510) (Investment income not subject to tax) - Expenses not deductible for tax purposes 19,809 12,481 - Restriction on tax deductible expenses for unit trust funds 49,238 53,607 Tax expense

37 10. MANAGEMENT EXPENSE RATIO ( MER ) % % MER The MER ratio is calculated based on total expenses (excluding Goods and Services Tax) of the Fund to the average net asset value of the Fund calculated on a daily basis. 11. PORTFOLIO TURNOVER RATIO ( PTR ) PTR (times) The PTR ratio is calculated based on average of acquisition and disposals of the Fund for the financial period to the average net asset value of the Fund calculated on a daily basis. 12. UNITS HELD BY THE MANAGER AND PARTIES RELATED TO THE MANAGER The number of units held by the Manager is as follows: Units RM Units RM The Manager 5,258 1,147 5,177,656 1,270,597 The units are held beneficially by the Manager for booking purposes. The Manager is of the opinion that all transactions with the related parties have been entered into in the normal course of business at agreed terms between the related parties. Other than the above, there were no units held by Directors or parties related to the Manager. The holding company and the ultimate holding company of the Manager is RHB Investment Bank Berhad and RHB Bank Berhad respectively. The Manager treats RHB Bank Berhad group of companies including RHB Investment Bank Berhad and its subsidiaries as related parties. 36