Hong Leong Strategic Fund

Transcription

1 Reaching out to you Hong Leong Strategic Fund Interim Report 2017/ February 2018 Unaudited

2 Hong Leong Strategic Fund Contents Page Manager s Review and Report 1-10 Statement by the Manager 11 Trustee s Report 12 Condensed Statement of Comprehensive Income 13 Condensed Statement of Financial Position 14 Condensed Statement of Changes In Equity 15 Condensed Statement of Cash Flows 16 Notes To The Condensed Financial Statements Performance Data Corporate Information 52 Corporate Directory 53 HONG LEONG STRATEGIC FUND 1

3 Manager s Review and Report I. FUND INFORMATION Fund Name Hong Leong Strategic Fund Fund Category Mixed Assets Fund Type Growth and Income Investment Objective To provide investors with an investment that strives for stable* returns as well as consistency in performance and income**. Benchmark FTSE Bursa Malaysia KLCI+Maybank Berhad 1-Year Fixed Deposit Rate (64:36 weightage) Distribution Policy Subject to the Manager s discretion, the Fund will strive to provide yearly distribution, if any, in the form of either cash or additional Units to the Unitholders, on a best effort basis depending on interest rates, market conditions and performance of the Fund. Breakdown of Unitholdings By Size Size of Holdings No. of Accounts No. of Units Held 5,000 and below , ,001 to 10, , ,001 to 50, ,374, ,001 to 500, ,532, ,001 and above ,015, Notes: * Please take note that this Fund is not a capital guaranteed fund or a capital protected fund and the returns are not guaranteed. ** Income may be distributed in the form of cash and/or units. HONG LEONG STRATEGIC FUND 1

4 II. FUND PERFORMANCE Chart 1: Performance of the Fund versus the benchmark covering the last five-year financial period /2/ /2/ /2/ /2/ /2/2017 Percentage Growth 28/2/2018 From 28/02/2013 To 28/02/2018 Hong Leong Strategic Fund (HLSF) FTSE BM KLCI+Maybank 12-Month FD Rate (64:36) Source: Lipper For Investment Management, In Malaysian Ringgit terms, exdistribution, NAV Per Unit-to-NAV Per Unit basis with gross income (if any) from HLSTF reinvested. Past performance is not necessarily indicative of future performance and unit prices and investment returns may go down, as well as up. 2 HONG LEONG STRATEGIC FUND

5 Performance Review This Interim Report covers the six-month financial period from 1 September 2017 to 28 February The Fund posted a return of 3.44% in the past six months while its benchmark the FTSE Bursa Malaysia KLCI+Maybank 12-Month Fixed Deposit Rate (64:36) registered a return of 3.58%. During the financial period under review, the Fund had distributed income distribution of 3.00 sen per unit to its Unitholders on 17 January Prior to the income distribution, the cumdistribution net asset value (NAV) per unit of the Fund was RM while the ex-distribution NAV per unit was RM Unitholders should note that income distribution has the effect of reducing the NAV per unit of the Fund after distribution. For the five-year financial period ended 28 February 2018, the Fund garnered a return of 41.85% compared to the benchmark s return of 15.16% while distributing a total gross income of sen per unit. Table 1: Performance of the Fund for the following periods as at 28 February 2018 (Source: Lipper For Investment Management) 30/11/17-31/08/17-28/02/17-29/02/16-28/02/15 28/02/13 29/02/08-08/03/05 28/02/18 28/02/18 28/02/18 28/02/18 28/02/18 28/02/18 28/02/18 28/02/18 Since 3 Months 6 Months 1 Year 2 Years 3 Years 5 Years 10 Years Launch HLSTF Return (%) Benchmark (%) HONG LEONG STRATEGIC FUND 3

6 Table 2: Return of the Fund based on NAV Per Unit-to-NAV Per Unit basis for the period 31 August 2017 to 28 February 2018 (Source: Lipper For Investment Management) NAV Per Unit Benchmark Vs Benchmark (%) 28-Feb-18 RM Aug-17 RM Return (%) 3.44# # Return is calculated after adjusting for income distribution of 3.00 sen per unit on 17/01/2018. Table 3: Financial Highlights The Net Asset Value attributable to Unitholders is represented by: 28-Feb-18 (RM) 31-Aug-17 (RM) Change (%) Unitholders Capital Retained Earnings Net Asset Value 39,124,478 17,768,374 56,892,852 37,581,818 19,965,160 57,546, Units in Circulation 150,007, ,514, HONG LEONG STRATEGIC FUND

7 Table 4: The Highest and Lowest NAV Per Unit, Total Return of the Fund and the breakdown into Capital Growth and Income Distribution for the financial period/ years Highest NAV Per Unit (RM) Lowest NAV Per Unit (RM) Capital Growth (%) Income Distribution (%) Total Return (%) 31/08/15- Financial Period 31/08/17-28/02/ Financial Year Financial Year 31/08/14-31/08/ Financial Year 31/08/16-31/08/ /08/ Source: Lipper For Investment Management, In Malaysian Ringgit terms, exdistribution, NAV Per Unit-to-NAV Per Unit basis with gross income (if any) from HLSTF reinvested. Table 5: Average Total Return of the Fund Average Total Return (%) 28/02/17 28/02/18 1 Year /02/15 28/02/18 3 Years /02/13 28/02/18 5 Years 8.37 Source: Lipper For Investment Management, In Malaysian Ringgit terms, exdistribution, NAV Per Unit-to-NAV Per Unit basis with gross income (if any) from HLSTF reinvested. Table 6: Annual Total Return of the Fund Financial Year 31/08/16 31/08/17 31/08/15 31/08/16 31/08/14 31/08/15 31/08/13 31/08/14 31/08/12 31/08/13 Annual Total Return (%) Source: Lipper For Investment Management, In Malaysian Ringgit terms, exdistribution, NAV Per Unit-to-NAV Per Unit basis with gross income (if any) from HLSTF reinvested. HONG LEONG STRATEGIC FUND 5

8 III. INVESTMENT PORTFOLIO Chart 2: Asset Allocation - September 2017 to February 2018 Sep-17 Oct-17 Nov-17 Dec-17 Jan-18 Feb-18 Equities Fixed Income Securities Collective Investment Schemes Chart 3: Sector Allocation as at 28 February 2018 Technology 2.34% Hotels 3.04 Malaysian Government Securities 3.58% Deposits & Cash Equivalents 12.55% Construction 3.99% Properties 5.05% Consumer Products 7.51% Industrial Product 8.17% Financials 27.89% Trading/Services 11.82% Collective Investment Schemes 14.06% 6 HONG LEONG STRATEGIC FUND

9 Chart 4: Geographical Allocation as at 28 February 2018 Deposits & Cash Equivalents 12.55% Hong Kong 11.76% Malaysia 75.69% Strategies employed during the period under review During the period under review, the Fund has taken advantage of the market weakness to accumulate stocks that we have identified earlier and deployed its cash into construction, financial and manufacturing sectors. The Fund increased its equity exposure in regional s financial sector as we foresee higher net interest margins (NIMs) under higher interest rates environment and lower non-performing loans (NPL) concerns will see further rerating catalysts for regional s financial sector. In terms of countries allocation, the Fund has exposure in Malaysia and Hong Kong. On the fixed income front, the Fund s duration was kept at 0.14 years. As of 28 February 2018, the Fund s top-three holdings are Hong Leong Islamic Institutional Income Management Fund II (14.06%), Malayan Banking Berhad-Malaysia (8.49%) and RHB Bank Berhad-Malaysia (6.63%). For the financial period under review, there were no significant changes in the state of affairs of the Fund or circumstances that would materially affect the interest of Unitholders up to the date of this Manager s report. HONG LEONG STRATEGIC FUND 7

10 IV. MARKET REVIEW Equities During the period under review, the market started off jittery from escalation of geopolitical risks after North Korea s continuous effort to launch missiles to its neighboring countries as well as Trump s reckless behavior in which he signaled his readiness for a government shutdown in order to build border wall and threatened to terminate North American Free Trade Agreement (NAFTA). These negative news soon were shook off by investors while they focused on the potential benefits of tax reform in the United States (US). On the monetary front, the Federal Reserve (Fed) hiked 25 basis points (bps) in December, in line with market expectations. What came in as a surprise, however, was the more hawkish tone in February. Most voters in the Fed said that inflation will rise in 2018 amid recent strong data and information suggesting that the tax overhaul might have larger impact than originally thought. Following recent strengthening of US economy, the likelihood of further gradual rate hikes was increased. 10-year yield rose to four-year high of 2.95% upon release of the minutes, sending equity markets tumbling with fear of higher borrowing cost which may stun growth going forward. Back in Malaysia, the Budget 2018 was unexciting as most measures announced were within the expectations of the market. Key highlights included reduction in individual income tax rates for the first three brackets which would result in increase of disposable income between RM300-RM1,000 as well as no changes to sin tax. Main beneficiaries included construction, consumer, tourism and healthcare sectors. On monetary front, Bank Negara Malaysia (BNM) hiked the Overnight Policy Rate (OPR) by 25bps, in line with consensus albeit slightly earlier than expected, and kept an optimistic view on global growth and the domestic economy. The Malaysian Ringgit (MYR) strengthened against US Dollar (USD) during the period under review to close at as fundamentals remain solid with local economy growth continues to be strong. Global market sentiment remains subdued amid concerns on rising interest rates and potential trade war. 8 HONG LEONG STRATEGIC FUND

11 Malaysia equity market saw new foreign inflows of RM3.5 billion year-to-date as at end of February as foreign investors start to appreciate the cheap valuation of the FTSE Bursa Malaysia KLCI compared to our regional peers. The FTSE Bursa Malaysia KLCI was up 4.68% during the period under review to close at 1, points. Fixed Income During the period under review, the local sovereign bond market saw some volatility where the 10-year benchmark yields rose as high as 4.15% and fell as low as 3.85%. The sovereign bond market traded weaker in October and early November due to the impending rate hike by the Fed. In February, risk assets fell due to expectations of faster pace of inflation and the hawkish monetary policy outlook by the new Fed chair Jerome Powell. The Malaysian Government Securities (MGS) market traded weaker in tandem with Treasuries with the 10-year Treasuries yields trading as high as 2.95%. However, risk assets gradually corrected after the House approved a bill to avoid an extended government shutdown. The MGS curve steepened during the period where the 3-year benchmark yield rose by 4bps to 3.40% whilst the 10-year rose 14bps to 4.03%. During the November Monetary Policy Committee (MPC) meeting, BNM left its OPR unchanged but unexpectedly shifted its stance to a more hawkish outlook as it signalled its readiness to review its current degree of monetary accommodation. The US Fed raised its policy rate by 25bps as widely expected during the December Federal Open Market Committee (FOMC) meeting. The central bank maintained its positive outlook on growth for 2018 and guided for three hikes. In January, BNM raised the OPR by 25bps as a pre-emptive measure, citing robust domestic demand and healthy global growth environment. HONG LEONG STRATEGIC FUND 9

12 V. FUTURE PROSPECTS AND PROPOSED STRATEGIES Equities Heavy selloff in February 2018 across the global stocks market was triggered by an inflation scare in US markets amid recently passed tax reform and stronger than expected wage growth. This could ultimately lead to acceleration in central bank tightening and thereby increase borrowing costs which may cause the slower growth in global economy. Despite the concerns of higher interest rates and potential trade wars between US and China, we remain positive on the global stock markets as we foresee better economic growth to be achieved through higher investment towards infrastructure by respective developing nations. On the other hand, turnaround in consumers sentiment will be another growth driver for the coming years which is supported by better jobs numbers and wage growth. On the strategy front, we locked in profit in view of the volatile market and increased our cash holdings. Hence, we are currently evaluating and looking to accumulate stocks on market weakness again. We are selective on our stock picks and only invest in fundamentally solid companies with reasonable valuations. Fixed Income Inflation moderated in January at 2.7% after hovering around 3.5% in the previous months. We expect the OPR to remain stable for the remainder of the year due to contained inflation and the front loaded rate hike by BNM. The sovereign bond market is expected to remain weak in the near term as investors digest the supply of government bonds in March. We look to remain defensive in the sovereign bond market but may add on any market dip. We look to add in the corporate bond space. VI. SOFT COMMISSIONS The Manager has received soft commissions from brokers/dealers in the form of goods and services such as research materials, data and quotation services incidental to investment management of the Fund and investment related publications. Such soft commissions received are of demonstrable benefit to Unitholders. 10 HONG LEONG STRATEGIC FUND

13 STATEMENT BY THE MANAGER I, Hoo See Kheng, as the Director of Hong Leong Asset Management Bhd, do hereby state that, in the opinion of the Manager, the accompanying unaudited condensed financial statements set out on pages 13 to 49 are drawn up in accordance with the provision of the Deeds and give a true and fair view of the financial position of the Fund as at 28 February 2018 and of its financial performance, changes in equity and cash flows for the financial period ended 28 February 2018 in accordance with the Malaysian Financial Reporting Standards ( MFRS ) 134 Interim Financial Reporting and International Financial Reporting Standards ( IFRS ) 34 Interim Financial Reporting. For and on behalf of the Manager, Hong Leong Asset Management Bhd (Company No.: M) HOO SEE KHENG Chief Executive Officer/Executive Director Kuala Lumpur 16 April 2018 HONG LEONG STRATEGIC FUND 11

14 TRUSTEE S STATEMENT REPORT BY THE MANAGER TO THE UNITHOLDERS OF HONG LEONG STRATEGIC FUND We I, Hoo have See acted Kheng, as as the the Trustee Director for of Hong Leong Strategic Asset Management Fund ( the Fund ) Bhd, do for hereby the financial state period that, in ended the opinion 28 February of the Manager, To the best the of accompanying our knowledge, unaudited for the condensed financial period financial under statements review, Hong set out Leong Asset pages Management 12 to 43 are drawn Bhd ( the up in Manager ) accordance has with operated the provision and managed of the Deeds and give a true and fair view of the financial position of the the Fund in accordance with the following: Fund as at 28 February 2017 and of its financial performance, changes in equity and cash flows for the financial period ended 28 February (a) limitations imposed on the investment powers of the Manager 2017 in accordance with the Malaysian Financial Reporting Standards under the Deed(s), the Securities Commission s Guidelines on ( MFRS ) 134 Interim Financial Reporting and International Financial Unit Trust Funds, the Capital Markets and Services Act 2007 Reporting Standards ( IFRS ) 34 Interim Financial Reporting. and other applicable laws; For and on behalf of the Manager, (b) valuation and pricing for the Fund has been carried out in Hong Leong Asset Management Bhd accordance with the Deed(s) of the Fund and applicable regulatory (Company No.: M) requirements; and (c) creation and cancellation of units for the Fund have been carried out in accordance with the Deed(s) of the Fund and applicable regulatory requirements. HOO SEE KHENG Chief Executive Officer/Executive Director We are of the view that the distribution made during the financial period ended 28 February 2018 by the Manager is not inconsistent with Kuala the Lumpur objectives of the Fund. 17 April 2017 For Deutsche Trustees Malaysia Berhad Soon Lai Ching Senior Manager, Trustee Operations Richard Lim Hock Seng Chief Executive Officer Kuala Lumpur 16 April HONG LEONG STRATEGIC FUND

15 CONDENSED STATEMENT OF COMPREHENSIVE INCOME (Unaudited) FOR THE FINANCIAL PERIOD FROM 1 SEPTEMBER 2017 TO 28 FEBRUARY Note RM RM INVESTMENT INCOME Interest income 4 223, ,043 Dividend income 384, ,978 Net gain on financial assets at fair value through profit or loss ( FVTPL ) 10 1,732, ,735 Net gain/(loss) on derivatives ,710 (17,400) Net foreign currency exchange loss (111,894) - Management fee rebate 5 2,696-2,808,336 1,346,356 EXPENDITURE Management fee 5 (419,613) (376,927) Trustee s fee 6 (19,582) (17,590) Auditors remuneration (4,364) (4,364) Tax agent s fee (1,285) (1,650) Custodian fee (5,919) - Transaction costs (349,748) (117,073) Other expenses (54,050) (41,784) (854,561) (559,388) PROFIT BEFORE TAXATION 1,953, ,968 Taxation 7 (390) - PROFIT AFTER TAXATION AND TOTAL COMPREHENSIVE INCOME FOR THE FINANCIAL PERIOD 1,953, ,968 Profit after taxation is made up as follows: Realised amount 2,572,363 3,190,301 Unrealised amount (618,978) (2,403,333) 1,953, ,968 Distribution for the financial period: Net distribution 8 4,150, ,695 Net distribution per unit (sen) Gross distribution per unit (sen) The accompanying notes to the financial statements form an integral part of these unaudited condensed financial statements. HONG LEONG STRATEGIC FUND 13

16 CONDENSED STATEMENT OF FINANCIAL POSITION (Unaudited) AS AT 28 FEBRUARY Note RM RM ASSETS Cash and cash equivalents 9 12,008,553 11,968,018 Financial assets at fair value through profit or loss ( FVTPL ) 10 49,753,609 45,370,098 Amount due from brokers/dealers 1,219, ,885 Amount due from the Manager-creation of units Amount due from the Manager-management fee rebate 1,841 - Derivatives Dividends receivable 4,718 31,029 Tax recoverable 23,405 23,405 TOTAL ASSETS 63,012,215 57,698,577 LIABILITIES Amount due to brokers/dealers 5,988,707 - Amount due to the Manager-cancellation of units 26,997 12,265 Amount due to the Manager-management fee 65,526 72,791 Amount due to the Trustee 3,058 3,397 Derivatives 11 5,895 - Amount due to the Manager-expenses - 1,036 Distribution payable 8,420 43,815 Other payables and accruals 20,760 18,295 TOTAL LIABILITIES 6,119, ,599 NET ASSET VALUE OF THE FUND 56,892,852 57,546,978 EQUITY Unitholders capital 39,124,478 37,581,818 Retained earnings 17,768,374 19,965,160 NET ASSETS ATTRIBUTABLE TO UNITHOLDERS 56,892,852 57,546,978 UNITS IN CIRCULATION (UNITS) ,007, ,514,649 NET ASSET VALUE PER UNIT (RM) The accompanying notes to the financial statements form an integral part of these unaudited condensed financial statements. 14 HONG LEONG STRATEGIC FUND

17 CONDENSED STATEMENT OF CHANGES IN EQUITY (Unaudited) FOR THE FINANCIAL PERIOD FROM 1 SEPTEMBER 2017 TO 28 FEBRUARY 2018 Unitholders Retained capital earnings Total Note RM RM RM Balance as at 1 September ,581,818 19,965,160 57,546,978 Movement in net asset value: Creation of units from applications 2,685,442-2,685,442 Creation of units from distribution 3,130,535-3,130,535 Cancellation of units (4,273,317) - (4,273,317) Total comprehensive income for the financial period - 1,953,385 1,953,385 Distribution for the financial period 8 - (4,150,171) (4,150,171) Balance as at 28 February ,124,478 17,768,374 56,892,852 Balance as at 1 September ,565,160 21,414,944 50,980,104 Movement in net asset value: Creation of units from applications 2,114,651-2,114,651 Creation of units from distribution 486, ,540 Cancellation of units (1,864,572) - (1,864,572) Total comprehensive income for the financial period - 786, ,968 Distribution for the financial period 8 - (617,695) (617,695) Balance as at 28 February ,301,779 21,584,217 51,885,996 The accompanying notes to the financial statements form an integral part of these unaudited condensed financial statements. HONG LEONG STRATEGIC FUND 15

18 CONDENSED STATEMENT OF CASH FLOWS (Unaudited) FOR THE FINANCIAL PERIOD FROM 1 SEPTEMBER 2017 TO 28 FEBRUARY RM RM CASH FLOWS FROM OPERATING ACTIVITIES Proceeds from sales of financial assets at FVTPL 59,666,898 23,635,997 Purchase of financial assets at FVTPL (57,691,421) (13,127,135) Realised gain/(loss) on derivatives 583,747 (15,805) Realised foreign exchange differences arising from operating activities 7,025 - Interest received 304, ,443 Dividends received 410, ,089 Management fee rebate received Management fee paid (426,878) (382,848) Trustee s fee paid (19,921) (17,866) Payment for other fees and expenses (64,189) (51,452) Net cash generated from operating activities 2,771,484 10,749,423 CASH FLOWS FROM FINANCING ACTIVITIES Cash proceeds from units created 2,684,972 2,601,191 Payments for cancellation of units (4,258,585) (1,949,942) Distribution paid (1,055,031) (617,982) Net cash (used in)/generated from financing activities (2,628,644) 33,267 NET INCREASE IN CASH AND CASH EQUIVALENTS 142,840 10,782,690 EFFECTS OF FOREIGN EXCHANGE RATE CHANGES (102,305) - CASH AND CASH EQUIVALENTS AT BEGINNING OF THE FINANCIAL PERIOD 11,968,018 4,490,957 CASH AND CASH EQUIVALENTS AT END OF THE FINANCIAL PERIOD 12,008,553 15,273,647 The accompanying notes to the financial statements form an integral part of these unaudited condensed financial statements. 16 HONG LEONG STRATEGIC FUND

19 NOTES TO THE CONDENSED FINANCIAL STATEMENTS (Unaudited) FOR THE FINANCIAL PERIOD FROM 1 SEPTEMBER 2017 TO 28 FEBRUARY THE FUND, THE MANAGER AND THEIR PRINCIPAL ACTIVITIES Hong Leong Strategic Fund ( the Fund ) was constituted pursuant to the execution of a Deed dated 20 January 2005 and Supplemental Deeds dated 22 November 2007, 28 January 2008, 2 June 2009 and 30 April 2010 between the Manager, Hong Leong Asset Management Bhd, AmTrustee Berhad and the registered unitholders of the Fund. AmTrustee Berhad has been replaced with Deutsche Trustees Malaysia Berhad ( the Trustee ) effective 1 September 2012 and Supplemental Master Deeds were entered into between the Manager, the Trustee and the registered unitholders of the Fund on 27 July 2012 and 25 March 2015 to effect the change ( the Deeds ). The Fund aims to provide investors with an investment that strives for stable returns as well as consistency in performance and income. For equity portion, the Fund will generally invest in companies with good income and growth potential, i.e. companies that are projected to achieve earnings growth over the next 12 to 24 months. The Fund may also invest in undervalued companies that have longer term upside i.e. over the next 12 to 24 months. For the fixed income portion, the Fund will not invest in any fixed income securities that are rated BBB and below, and will only invest in fixed income securities that are rated at least A3 as rated by RAM or its equivalent ratings by MARC. The Fund commenced operations on 8 March 2005 and will continue its operations until terminated as provided under Part 12 of the Deed. The Manager of the Fund is Hong Leong Asset Management Bhd, a company incorporated in Malaysia. The principal activity of the Manager is the management of unit trust funds and private investment mandates. Its holding company is Hong Leong Capital Berhad, a company incorporated in Malaysia and listed on the Main Market of Bursa Malaysia Securities Berhad. The financial statements were authorised for issue by the Manager on 16 April HONG LEONG STRATEGIC FUND 17

20 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The following accounting policies have been applied consistently in dealing with items which are considered material in relation to the financial statements: (a) Basis of preparation The condensed financial statements are unaudited and have been prepared in accordance with the provisions of the Malaysian Financial Reporting Standards ( MFRS ) 134 Interim Financial Reporting and International Financial Reporting Standards ( IFRS ) 34 Interim Financial Reporting. The condensed financial statements should be read in conjuction with the audited financial statements of the Fund for the financial year ended 31 August 2017 which have been prepared in accordance with the provisions of the Malaysian Financial Reporting Standards ( MFRS ) and International Financial Reporting Standards ( IFRS ). (b) Financial assets and financial liabilities Classification Financial assets are designated at fair value through profit or loss when their performance are managed and evaluated on a fair value basis. The Fund designates its investments in quoted equity securities, unquoted collective investment scheme and unquoted fixed income securities as financial assets at fair value through profit or loss at inception. Derivatives are financial assets/liabilitites at fair value through profit or loss unless they are designated hedges (Note 2(l)). 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 assets. The Fund s loans and receivables comprise cash and cash equivalents, amount due 18 HONG LEONG STRATEGIC FUND

21 from brokers/dealers, amount due from the Manager-creation of units, amount due from the Manager-mangement fee rebate and dividends receivable. Financial liabilities are classified according to the substance of the contractual arrangements entered into and the definitions of a financial liability. The Fund classifies amount due to brokers/ dealers, amount due to the Manager-cancellation of units, amount due to the Manager-management fee, amount due to the Trustee, amount due to the Manager-expenses, distribution payable and other payables and accruals as other financial liabilities. 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. Transaction costs are expensed in the statement of comprehensive income. Financial liabilities, within the scope of MFRS 139, 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. Financial assets are derecognised 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. Financial liabilities are derecognised when it is extinguished, i.e. when the obligation specified in the contract is discharged or cancelled or expired. Unrealised gains or losses arising from changes in the fair value of the financial assets at fair value through profit or loss including the effects of currency translation are presented in the statement of comprehensive income within net gain or loss on financial assets at fair value through profit or loss in the period which they arise. HONG LEONG STRATEGIC FUND 19

22 Dividend income from financial assets at fair value through profit or loss is recognised in the statement of comprehensive income as part of dividend income when the Fund s right to receive payments is established. Local quoted investments are valued at the last done market prices quoted on Bursa Malaysia Securities Berhad ( Bursa Securities ) at the date of the statement of financial position. Foreign quoted investments are valued at the last traded market prices quoted on the respective foreign stock exchanges at the close of the business day of the respective foreign stock exchanges. If a valuation based on the market price does not represent the fair value of the quoted investments, 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 quoted securities for a period exceeding 14 days, or such shorter period as agreed by the Trustee, then the quoted 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. Local unquoted fixed income securities are revalued on a daily basis based on fair value prices quoted by a bond pricing agency ( BPA ) registered with the Securities Commission Malaysia as per the Securities Commission Malaysia s Guidelines on Unit Trust Funds. Where such quotation are not available or where the Manager is of the view that the price quoted by the BPA for a specific unquoted fixed income securities differs from the market price by more than 20 basis points, the Manager may use the market price, provided that the Manager: (i) records its basis for using non-bpa price; (ii) obtains necessary internal approvals to use the non-bpa price; and (iii) keeps an audit trail of all decisions and basis for adopting the market yield. 20 HONG LEONG STRATEGIC FUND

23 Unquoted collective investment scheme is valued at the last published NAV per unit at the date of the statement of financial position. 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 a close estimate of their fair value due to the short term nature of the deposits. Loans and receivables and other financial liabilities are subsequently carried at amortised cost using the effective interest method. Impairment For assets carried at amortised cost, the Fund assesses at the end of the reporting 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. The amount of the loss is measured as the difference between the asset s carrying amount and the present value of estimated future cash flows (excluding future credit losses that have not been incurred) discounted at the financial asset s original effective interest rate. The carrying amount of the asset is reduced and the amount of the loss is recognised in profit or loss. If loans and receivables has a variable interest rate, the discount rate for measuring any impairment loss is the current effective interest rate determined under the contract. As a practical expedient, the Fund may measure impairment on the basis of an instrument s fair value using an observable market price. HONG LEONG STRATEGIC FUND 21

24 If, in a subsequent period, the amount of the impairment loss decreases and the decrease can be related objectively to an event occurring after the impairment was recognised (such as an improvement in the debtor s credit rating), the reversal of the previously recognised impairment loss is recognised in statement of comprehensive income. When an asset is uncollectible, it is written off against the related allowance account. Such assets are written off after all the necessary procedures have been completed and the amount of the loss has been determined. (c) Foreign currency Functional and presentation 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 ( RM ), which is the Fund s functional and presentation currency. Transactions and balances Foreign currency transactions are translated into the functional currency using the exchange rates prevailing at the dates of the transactions or valuation where items are remeasured. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation at period-end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognised in profit or loss, except when deferred in other comprehensive income as qualifying cash flow hedges. Translation differences on non-monetary financial assets and liabilities such as equities held at fair value through profit or loss are recognised in profit or loss as part of the fair value gain or loss. 22 HONG LEONG STRATEGIC FUND

25 (d) Income recognition Dividend income is recognised on the ex-dividend date when the Fund s right to receive payment is established. Interest income from deposits with licensed financial institutions and unquoted fixed income securities are recognised on the effective interest method on an accrual basis. Realised gain or loss on disposal of quoted investments is accounted for as the difference between the net disposal proceeds and the carrying amount of quoted investments, determined on a weighted average cost basis. Realised gain or loss on disposal of unquoted fixed income securities is accounted for as the difference between the net disposal proceeds and the carrying amount of unquoted fixed income securities determined on cost adjusted for accretion of discount or amortisation of premium. (e) Cash and cash equivalents For the purpose of statement of cash flows, cash and cash equivalents comprise cash at banks and deposits held in highly liquid investments that are readily convertible to known amounts of cash and which are subject to an insignificant risk of changes in value. HONG LEONG STRATEGIC FUND 23

26 (f) Amount due from/to brokers/dealers Amount due from/to brokers/dealers represents receivables/ payables for investments sold/purchased that have been contracted for but not yet settled or delivered on the statement of financial position date respectively. These amounts are recognised initially at fair value and subsequently measured at amortised cost using the effective interest method, less provision for impairment for amount due from brokers/dealers. A provision for impairment of amount due from a broker/dealer is established when there is objective evidence that the Fund will not be able to collect all amounts due from the relevant broker/dealer. Significant financial difficulties of the broker/dealer, probability that the broker/dealer will enter bankruptcy or financial reorganisation, and default in payments are considered indicators that the amount due from brokers/dealers is impaired. Once a financial asset or a group of similar financial assets has been written down as a result of an impairment loss, interest income is recognised using the rate of interest used to discount the future cash flows for the purpose of measuring the impairment loss. (g) Taxation Current tax expense is determined according to Malaysian tax laws at the prevailing tax rate based on the taxable profit earned during the financial period. Tax on investment income from foreign investments is based on the tax regime of the respective countries that the Fund invests in. (h) Distributions A distribution to the Fund s unitholders is accounted for as a deduction from realised reserve. A proposed distribution is recognised as a liability in the financial period in which it is approved by the Board of Directors of the Manager. 24 HONG LEONG STRATEGIC FUND

27 (i) Transaction costs Transaction costs are costs incurred to acquire or dispose financial assets or liabilities at fair value through profit or loss. They include fees and commissions paid to agents, advisors and brokers/ dealers. Transaction costs, when incurred, are immediately recognised in the statement of comprehensive income as expenses. (j) Unitholders capital The unitholders contributions to the Fund meet the criteria to be classified as equity instruments under MFRS 132 Financial Instruments: Presentation. Those criteria include: the units entitle the unitholder to a proportionate share of the Fund s net asset 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 the units; and the total expected cash flows from the units over its life are based substantially on the profit or loss and change in the net asset value of the Fund. The outstanding units are carried at the redemption amount that is payable at the date of the statement of financial position if unitholder exercises the right to put the unit 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 and 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. HONG LEONG STRATEGIC FUND 25

28 (k) Segmental information Operating segments are reported in a manner consistent with the internal reporting used by the chief operating decisionmaker. The chief operating decision-maker, who is responsible for allocating resources and assessing performance of the operating segments, has been identified as the Investment Committee of the Fund s manager that undertakes strategic decisions for the Fund. (l) Derivatives A derivative is any contract that gives rise to a financial asset/ liability of the Fund and a financial liability/asset or equity instrument of another enterprise. A financial asset is any asset that is cash, a contractual right to receive cash or another financial asset from another enterprise, a contractual right to exchange financial instruments with another enterprise under conditions that are potentially favorable, or an equity instrument of another enterprise. A financial liability is any liability that is a contractual obligation to deliver cash or another financial asset to another enterprise, or to exchange financial instruments with another enterprise under conditions that are potentially unfavorable. The Fund s derivatives comprise unquoted forward currency contracts. Derivatives are initially recognised at fair value on the date a derivative contract is entered into and is subsequently re-measured at their fair value. (m) Fair value of financial instruments Financial instruments comprise financial assets and financial liabilities. Fair value is 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. The information presented herein represents the estimates of fair values as at the date of the statement of financial position. 26 HONG LEONG STRATEGIC FUND

29 The Fund s financial assets and financial liabilities are measured on an ongoing basis at either fair value or at amortised cost based on the respective classification. The following table analyses the financial assets and financial liabilities of the Fund in the statement of financial position as at the reporting date: Loans and receivables/ Financial other assets financial at FVTPL liabilities Total RM RM RM Financial assets Cash and cash equivalents (Note 9) - 12,008,553 12,008,553 Financial assets at FVTPL (Note 10) 49,753,609-49,753,609 Amount due from brokers/dealers - 1,219,619 1,219,619 Amount due from the Manager -creation of units Amount due from the Manager -management fee rebate - 1,841 1,841 Dividends receivable - 4,718 4,718 49,753,609 13,235,201 62,988,810 Financial liabilities Amount due to brokers/dealers - 5,988,707 5,988,707 Amount due to the Manager -cancellation of units - 26,997 26,997 Amount due to the Manager -management fee - 65,526 65,526 Amount due to the Trustee - 3,058 3,058 Derivatives (Note 11) 5,895-5,895 Distribution payable - 8,420 8,420 Other payables and accruals - 16,391 16,391 5,895 6,109,099 6,114,994 HONG LEONG STRATEGIC FUND 27

30 Loans and receivables/ Financial other assets financial at FVTPL liabilities Total RM RM RM Financial assets Cash and cash equivalents (Note 9) - 11,968,018 11,968,018 Financial assets at FVTPL (Note 10) 45,370,098-45,370,098 Amount due from brokers/dealers - 305, ,885 Derivatives (Note11) Dividends receivable - 31,029 31,029 45,370,240 12,304,932 57,675,172 Financial liabilities Amount due to the Manager -cancellation of units - 12,265 12,265 Amount due to the Manager -management fee - 72,791 72,791 Amount due to the Trustee - 3,397 3,397 Amount due to the Manager-expenses - 1,036 1,036 Distribution payable - 43,815 43,815 Other payables and accruals - 17,566 17, , ,870 All liabilities are financial liabilities which are carried at amortised cost. (n) Critical accounting estimates and judgments in applying accounting policies The Fund makes estimates and assumptions concerning the future. The resulting accounting estimates will, by definition, rarely equal the related actual results. To enhance the information content of the estimates, certain key variables that are anticipated to have material impact to the Funds results and financial position are tested for sensitivity to changes in the underlying parameters. Estimates and judgments are continually evaluated by the Manager and are based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances. 28 HONG LEONG STRATEGIC FUND

31 In undertaking any of the Fund s investment, the Manager will ensure that all assets of the Fund under management will be valued appropriately, that is at fair value and in compliance with the Securities Commission Malaysia s Guidelines on Unit Trust Funds. However, the Manager is of the opinion that there are no accounting policies which require significant judgment to be exercised. 3. FAIR VALUE ESTIMATION The fair value of forward foreign exchange contracts is determined using forward exchange rates at the statements of financial position, with the resulting value discounted back to present value. The method of recognising the resulting gain or loss depends on whether the derivative is designated as a hedging instrument, and the nature of the item being hedged. Derivatives that do not qualify for hedge accounting are classified as held for trading and accounted for in accordance with the accounting policy set out in Note 2(b). The fair value of financial assets traded in active markets (such as publicly traded derivatives and trading securities) are based on quoted market prices at the close of trading on the reporting date. The Fund utilises the last traded market price for financial assets where the last traded price falls within the bid-ask spread. In circumstances where the last traded price is not within the bid-ask spread, the Manager will determine the point within the bid-ask spread that is most representative of the fair value. A financial instrument is regarded as quoted in an active market if quoted prices are readily and regularly availabe from an exchange, dealer, broker, industry group, pricing service, or regulatory agency, and those prices represent actual and regularly occuring market transactions on an arm s length basis. HONG LEONG STRATEGIC FUND 29

32 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 nonstandardised 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. For instruments for which there is no active market, the Fund may use internally developed models, which are usually based on valuation methods and techniques generally recognised as standard within the industry. Valuation models are used primarily to value unlisted equity, debt securities and other debt instruments for which market were or have been inactive during the financial period. Some of the inputs to these models may not be market observable and are therefore estimated based on assumptions. The output of a model is always an estimate or approximation of a value that cannot be determined with certainty, and valuation techniques employed may not fully reflect all factors relevant to the positions the Fund holds. Valuations are therefore adjusted, where appropriate, to allow for additional factors including model risk, liquidity risk and counter party risk. An active market is a market in which transactions for the asset or liability take place with sufficient frequency and volume to provide pricing information on an on-going basis. 30 HONG LEONG STRATEGIC FUND

33 (i) Fair value hierarchy The table below analyses financial instruments carried at fair value. The different levels have been defined as follows: Quoted prices (unadjusted) in active market for identical assets or liabilities (Level 1) 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 2); and Inputs for the asset and liability that are not based on observable market data (that is, unobservable inputs) (Level 3) The level in the fair value hierarchy within which the fair value measurement is categorised in its entirely is determined on the basis of the lowest level input that is significant to the fair value measurement in its entirely. For this purpose, the significance of an input is assessed against the fair value measurement in its entirely. If a fair value measurement uses observable inputs that requires significant adjustment based on unobservable inputs, that measurement is a Level 3 measurement. Assessing the significance of a particular input to the fair value measurement in its entirely requires judgment, considering factors specific to the asset or liability. The determination of what constitutes observable requires significant judgment by the Fund. The Fund considers observable data to be that market data that is readily available, regularly distributed or updated, reliable and verifiable, not proprietary, and provided by independent sources that are actively involved in the relevant market. HONG LEONG STRATEGIC FUND 31

34 The following table analyses within the fair value hierarchy of the Fund s financial assets (by class) measured at fair value: Level 1 Level 2 Level 3 Total RM RM RM RM Financial assets at FVTPL: - Quoted equity securities - local 33,026, ,026,116 - Quoted equity securities - foreign 6,693, ,693,957 - Unquoted collective investment scheme - local - 7,998,401-7,998,401 - Unquoted fixed income securities - local - 2,035,135-2,035,135 39,720,073 10,033,536-49,753,609 Financial liabilities: - Derivatives - (5,895) - (5,895) Financial assets at FVTPL: - Quoted equity securities - local 32,175, ,175,090 - Quoted equity securities - foreign 4,841, ,841,313 - Unquoted fixed income securities - local - 8,353,695-8,353,695 Financial assets: - Derivatives ,016,403 8,353,837-45,370, HONG LEONG STRATEGIC FUND

35 Investments whose values are based on quoted market prices in active markets, and are therefore classified within Level 1, include active listed equities. 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 2(b). Financial instruments that trade in markets that are not considered to be active but are valued based on quoted market prices, dealer quotations or alternative pricing sources supported by observable inputs are classified within Level 2. These include unquoted collective investment scheme, unquoted fixed income securities and derivatives. As Level 2 instruments include positions that are not traded in active markets and/or are subject to transfer restrictions, valuations may be adjusted to reflect illiquidity and/or non-transferability, which are generally based on available market information. The Fund s policies on valuation of these financial assets are stated in Note 2(b). (ii) The carrying values of financial assets (other than financial assets at FVTPL and derivatives) and financial liabilities (other than derivatives) are a reasonable approximation of their fair values due to their short term nature. 4. INTEREST INCOME RM RM Interest income from: - Deposits with licensed financial institutions 84, ,896 - Loan stock - 11,860 - Unquoted fixed income securities 138, , , ,043 HONG LEONG STRATEGIC FUND 33

36 5. MANAGEMENT FEE In accordance with Division 13.1 of the Deed, the Manager is entitled to a management fee of up to 2.50% per annum calculated daily based on the net asset value of the Fund. For the financial period from 1 September 2017 to 28 February 2018, the management fee is recognised at a rate of 1.50% ( to : 1.50%) per annum. Management fee rebate relates to the rebate received from the Manager for investing in Hong Leong Islamic Institutional Income Management Fund II. The rebate was 0.30% per annum calculated on the net aset value of Hong Leong Islamic Institutional Income Management Fund II on a daily basis. There will be no further liability to the Manager in respect of management fee other than the amount recognised above. 6. TRUSTEE S FEE In accordance with Division 13.2 of the Deed, the Trustee is entitled to a fee not exceeding 1.00% subject to a minimum of RM18,000 per annum calculated daily based on the net asset value of the Fund. For the financial period from 1 September 2017 to 28 February 2018, the trustee s fee is recognised at a rate of 0.07% ( to : 0.07%) per annum. There will be no further liability to the Trustee in respect of trustee s fee other than the amount recognised above. 34 HONG LEONG STRATEGIC FUND