Manulife Global Bond Fund 2 Fund Information (31 Oct 2016) (Oct 2016) Unit NAV RM

Transcription

1 Page 1 of 5 MANULIFE INVESTMENT FUNDS MANULIFE INVESTMENT FUNDS Manulife Global Bond Fund 2 Fund Information (31 Oct 2016) (Oct 2016) Unit NAV RM Fund Size RM million Investment Objective Units in circulation million The Manulife Global Bond Fund 2 is a tranche of the Manulife Global Bond Fund Series; which invests fully in Singapore Dollar denominated underlying Fund namely the Franklin Templeton Investment Funds Templeton Global Bond Fund A (Mdis) SGD-H1 (the Underlying Fund ). The Underlying Fund aims to maximise total investment returns consisting of a combination of interest income, capital appreciation and currency gains by investing principally in a portfolio of fixed or floating rate debt securities and debt obligations issued by government or government-related issuer worldwide. Investment Strategy The Underlying Fund seeks to achieve its objective by investing principally in a portfolio of fixed or floating-rate debt securities (including noninvestment grade securities) and debt obligations issued by government or government-related issuers worldwide. The Underlying Fund may also, in accordance with the investment restrictions, invest in debt securities (including noninvestment grade securities) of corporate issuers. The Underlying Fund may also purchase debt obligations issued by supranational entities organized or supported by several national governments, such as the International Bank for Reconstruction and Development or the European Investment Bank. The Underlying Fund may also utilise financial derivative instruments for investment purposes. These financial derivative instruments may be dealt on either regulated markets or over-the-counter, and may include, inter alia, swaps (such as credit default swaps or total return swaps), forwards and cross forwards, futures contracts (including those on government securities), as well as options. Use of financial derivative instruments may result in negative exposures in a specific yield curve/duration, currency or credit. The Underlying Fund may also invest in securities or structured products where the security is linked to or derives its value from another security or is linked to assets or currencies of any country. The Underlying Fund may hold up to 10% of its net assets in securities in default. The Underlying Fund may purchase fixed income securities and debt obligations denominated in any currency, and may hold equity securities to the extent that such securities result from the conversion or exchange of a preferred stock or debt obligation. Launch Date 22 August 2013 Financial Year End December 31 Management Fee 1.00%p.a. Dealing Daily Top Five Holdings of the Underlying Fund Government of Mexico, senior note, M, 5.00%, 6/15/17 Korea Treasury Bond, senior note, 2.00%, 3/10/21 Government of Malaysia, senior note, 3.394%, 3/15/17 Korea Monetary Stabilization Bond, senior note, 1.45%, 6/02/18 Government of Indonesia, senior bond, FR56, 8.375%, 9/15/26 Fund Performance Since Launch (22 August 2013 to 31 October 2016) 40.0% 35.0% 30.0% 25.0% 20.0% 15.0% 10.0% 5.0% 0.0% -5.0% Aug-13 Feb-14 Aug-14 Feb-15 Aug-15 Feb-16 Aug-16 Highest and Lowest Unit Price Since Launch Unit Price (RM) Date Highest Lowest Nov-15 7-Apr-16 Performance Table Performance 1 Month 6 Months YTD 1 Year 3 Years Since Inception Manulife Global Bond Fund % 3.77% 3.55% 1.98% 1.91% JP Morgan Global Government Bond Index* 3.64% -2.05% 6.45% 6.30% -0.02% -3.06% 4.49% 3.38% 13.19% 36.41% 15.22% 33.93% Note: Fund's performance is calculated on NAV to NAV. This is strictly the performance of the investment fund, and not to be treated as the gross premium/contribution of the investment-linked product. The above returns are net of fund management charges and taxes. Past performance is not indicative of future rerults. The benchmark is in MYR terms. *Source : Morningstar MGBF2 Benchmark

2 Market Review # Global bond yields broadly rose across much of Europe, Asia and the Americas during October, with the exception of Brazil, where yields declined. Market expectations for a December rate hike by the US Federal Reserve (Fed) rose significantly in October as annualised headline inflation increased to its highest level since The yield on the 10-year US Treasury note increased 23 basis points (bps) to 1.83%, the 10-year German Bund yield rose 28 bps to close in positive territory at 0.16%, and the 10-year Japanese government bond yield remained negative but rose four bps to -0.05%. The US dollar broadly strengthened against a number of currencies, including the Japanese yen, euro, Australian dollar, Colombian peso and Malaysian ringgit, but weakened against a smaller set of currencies, including the Mexican peso and Brazilian real. Several emerging-market currencies remained undervalued, in our assessment, and we continue to expect global market fundamentals to re-emerge over the medium term. Concurrently, the Bank of Japan (BOJ) and the European Central Bank (ECB) continued with their quantitative easing (QE) programmes during the month, as short-term yields in Japan and the eurozone remained in negative territory. We continue to expect the BOJ to weaken the yen as it targets yield levels across the curve, given the negative impact the yen s strength has had on the Japanese economy. The BOJ may continue to hold back its strongest easing measures until they can be deployed against clear policy tightening from the Fed, which markets are expecting to occur in December. We also expect the ECB to continue with monetary accommodation to weaken the euro and drive inflation. Sovereign credit spreads modestly declined in areas of Europe as yields rose sharply in October, but spreads modestly increased in Latin America and Asia. Consequently, a majority of emergingmarket sovereign credits declined in value during the month, with some pockets of positive performance. Corporate credit spreads in the US also modestly declined amidst sharply rising US Treasury yields, with high-yield credit tiers having enough spread cushion to largely generate positive returns but investment-grade credit tiers generally declining in value. Corporate credit spreads in Europe saw similar outcomes as yields rose, with high-yield credit generally providing modestly positive returns but investment-grade corporate credit tiers declining in value. Market Overview # Inflation pressures have continued to rise in the US in recent months on exceptional strength in the US labour market, resilient economic growth and increasing wage pressures. The core Consumer Price Index has remained above 2.0% thus far in 2016 and shows signs of continuing to trend higher, in our assessment. We expect inflation to rise above 3.0% in early 2017 as the base effects from last year s decline in oil prices fall out of the headline figure. Additionally, the Fed has fallen behind the curve in its policy response, further stoking inflation pressures with excessively accommodative monetary policy, in our view. The Fed needs to raise rates to bolster financial market stability, in our view, given underlying price pressures and robust employment conditions. On the US fiscal side, we expect expanded government spending from the new administration in 2017, likely in the form of increased infrastructure spending, which would add to existing inflation pressures. US Treasury yields rose sharply in October (to around 1.83% for the 10-year Treasury note) but still remained significantly lower than where we believe they should be on a fundamental basis. We have been wary of the lack of inflation being priced into bonds in the US and across the globe. In recent months, we have seen a number of recoveries in emergingmarket valuations after significant volatility earlier in the year and after some setbacks during the aftermath of the Brexit referendum. However, we see further room for improvement across a number of emerging markets; the recent recovery does not appear to be anywhere close to the full cycle of price strengthening, given how far valuations dropped during the volatility. While there were certainly some specific risks, there are also significant differences between individual countries across the asset class. Most commodity exporters and emerging markets with poor macroeconomic fundamentals remain vulnerable; however, several other countries have much stronger policy management and better underlying fundamentals. A strengthening US economy along with rising US Treasury yields would increasingly magnify the fundamental differences between healthy and vulnerable economies, leading to respective appreciations and depreciations against the US dollar, in our view. Countries that are economically expanding and that have healthier balances (such as Mexico) should be in a stronger position to raise rates in conjunction with increasing yields in the US. Countries such as Malaysia, Indonesia and Brazil would also benefit from stabilising financial markets along with rising yields and a re-emergence of fundamental pricing, in our assessment. As commodity prices find a stable range, we expect markets to appropriately recognise that countries such as Brazil do fine at the prevailing price levels. Additionally, as US Treasury yields rise, we expect markets to recognise that rate increases do not damage the finances of countries like Mexico, because it does not have a lot of foreign currency reliance and its central bank is in position to potentially raise rates in conjunction with rising US Treasury yields, thus protecting against a loss in yield differential. We continue to expect fundamental weakening of the euro and Japanese yen on continued monetary accommodation in the eurozone and Japan. Both economic regions need inflation, particularly Japan. QE measures from the ECB and BOJ have been supporting those efforts; however, the euro and yen have recently seen periods of appreciation against the US dollar with the persistent softness in US monetary policy, along with rallies to the major currencies. Both the eurozone and Japan need currency weakness to support their export sectors and drive growth, and each relies far more on the weakness in their currencies than the US does. However, the Fed s reductions in the pace of its rate hikes earlier in the year reversed US yield expectations that markets had already priced in for 2016, which effectively created greater monetary easing than the BOJ s and ECB s easing measures, resulting in periods of temporary strength in the euro and yen. A firmer commitment to rate hikes in the US would fortify the divergences in monetary policies between the easings of the ECB and BOJ and the tightening of the Fed; however, a shift higher in US Treasury yields due to market fundamentals can also create an effective divergence in rates. Markets have not appropriately priced in US inflation and growth or the extraordinary levels of continued QE from the ECB and BOJ, in our view. We believe the recent periods of yen and euro strength will prove temporary as fundamentals re-emerge and the currencies depreciate towards fair valuations. Despite contraction in China s manufacturing sector and episodes of volatility in the country s equity markets, we believe actual growth in China is likely to remain within range of its current expansionary pace. Underlying conditions in the Chinese economy are fundamentally more stable than markets have indicated, in our assessment. China s economy continues to remain in a crucial stage of rebalancing, but we believe it is not at risk of collapsing. Some of the traditional engines of growth (e.g., manufacturing, real estate and local government spending) have stalled or contracted, but new engines of growth (e.g., the service sector and a new generation of private sector companies) are taking over. Overall, we believe China will remain on course, with gross domestic product growth decelerating moderately towards the 6% mark over the next few years while the economy shifts towards consumption, services and higher value-added manufacturing. The lower rate of growth still represents a massive level of global aggregate demand. Our philosophy is grounded in a focus on long-term fundamentals and patience. We believe that while markets can deviate from fundamentals in the shorter term, they tend to reflect them over the medium to long term. Thus we seek to identify and exploit the imbalances we see in the market and position for the directional trends we see going forward, ahead of inflection points. Our oftentimes contrarian viewpoint also allows us to find potential investment opportunities particularly during periods of volatility and panic, where we can exploit market mispricing. # Underlying Fund Disclaimer: This report is prepared for information purposes only and Manulife Insurance Berhad ( Manulife ) does not guarantee its accuracy, completeness, correctness or timeliness for any particular purpose. Manulife reserves the right to change any information without giving any notice. The performance of the fund is not guaranteed and the value of investment and their derived income may increase or decrease. Past performance is not a guide to future performance. In the event of exceptional circumstances, such as high volume of sale of investment within a short period of time, the Company reserves the right to defer or suspend issuance or redemption of units. The fund manager is Manulife Asset Management Services Berhad. Page 2 of 5

3 Investment in the fund is subject to certain risks, including but not limited to: Investment Counterparty Credit Credit-linked Securities Defaulted Debt Securities Derivative Emerging Markets When over-the counter ( OTC ) or other bilateral contracts are entered into, the Underlying Fund may find itself exposed to risks arising from the solvency of its counterparties and from their ability to respect the conditions of these contracts. Credit risk, a fundamental risk relating to all fixed income securities as well as money market instruments, is the chance that an issuer will fail to make principal and interest payments when due. Issuers with higher credit risk typically offer higher yields for this added risk. Conversely, issuers with lower credit risk typically offer lower yields. The Underlying Fund bears the risk of loss of its principal investment, and the periodic interest payments expected to be received for the duration of its investment in the credit-linked security, in the event that one or more of the debt obligations underlying the credit default swaps go into default or otherwise become non-performing. In addition, the Underlying Fund bears the risk that the issuer of the credit-linked security will default or become bankrupt. In such an event, the Underlying Fund may have difficulty being repaid, or fail to be repaid, the principal amount of its investment and the remaining periodic interest payments thereon. Besides, the market for credit-linked securities may suddenly become illiquid which may result in significant, rapid and unpredictable changes in the prices for those securities. In certain cases, a market price for a creditlinked security may not be available or may not be reliable, and the Underlying Fund could experience difficulty in selling such security at a price the Investment Manager believes is fair. The Underlying Fund may invest in debt securities on which the issuer is not currently making interest payments (defaulted debt securities). These securities may become illiquid and the risk of loss due to default may also be considerably greater with lower-quality securities because they are generally unsecured and are often subordinated to other creditors of the issuer. Defaulted securities tend to lose much of their value before they default. Thus, the Underlying Fund's net asset value per Share may be adversely affected before an issuer defaults. In addition, the Underlying Fund may incur additional expenses if it must try to recover principal or interest payments on a defaulted security. For the purpose of efficient portfolio management, the Underlying Fund may, within the context of each Fund's overall investment policy, and within the limits set forth in the investment restrictions applicable to the Underlying Fund, engage in certain transactions involving the use of derivative instruments. The use of derivative instruments and hedging transactions may or may not achieve its intended objective and involves special risks. Performance and value of derivative instruments depend, at least in part, on the performance or value of the underlying asset. Derivative instruments involve cost, may be volatile, and may involve a small investment relative to the risk assumed (leverage effect). Their successful use may depend on the Investment Manager s ability to predict market movements. s include delivery failure, default by other party or the inability to close out a position because the trading market becomes illiquid. Some derivative instruments are particularly sensitive to changes in interest rates. The risk of loss to a Fund for a swap transaction on a net basis depends on which party is obliged to pay the net amount to the other party. If the counterparty is obliged to pay the net amount to the Fund, the risk of loss to the Fund is the loss of the entire amount that the Fund is entitled to receive; if the Fund is obliged to pay the net amount, the Fund s risk of loss is limited to the net amount due. OTC derivative instruments involve a higher degree of risk as OTC markets are less liquid and regulated. The global exposure of the Underlying Fund to financial derivative instruments shall not exceed its total net assets value and as a result the total risk exposure of the Underlying Fund shall not exceed 200% of its net assets value on a permanent basis. All Underlying Fund investments in the securities issued by corporations, governments, and public-law entities in different nations and denominated in different currencies involve certain risks. These risks are typically increased in developing countries and Emerging Markets. Such risks, which can have adverse effects on portfolio holdings, may include: (i) investment and repatriation restrictions; (ii) currency fluctuations; (iii) the potential for unusual market volatility as compared to more industrialised nations; (iv) government involvement in the private sector; (v) limited investor information and less stringent investor disclosure requirements; (vi) shallow and substantially smaller liquid securities markets than in more industrialised countries, which means the Underlying Fund may at times be unable to sell certain securities at desirable prices; (vii) certain local tax law considerations; (viii) limited regulation of the securities markets; (ix) international and regional political and economic developments; (x) possible imposition of exchange controls or other local governmental laws or restrictions; (xi) the increased risk of adverse effects from deflation and inflation; (xii) the possibility of limited legal recourse for the Underlying Fund; and (xiii) the custodial and/or the settlement systems may not be fully developed. Investors in Underlying Funds investing in Emerging Markets should in particular be informed that the liquidity of securities issued by corporations and publiclaw entities in Emerging Markets may be substantially smaller than with comparable securities in industrialised countries. Foreign Currency Since the securities held by the Underlying Fund may be denominated in currencies different from its reference or base currency (USD), the Underlying Fund may be affected favourably or unfavourably by exchange control regulations or changes in the exchange rates between such reference currency and other currencies. If the currency in which a security is denominated appreciates against the base currency, the price of the security could increase. Conversely, a decline in the exchange rate of the currency would adversely affect the price of the security. To the extent that the Underlying Fund seeks to use any strategies or instruments to hedge or to protect against currency exchange risk, there is no guarantee that hedging or protection will be achieved. If currency management strategies are used, it may substantially change the Underlying Fund's exposure to currency exchange rates and could result in losses to the Underlying Fund if the currencies do not perform as the Investment Manager expects. Page 3 of 5

4 Investment in the fund is subject to certain risks, including but not limited to: Investment Interest Rate Securities Liquidity Market Class Hedging Eurozone Low-Rated or Non- Investment Grade Securities risk Sovereign Debt Structured Notes Swap Agreements Distribution As the Underlying Fund invests in debt securities or money market instruments it is subject to interest rate risk. A fixed income security s value will generally increase in value when interest rates fall and decrease in value when interest rates rise. Interest rate risk is the chance that such movements in interest rates will negatively affect a security s value or, in the Underlying Fund s case, its net asset value. Reduced liquidity may have an adverse impact on market price and the Underlying Fund s ability to sell particular securities when necessary to meet the Underlying Fund s liquidity needs or in response to a specific economic event such as the deterioration in the creditworthiness of an issuer. This is a general risk which affects all types of investment. Price trends are determined mainly by financial market trends and by the economic development of the issuers, who are themselves affected by the overall situation of the global economy and by the economic and political conditions prevailing in each country. Because the securities that the Underlying Fund holds fluctuate in price, the value of the Fund s investment in the Underlying Fund will go up and down. The Fund may not get back the amount that the Fund invested in the Underlying Fund. The Underlying Fund Manager may engage in currency hedging transactions with regard to a certain Share Class (the Hedged Share Class ). Hedged Share Classes are designed i) to reduce exchange rate fluctuations between the currency of the Hedged Share Class and the base currency of the Underlying Fund or ii) to reduce the exchange rate fluctuations between the currency of the Hedged Share Class and other material currencies within the Underlying Fund s portfolio. The Underlying Fund may invest in the Eurozone. Mounting sovereign debt burdens and slowing economic growth among European countries, combined with uncertainties in European financial markets, including feared or actual failures in the banking system and the possible break-up of the Eurozone and Euro currency, may adversely affect interest rates and the prices of both fixed income and equity securities across Europe and potentially other markets as well. The performance and value of the Underlying Fund may be adversely affected should there be any adverse credit events (e.g. downgrade of the sovereign credit rating or default or bankruptcy of any European countries) The Underlying Fund may invest in higher-yielding securities rated lower than investment grade. Accordingly, an investment in the Underlying Fund is accompanied by higher degree or credit risk. Below investment-grade securities such as, for example, high-yield debt securities, may be considered a high-risk strategy and can include securities that are unrated and/or in default. Lower-quality, higher yielding securities may also experience greater price volatility when compared to higher quality, lower yielding securities. Investment in Sovereign Debts issued or guaranteed by governments or their agencies and instrumentalities ( governmental entities ) involves a high degree of risk. The governmental entity that controls the repayment of Sovereign Debt may not be able or willing to repay the principal and/or interest when due in accordance with the terms of such debt due to specific factors, including, but not limited to (i) their foreign reserves, (ii) the available amount of their foreign exchange as at the date of repayment, (iii) their failure to implement political reforms, and (iv) their policy relating to the International Monetary Fund. Sovereign Debt holders may also be affected by additional constraints relating to sovereign issuers which may include: (i) the unilateral rescheduling of such debt by the issuer and (ii) the limited legal recourses available against the issuer (in case of failure of delay in repayment). The Underlying Fund may invest in Sovereign Debt issued by governments or government-related entities from countries referred to as Emerging Markets or Frontier Markets, which bear additional risks compared to more developed markets due to such factors as greater political and economic uncertainties, currency fluctuations, repatriation restrictions or capital controls, etc.). Structured notes such as credit linked notes, equity linked notes and similar notes involve a counterparty structuring a note whose value is intended to move in line with the underlying security specified in the note. Unlike financial derivative instruments, cash is transferred from the buyer to the seller of the note. Investment in these instruments may cause a loss if the value of the underlying security decreases. There is also a risk that the note issuer will default. Additional risks result from the fact that the documentation of such notes programmes tends to be highly customised. The liquidity of a structured note can be less than that for the underlying security, a regular bond or debt instrument and this may adversely affect either the ability to sell the position or the price at which such a sale is transacted. The Underlying Fund may enter into interest rate, index and currency exchange rate swap agreements for the purposes of attempting to obtain a particular desired return at a lower cost to the Underlying Fund than if the Underlying Fund had invested directly in an instrument that yielded that desired return. Whether the Underlying Fund s use of swap agreements will be successful in furthering its investment objective will depend on the ability of the Investment Managers to correctly predict whether certain types of investments are likely to produce greater returns than other investments. Because they are two party contracts and because they may have terms of greater than seven (7) calendar days, swap agreements may be considered to be illiquid. Moreover, the Underlying Fund bears the risk of loss of the amount expected to be received under a swap agreement in the event of the default or bankruptcy of a swap agreement counterparty. The Fund intends to make distributions on a quarterly basis during the first 5 years from the policy date and annually thereafter until the maturity of the Policy. The Fund has the absolute discretion to determine whether a distribution is to be made. The Fund also reserves the right to review and make changes to the distribution policy from time to time. The ability of the Fund to make periodic income distribution is depending on income payouts by the Underlying Fund. The income distributions made by the Fund may not be in congruent with income payout received from the Underlying Fund due to factors such as expenses, taxes etc. Please note that the Manager of the Underlying Fund has the discretion to make distributions out of capital in the event the income generated by the Underlying Fund is insufficient. Please note that the above is a summary of the investment risks, please refer to policy contract for full details. Page 4 of 5

5 Management on the usage of derivative instruments Franklin Templeton s philosophy on risk management is to ensure risks are: Recognized: The firm seeks to identify and understand risk at the security, portfolio, and operational level. Rational: The firm strives to ensure that risks are intended and a rational part of each portfolio s strategy. Rewarded: The firm applies its best effort to verify that risks assumed provide the potential to commensurate long-term reward. Franklin Templeton s approach is to use a dedicated team of risk management specialists who are independent of the portfolio managers and provide robust analytics and unbiased insight. These specialists are locally positioned in the primary investment management offices, to work consultatively with portfolio teams around the globe. Franklin Templeton has developed a rigorous structure to provide this independent oversight. Senior risk management specialists participate on various committees, dealing with such issues as counterparty risk, pricing and liquidity risk, the use of complex securities or investment techniques, and the vetting of new products. Supporting these efforts are centrally supported platforms for data analytics and modeling, portfolio compliance, and trade monitoring and execution. Disclaimer: This report is prepared for information purposes only and Manulife Insurance Berhad ( Manulife ) does not guarantee its accuracy, completeness, correctness or timeliness for any particular purpose. Manulife reserves the right to change any information without giving any notice. The performance of the fund is not guaranteed and the value of investment and their derived income may increase or decrease. Past performance is not a guide to future performance. In the event of exceptional circumstances, such as high volume of sale of investment within a short period of time, the Company reserves the right to defer or suspend issuance or redemption of units. The fund manager is Manulife Asset Management Services Berhad. Page 5 of 5