KENANGA SHARIAH GROWTH OPPORTUNITIES FUND INTERIM REPORT

Transcription

1 KENANGA SHARIAH GROWTH OPPORTUNITIES FUND INTERIM REPORT For the Financial Period from 1 December 2015 to 31 May 2016

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3 KENANGA SHARIAH GROWTH OPPORTUNITIES FUND Contents Page Corporate Directory ii-iii Directory of Manager s Offices iv Fund Information 1 Manager s Report 2-4 Fund Performance 5-7 Trustee s Report 8 Shariah Adviser s Report 9 Statement by the Manager 10 Financial Statement 11-39

4 CORPORATE DIRECTORY Manager: Kenanga Investors Berhad (Company No P) Registered Office Kenanga Investors Berhad (KIB) 8 th Floor, Kenanga International, Jalan Sultan Ismail, Kuala Lumpur, Malaysia. Tel: Fax: Business Office Suite 12.02, 12 th Floor, Kenanga International, Jalan Sultan Ismail, Kuala Lumpur, Malaysia. Tel: Fax: InvestorServices@kenanga.com.my Website: Board Of Directors Datuk Syed Ahmad Alwee Alsree (Chairman) Syed Zafilen Syed Alwee (Independent Director) Peter John Rayner (Independent Director) Imran Devindran bin Abdullah (Independent Director) Dato Bruce Kho Yaw Huat Ismitz Matthew De Alwis Investment Committee Dato Bruce Kho Yaw Huat (Chairman) Syed Zafilen Syed Alwee (Independent Member) Peter John Rayner (Independent Member) Imran Devindran bin Abdullah (Independent Member) Ismitz Matthew De Alwis Company Secretary: Norliza Abd Samad (MAICSA ) 9 th Floor, Kenanga International, Jalan Sultan Ismail, Kuala Lumpur, Malaysia. Tel: Fax: External Fund Manager: Kenanga Islamic Investors Berhad (Company No D) Registered Office Kenanga Islamic Investors Berhad (KIIB) 8th Floor, Kenanga International, Jalan Sultan Ismail, Kuala Lumpur, Malaysia. Tel: Fax: Business Office Suite 12.03, 12th Floor, Kenanga International, Jalan Sultan Ismail, Kuala Lumpur, Malaysia. Tel: Fax: Trustee: CIMB Commerce Trustee Berhad (Company No A) Registered Office Level 13, Menara CIMB Jalan Stesen Sentral 2 Kuala Lumpur Sentral Kuala Lumpur. Tel: Fax: Website: Business Office Level 21, Menara CIMB Jalan Stesen Sentral 2 Kuala Lumpur Sentral Kuala Lumpur. Tel: Fax: ii Kenanga Shariah Growth Opportunities Fund Interim Report

5 Shariah Adviser: IBFIM (Company No W) Registered Office No. 149A, 149B, 151B Persiaran Raja Muda Musa Port Klang Selangor Darul Ehsan, Malaysia Business Office 3rd Floor, Menara Takaful Malaysia Jalan Sultan Sulaiman Kuala Lumpur, Malaysia. Tel: Fax: Auditor: Ernst & Young (AF: 0039) Level 23A, Menara Milenium, Jalan Damanlela, Pusat Bandar Damansara, Kuala Lumpur. Tel: Fax: Tax Adviser: Ernst & Young Tax Consultants Sdn Bhd (Company No K) Level 23A, Menara Milenium, Jalan Damanlela, Pusat Bandar Damansara, Kuala Lumpur. Tel: Fax: Membership: Federation Of Investment Managers Malaysia (FIMM) , 6th Floor, Wisma Tune, 19, Lorong Dungun, Damansara Heights, Kuala Lumpur Tel: Fax: Website: Kenanga Shariah Growth Opportunities Fund Interim Report iii

6 DIRECTORY OF MANAGER S OFFICES Regional Branch Offices : Kuala Lumpur Suite 12.02, 12th Floor, Kenanga International Jalan Sultan Ismail, Kuala Lumpur, Malaysia Tel: Fax: Melaka No. 25-1, Jalan Kota Laksamana 2/17 Taman Kota Laksamana, Seksyen Melaka Tel: Fax: Klang No. 12, Jalan Batai Laut 3, Taman Intan Klang, Selangor Darul Ehsan Tel: / Fax: Penang 5.04, 5th Floor, Menara Boustead Penang 39, Jalan Sultan Ahmad Shah Penang. Tel : / Fax : Seremban 2nd Floor, No. 1D-2, Jalan Tuanku Munawir Seremban, Negeri Sembilan Tel : Fax : Johor Bahru Lot 11.03, 11th Floor, Menara MSC Cyberport No. 5, Jalan Bukit Meldrum Johor Bahru, Johor Tel: / 4798 Fax: Kuching 1st Floor, No 71, Lot 7 Lot 10900, Jalan Tun Jugah Kuching, Sarawak Tel: Fax: Kota Kinabalu A-03-11, 3rd Floor Block A, Warisan Square Jalan Tun Fuad Stephens Kota Kinabalu, Sabah Tel: / Fax: Ipoh Suite 1, 2nd Floor, 63, Persiaran Greenhill, Ipoh, Perak, Malaysia Tel: / 7570 Fax: Miri 2nd Floor, Lot 1264, Centre Point Commercial Centre, Jalan Melayu, Miri, Sarawak Tel: Fax: iv Kenanga Shariah Growth Opportunities Fund Interim Report

7 1. FUND INFORMATION 1.1 Fund Name Kenanga Shariah Growth Opportunities Fund (KSGOF or the Fund) 1.2 Fund Category / Type Islamic Equity/ Growth 1.3 Investment Objective The Fund aims to achieve consistent capital appreciation over the long term by primarily investing in Shariah-compliant securities with good growth prospects. 1.4 Investment Strategy The Fund is an Islamic equity growth fund that is actively managed based on both quantitative and qualitative disciplines. Its strategy is to invest in Shariah-compliant securities that are likely to yield higher earnings growth than the market average. 1.5 Duration The Fund was launched on 23 April 2004 and it shall exist as long as it appears to the Manager and the Trustee that it is in the interests of the unitholders for it to continue. 1.6 Performance Benchmark FTSE Bursa Malaysia Emas Shariah Index (FBMS) 1.7 Distribution Policy Income (if any) as secondary objective, is paid annually. 1.8 External Fund Manager Kenanga Islamic Investors Berhad 1.9 Breakdown of unit holdings of KSGOF as at 31 May 2016 Size of holdings No. of unitholders No. of units held 5,000 and below 3,231 4,661,834 5,001-10, ,372,204 10,001-50, ,096,162 50, , ,539, ,001 and above 0 0 Total 3,812 12,670,199 Kenanga Shariah Growth Opportunities Fund Interim Report 1

8 2. MANAGER S REPORT 2.1 Explanation on whether the Fund has achieved its investment objective. The Fund achieved its investment objective of achieving consistent capital appreciation over the long term by primarily investing in Shariah-compliant securities with good growth prospects. 2.2 Comparison between the Fund s performance during the financial period under review and performance of the benchmark Performance Chart Since Launch (23/04/ /05/2016) Kenanga Shariah Growth Opportunities Fund vs FBMS Source: Novagni Analytics and Advisory Sdn Bhd 2.3 Investment strategies and policies employed during the financial period under review The Fund is an Islamic equity growth fund that is actively managed based on both quantitative and qualitative disciplines. During the financial period under review, the Fund invests in Shariah-compliant securities that are likely to have higher earnings growth than the market average. We adopted a bar-bell strategy of beta and defensive Shariah-compliant stocks while adding positions on any market weakness. 2.4 The Fund's asset allocation as at 31 May 2016 and comparison with previous financial period Asset 31 May May 2015 Quoted Shariah-compliant investment securities 79.8% 88.5% Short term Islamic deposits and cash 20.2% 11.5% Reason for the differences in asset allocation The Fund asset invested level reduced to 79.8% due to the fund manager taking a more defensive stance. 2 Kenanga Shariah Growth Opportunities Fund Interim Report

9 2.5 Fund performance analysis based on NAV per unit (adjusted for income distribution) since last review period Period under review Kenanga Shariah Growth Opportunities Fund -0.07% FTSE Bursa Malaysia Emas Shariah Index -4.67% Source: Lipper The Fund outperformed the benchmark by 4.60% for the financial period under review. The outperformance was mainly due to Shariah-compliant stock selection. 2.6 Review of the market Market Review Following months of uncertainty, the Fed finally took action to raise interest rates by 25 bps for the first time since The US market, however, closed the month marginally lower as commodities continued to come under pressure. The European markets were also traded lower post ECB decision not to increase its monthly asset purchases on December 3, A slowing China growth and oversupply concerns continued to pressure crude oil price which pushed Brent oil down 9.2% to US$33.62 by end January. CPO price however held firm on the back of El-Nino and closed the month at RM2443 per tonne. Volatility from January carried into the first two weeks of February as global markets reacted to the day to day changes of statements from big OPEC and non-opec producers on whether they will cut or freeze production, and the level of oil inventory there is in the US. February was a month of two-halves, whereby the global market entered a sell-off in the first half of February as concern of low growth and worries on bond markets lingered on. However, market staged a strong rally towards the later part of February, after the Lunar New Year holidays. Global equities continued to post strong gains in March, driven mainly by major annoucements from central banks and slight rebound in oil prices. It was a strong start to the month following the positive feedback from G20 meeting in Shanghai and further RRR cut from PBOC at the end of February. In April however, the market started positive benefiting from a weak USD, perceived stability in China and stronger commodity prices before disappointing towards the end of the month due to the 1 Malaysia Development Berhad (1MDB) default on bond interest payment as well as the lack of new central bank policy actions. Finance chiefs from the world s biggest developed economies (G7) meeting in Japan in May underscored concerns about flagging global growth and reaffirmed a pledge not to deliberately weaken their currencies even as Japan again warned on the Yen s surge. Meanwhile, Federal Reserve Chairwoman Janet Yellen signalled that the US central bank will likely raise its interest rates on a gradual basis in the next meetings if the US economy continues to gain strength. Kenanga Shariah Growth Opportunities Fund Interim Report 3

10 2.6 Review of the market (Contd.) Market Outlook We expect financial markets to face more macroeconomic and geopolitical uncertainties post Brexit. While the UK share of global GDP is less than 4%, the rest of the EU s share is 18%. As the EU has huge exposure to the UK through financial and investment linkages, a slowdown in the EU ex-uk could pose more downside risk to global growth and trade. With the lingering uncertainties, a Fed rate hike is likely to be off for the year while major central banks will likely maintain accommodative policies. Short-term volatility warrants a defensive strategy. We have been defensive both in terms of cash holdings and Shariah-compliant stock selections ahead of this unexpected event. Subsequently, the third quarter is seasonally a lull quarter for equity markets. We therefore advocate buying on dips as our earlier cash raising has enabled us to bottom fish on weakness. Shariah-compliant stock picking remains the key with a focus on sectors with earnings visibility and dividend support. We continue to favor sectors like consumer, construction, and infrastructure while remaining selective on oil and plantation Shariah-compliant stocks. 2.7 Distribution For the financial period under review, the Fund did not declare any income distribution. 2.8 Details of any unit split exercise The Fund did not carry out any unit split exercise during the financial period under review. 2.9 Significant changes in the state of affair of the Fund during the financial period There were no significant changes in the state of affair of the Fund during the financial period and up until the date of the manager s report, not otherwise disclosed in the financial statements Circumstances that materially affect any interests of the unitholders During the financial period under review, there are no circumstances that materially affect any interests of the unitholders Rebates & Soft commissions Any rebates received are channeled back to the Fund. On the other hand, soft commissions received from the stockbrokers for goods and services such as technical analysis software, fundamental database, financial wire services, stock quotation system and portfolio management software incidental to investment management of the Fund shall be retained by the Manager. For the financial period under review, the Manager has received soft commissions from stockbrokers. 4 Kenanga Shariah Growth Opportunities Fund Interim Report

11 3. FUND PERFORMANCE 3.1 Details of portfolio composition of Kenanga Shariah Growth Opportunities Fund ( the Fund ) for the financial period as at 31 May 2016 against last 3 financial years as at 30 November are as follows: a. Distribution among industry sectors and category of Shariah-compliant investments: As at FY FY FY % % % % Trading/Services Industrial products Properties Constructions Infrastructure Finance Consumer products Technology Plantations Islamic REITs Shariah-compliant warrants Short term Islamic deposits and cash Note: The above mentioned percentages are based on total shariah-compliant investment market value plus cash. b. Distribution among markets The Fund invests in local Shariah-compliant investment securities and cash instruments only. Kenanga Shariah Growth Opportunities Fund Interim Report 5

12 3.2 Performance details of the Fund for the financial period ended 31 May 2016 against the last 3 financial years ended 30 November are as follows: Period from to FY 2015 FY 2014 FY 2013 Net asset value ("NAV") (RM Million) Units in circulation (Million) NAV per unit (RM) Highest NAV per unit (RM) Lowest NAV per unit (RM) Total return (%) Capital growth (%) Income growth (%) Gross distribution per unit (sen) Net distribution per unit (sen) Management expense ratio ( MER ) (%) Portfolio turnover ratio ( PTR ) (times) Note: Total return is the actual return of the Fund for the respective financial period/years, computed based on NAV per unit and net of all fees. MER is computed based on the total fees and expenses incurred by the Fund divided by the average fund size calculated on a daily basis. PTR is computed based on the average of the total acquisitions and total disposals of Shariahcompliant investment securities of the Fund divided by the average fund size calculated on a daily basis. 1. MER is lower against previous financial year mainly due to lower recovered expenses incurred during the financial period under review. 2. The lower PTR is due to a more conservative strategy in terms of Shariahcompliant stock selection which reduces the exposure to more trading oriented Shariah-compliant stocks. * Based on bid price fair valuation method on all Shariah-compliant investments held by the Fund as at 31 May 2016, the NAV and NAV per unit would be RM10.64 million and RM respectively. (As disclosed under Note 13 of the financial statements) 6 Kenanga Shariah Growth Opportunities Fund Interim Report

13 3.3 Average total return of the Fund Kenanga Shariah Growth Opportunities Fund FTSE Bursa Malaysia Emas Shariah Index Source: Lipper 1 Year 3 Years 5 Years 31 May May May May May May % 3.47% 8.07% -5.20% -1.29% 2.93% 3.4 Annual total return of the Fund Kenanga Shariah Growth Opportunities Fund FTSE Bursa Malaysia Emas Shariah Index Source: Lipper Period under review 1 Year 1 Year 1 Year 1 Year 1 Year 30 Nov May Nov Nov Nov Nov Nov Nov Nov Nov Nov Nov % 1.33% 7.40% 20.50% 6.96% 8.12% -4.67% -4.06% 2.37% 16.22% 11.26% 0.20% Investors are reminded that past performance is not necessarily indicative of future performance. Unit prices and investment returns may fluctuate. Kenanga Shariah Growth Opportunities Fund Interim Report 7

14 4. TRUSTEE S REPORT TO THE UNITHOLDERS OF KENANGA SHARIAH GROWTH OPPORTUNITIES FUND We, CIMB COMMERCE TRUSTEE BERHAD ( the Trustee ), being the Trustee of KENANGA SHARIAH GROWTH OPPORTUNITIES FUND ( the Fund ) are of the opinion that KENANGA INVESTORS BERHAD ( the Manager ), acting in the capacity of Manager of the Fund, has fulfilled their duties in the following manner for the financial period ended 31 May a) The Fund has been managed in accordance with the limitations imposed on the investment powers of the Manager and the Trustee under the Deed, the Securities Commission Malaysia s Guidelines on Unit Trust Funds, the Capital Markets and Services Act 2007 (as amended from time to time) and other applicable laws; b) Valuation/pricing of units of the Fund has been carried out in accordance with the Deed and relevant regulatory requirements; and c) Creation and cancellation of units have been carried out in accordance with the Deed and relevant regulatory requirements. For and on behalf of CIMB COMMERCE TRUSTEE BERHAD LEE KOOI YOKE Chief Operating Officer Kuala Lumpur, Malaysia 27 July Kenanga Shariah Growth Opportunities Fund Interim Report

15 5. SHARIAH ADVISER S REPORT TO THE UNITHOLDERS OF KENANGA SHARIAH GROWTH OPPORTUNITIES FUND We have acted as the Shariah Adviser of Kenanga Shariah Growth Opportunities Fund. Our responsibility is to ensure that the procedures and processes employed by Kenanga Investors Berhad are in accordance with Shariah principles. In our opinion, Kenanga Investors Berhad has managed and administered Kenanga Shariah Growth Opportunities Fund in accordance with Shariah principles and complied with applicable guidelines, rulings and decisions issued by the Securities Commission pertaining to Shariah matters for the financial period ended 31 May In addition, we also confirm that the investment portfolio of Kenanga Shariah Growth Opportunities Fund comprises securities which have been classified as Shariahcompliant by the Shariah Advisory Council of the Securities Commission. As for the securities which are not certified by the Shariah Advisory Council of the Securities Commission, we have reviewed the said securities and opine that these securities are designated as Shariah-compliant. For and on behalf of the Shariah Adviser IBFIM AHMAD ZAKIRULLAH BIN MOHAMED SHAARANI Shariah Advisor/ Designated Person Responsible for Shariah Advisory Kuala Lumpur 27 July 2016 Kenanga Shariah Growth Opportunities Fund Interim Report 9

16 6. STATEMENT BY THE MANAGER I, Ismitz Matthew De Alwis, being a director of Kenanga Investors Berhad, do hereby state that, in the opinion of the Manager, the accompanying statement of financial position as at 31 May 2016 and the related statement of comprehensive income, statement of changes in net asset value and statement of cash flows for the financial period from 1 December 2015 to 31 May 2016 together with notes thereto, are drawn up in accordance with Malaysian Financial Reporting Standards and International Financial Reporting Standards so as to give a true and fair view of the financial position of Kenanga Shariah Growth Opportunities Fund as at 31 May 2016 and of its financial performance and cash flows for the financial period from 1 December 2015 to 31 May 2016 and comply with the requirements of the Deed. For and on behalf of the Manager Kenanga Investors Berhad Ismitz Matthew De Alwis Executive Director/Chief Executive Officer Kuala Lumpur 27 July Kenanga Shariah Growth Opportunities Fund Interim Report

17 7. FINANCIAL STATEMENT 7.1 STATEMENT OF COMPREHENSIVE INCOME FOR THE FINANCIAL PERIOD FROM 1 DECEMBER 2015 TO 31 MAY 2016 (unaudited) INVESTMENT INCOME to to Note RM RM Dividend income 103, ,795 Profit income 33,313 25,499 Net (loss)/gain from Shariah-compliant investments: - Financial assets at fair value through profit or loss ( FVTPL ) 4 (49,204) 17,105 87, ,399 EXPENSES Manager's fee 5 79,798 77,034 Trustee's fee 6 4,502 4,488 Auditors' remuneration 3,000 3,392 Tax agent's fee 1,996 2,232 Administration expenses 19,430 14, , ,083 NET (LOSS)/INCOME BEFORE TAX (21,329) 69,316 Income tax NET (LOSS)/INCOME AFTER TAX, REPRESENTING TOTAL COMPREHENSIVE (LOSS)/INCOME FOR THE FINANCIAL PERIOD (21,329) 69,316 Net (loss)/income after tax is made up as follows: Realised loss (41,113) (376,434) Unrealised gain 4 19, ,750 (21,329) 69,316 The accompanying notes form an integral part of the financial statements. Kenanga Shariah Growth Opportunities Fund Interim Report 11

18 7.2 STATEMENT OF FINANCIAL POSITION AS AT 31 MAY 2016 (unaudited) INVESTMENTS Note RM RM Financial assets at FVTPL 4 8,577,156 8,599,288 Short term Islamic deposits 8 2,157,279 1,109,573 10,734,435 9,708,861 OTHER ASSETS Amount due from Manager - 17,348 Other receivables 9 84,406 23,820 Cash at bank 15,435 9,458 99,841 50,626 TOTAL ASSETS 10,834,276 9,759,487 LIABILITIES Amount due to Manager 53,567 - Amount due to Trustee Other payables , ,954 TOTAL LIABILITIES 193, ,669 EQUITY Unitholders contribution 9,109,311 8,201,326 Retained earnings 1,531,288 1,437,492 NET ASSET VALUE ( NAV ) ATTRIBUTABLE TO UNITHOLDERS 11 10,640,599 9,638,818 TOTAL EQUITY AND LIABILITIES 10,834,276 9,759,487 NUMBER OF UNITS IN CIRCULATION 11(a) 12,670,199 11,582,458 NET ASSET VALUE PER UNIT (RM) The accompanying notes form an integral part of the financial statements. 12 Kenanga Shariah Growth Opportunities Fund Interim Report

19 7.3 STATEMENT OF CHANGES IN NET ASSET VALUE FOR THE FINANCIAL PERIOD FROM 1 DECEMBER 2015 TO 31 MAY 2016 (unaudited) Note Unitholders Retained contribution earnings Total NAV RM RM RM to At beginning of the financial period 8,144,726 1,552,617 9,697,343 Total comprehensive loss - (21,329) (21,329) Creation of units 11(a) 1,598,180-1,598,180 Cancellation of units 11(a) (633,998) - (633,998) Distribution equalisation 11(a) At end of the financial period 9,109,311 1,531,288 10,640, to At beginning of the financial period 8,254,410 1,368,176 9,622,586 Total comprehensive income - 69,316 69,316 Creation of units 11(a) 1,720,882-1,720,882 Cancellation of units 11(a) (1,773,861) - (1,773,861) Distribution equalisation 11(a) (105) - (105) At end of the financial period 8,201,326 1,437,492 9,638,818 The accompanying notes form an integral part of the financial statements. Kenanga Shariah Growth Opportunities Fund Interim Report 13

20 7.4 STATEMENT OF CASH FLOWS FOR THE FINANCIAL PERIOD FROM 1 DECEMBER 2015 TO 31 MAY 2016 (unaudited) CASH FLOWS FROM OPERATING AND INVESTING ACTIVITIES to to RM RM Proceeds from sale of financial assets at FVTPL 2,087,511 4,159,583 Dividends received 99, ,864 Profit received from Islamic deposits 33,181 25,533 Auditors remuneration paid - (6,000) Payment to charitable bodies - (4,226) Tax agent s fee paid (1,600) - Trustee's fee paid (4,459) (4,463) Payment for other fees and expenses (16,574) (13,965) Manager s fee paid (78,147) (76,462) Purchase of financial assets at FVTPL (2,619,242) (4,500,171) Net cash used in operating and investing activities (499,812) (304,307) CASH FLOWS FROM FINANCING ACTIVITIES Cash received from units created 1,595,638 1,691,411 Cash paid on units cancelled (588,526) (1,781,073) Net cash generated from/(used in) financing activities 1,007,112 (89,662) NET INCREASE/(DECREASE) IN CASH AND CASH EQUIVALENTS 507,300 (393,969) CASH AND CASH EQUIVALENTS AT BEGINNING OF THE FINANCIAL PERIOD 1,665,414 1,513,000 CASH AND CASH EQUIVALENTS AT END OF THE FINANCIAL PERIOD 2,172,714 1,119,031 Cash and cash equivalent comprise: Cash at bank 15,435 9,458 Short term Islamic deposits 2,157,279 1,109,573 2,172,714 1,119,031 The accompanying notes form an integral part of the financial statements. 14 Kenanga Shariah Growth Opportunities Fund Interim Report

21 7.5 NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL PERIOD FROM 1 DECEMBER 2015 TO 31 MAY 2016 (unaudited) 1. THE FUND, THE MANAGER AND THEIR PRINCIPAL ACTIVITIES Kenanga Shariah Growth Opportunities Fund (the Fund ) was constituted pursuant to the executed Deed dated 16 April 2004 (collectively, together with deeds supplemental thereto, referred to as the Deed ) between the Manager, Kenanga Funds Berhad, and CIMB Commerce Trustee Berhad ( the Trustee ). The Fund commenced operations on 23 April 2004 and will continue to be in operation until terminated by the Trustee as provided under Clause 38 of the Deed. Pursuant to the executed Seventh Supplemental Deed dated 15 May 2013 between Kenanga Investors Berhad and CIMB Commerce Trustee Berhad, Kenanga Investors Berhad was appointed as the Manager of the Fund with effect from 8 June Kenanga Investors Berhad is a wholly-owned subsidiary of Kenanga Investment Bank Berhad, which in turn is a wholly-owned subsidiary of K & N Kenanga Holdings Berhad that is listed on the Main Market of Bursa Malaysia Securities Berhad. All of these companies are incorporated in Malaysia. The principal place of business of the Manager is Suite 12.02, 12th Floor, Kenanga International, Jalan Sultan Ismail, Kuala Lumpur. The Fund seeks to provide unitholders consistent capital appreciation over the long term by primarily investing in Shariah-compliant securities with good growth prospects. 2. FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES The Fund is exposed to a variety of risks including market risk (which includes interest rate risk and price risk), credit risk, liquidity risk and reclassification of Shariah status risk. Whilst these are the most important types of financial risks inherent in each type of financial instruments, the Manager and the Trustee would like to highlight that this list does not purport to constitute an exhaustive list of all the risks inherent in a Shariahcompliant investment in the Fund. The Fund has an approved set of investment guidelines and policies as well as internal controls which sets out its overall business strategies to manage these risks to optimise returns and preserve capital for the unitholders, consistent with the long term objectives of the Fund. a. Market Risk Market risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market prices. Market risk includes interest rate risk and price risk. Kenanga Shariah Growth Opportunities Fund Interim Report 15

22 2. FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES (CONTD.) a. Market Risk (Contd.) Market risk arises when the value of the Shariah-compliant investments fluctuates in response to the activities of individual companies, general market or economic conditions. It stems from the fact that there are economy-wide perils, which threaten all businesses. Hence, investors are exposed to market uncertainties. Fluctuation in the Shariah-compliant investments valuation caused by uncertainties in the economic, political and social environment will affect the NAV of the Fund. The Manager manages the risk of unfavorable changes in prices by cautious review of the Shariah-compliant investments and continuous monitoring of their performance and risk profiles. i. Interest rate risk The risk refers to how the changes in the interest rate environment would affect the valuation of Shariah-compliant instruments. In the event of a rising interest rate environment, the valuation of Shariah-compliant instruments may decrease, and vice versa. Interest rate, such as the Overnight Policy Rate set by Bank Negara Malaysia, will have an impact on the investment decisions of the Fund regardless of whether it is a Shariah-compliant fund or otherwise. It does not in any way suggests that the Fund will invest in conventional financial instruments. The Fund is not exposed to significant interest rate risk as its Islamic deposits are short term in nature and have fixed profit rates. Interest rate risk exposure The following table analyses the Fund s interest rate risk exposure. The Fund s assets and liabilities are disclosed at fair value and categorised by the earlier of contractual re-pricing or maturity dates. 16 Kenanga Shariah Growth Opportunities Fund Interim Report

23 2. FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES (CONTD.) a. Market Risk (Contd.) i. Interest rate risk (Contd.) Interest rate risk exposure (Contd.) Up to 1 year Nonexposure to interest rate movement Total Weighted average effective rate of return* RM RM RM % Assets Financial assets at FVTPL - 8,577,156 8,577,156 Short term Islamic deposits 2,157,279-2,157, Other assets - 99,841 99,841 2,157,279 8,676,997 10,834,276 Liabilities Other liabilities - 164, ,368 Total interest rate sensitivity gap 2,157,279 8,512,629 10,669, Assets Financial assets at FVTPL - 8,599,288 8,599,288 Short term Islamic deposits 1,109,573-1,109, Other assets - 50,626 50,626 1,109,573 8,649,914 9,759,487 Liabilities Other liabilities - 101, ,811 Total interest rate sensitivity gap 1,109,573 8,548,103 9,657,676 * Computed based on Shariah-compliant assets with exposure to interest rate movement only. ii. Price risk Price risk is the risk of unfavorable changes in the fair values of quoted Shariahcompliant equity securities, quoted Shariah-compliant collective investment schemes and quoted Shariah-compliant warrants. The Fund invests in quoted Shariah-compliant equity securities, quoted Shariah-compliant collective investment schemes and quoted Shariah-compliant warrants which are exposed to price fluctuations. This may then affect the NAV of the Fund. Kenanga Shariah Growth Opportunities Fund Interim Report 17

24 2. FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES (CONTD.) a. Market Risk (Contd.) ii. Price risk (Contd.) Price risk sensitivity The Manager s best estimate of the effect on the profit for the financial period due to a reasonably possible change in investments in quoted Shariah-compliant equity securities, quoted Shariah-compliant collective investment schemes and quoted Shariah-compliant warrants, with all other variables held constant is indicated in the table below: Changes in price Increase/ (Decrease) Basis points Effects on profit for the financial period Increase/ (Decrease) RM Financial assets at FVTPL 5/(5) 4,289/(4,289) Financial assets at FVTPL 5/(5) 4,300/(4,300) In practice, the actual trading results may differ from the sensitivity analysis above and the difference could be material. Price risk concentration The following table sets out the Fund s exposure and concentration to price risk based on its portfolio of financial instruments as at the reporting date. Fair value Percentage of NAV RM RM % % Financial assets at FVTPL 8,577,156 8,599, Kenanga Shariah Growth Opportunities Fund Interim Report

25 2. FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES (CONTD.) a. Market Risk (Contd.) ii. Price risk (Contd.) Price risk concentration (Contd.) The Fund s concentration of Shariah-compliant investment security price risk from the Fund s quoted Shariah-compliant equity securities, quoted Shariah-compliant collective investment schemes and quoted Shariah-compliant warrants analysed by sector is as follows: Fair value Percentage of NAV RM RM % % Trading/Services 2,443,776 3,241, Industrial products 2,002,434 1,031, Properties 824, , Constructions 816, , Infrastructure 533, , Finance 511, , Consumer products 463, , Technology 290, , Plantations 99, , Islamic Real Estate Investment Trust 570, , Shariah-compliant warrants 21, ,577,156 8,599, b. Credit Risk Credit risk is the risk that the counterparty to a financial instrument will cause a financial loss to the Fund by failing to discharge an obligation. The Manager manages the credit risk by undertaking credit evaluation to minimise such risk. i. Credit risk exposure As at the reporting date, the Fund s maximum exposure to credit risk is represented by the carrying amount of each class of financial asset recognised in the statement of financial position. ii. Financial assets that are either past due or impaired As at the reporting date, there are no financial assets that are either past due or impaired. iii. Credit quality of financial assets The Fund invests in Islamic deposits with financial institutions licensed under the Islamic Financial Services Act The following table analyses the licensed financial institutions by rating category: Kenanga Shariah Growth Opportunities Fund Interim Report 19

26 2. FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES (CONTD.) b. Credit Risk (Contd.) iii. Credit quality of financial assets (Contd.) Short term Islamic deposits Percentage of total short term Islamic deposits Percentage of NAV % % % % Rating P c. Liquidity Risk Liquidity risk is defined as the risk that the Fund will encounter difficulty in meeting obligations associated with financial liabilities that are to be settled by delivering cash or another financial asset. Exposure to liquidity risk arises because of the possibility that the Fund could be required to pay its liabilities or cancel its units earlier than expected. The Fund is exposed to cancellation of its units on a regular basis. Units sold to unitholders by the Manager are cancellable at the unitholder s option based on the Fund s NAV per unit at the time of cancellation calculated in accordance with the Deed. The Islamic liquid assets comprise cash, Islamic deposits with licensed financial institutions and other Shariah-compliant instruments, which are capable of being converted into cash within 7 days. The following table analyses the maturity profile of the Fund s financial assets and financial liabilities in order to provide a complete view of the Fund s contractual commitments and liquidity. Note Up to 1 year RM RM Assets Financial assets at FVTPL 8,577,156 8,599,288 Short term Islamic deposits 2,157,279 1,109,573 Other assets 99,841 50,626 (i) 10,834,276 9,759,487 Liabilities Other liabilities (ii) 164, ,811 Equity (iii) 10,640,599 9,638,818 Liquidity gap 29,309 18, Kenanga Shariah Growth Opportunities Fund Interim Report

27 2. FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES (CONTD.) c. Liquidity Risk (Contd.) (i) Financial assets Analysis of financial assets at FVTPL into maturity groupings is based on the expected date on which these assets will be realised. The Fund s investments in quoted Shariah-compliant equity securities, quoted Shariah-compliant collective investment and quoted Shariah-compliant warrants have been included in the up to 1 year category on the assumption that these are highly liquid Shariah-compliant investments which can be realised should all of the Fund s unitholders equity be required to be redeemed. For other assets, the analysis into maturity groupings is based on the remaining period from the end of the reporting period to the contractual maturity date or if earlier, the expected date on which the assets will be realised. (ii) Financial liabilities The maturity grouping is based on the remaining period from the end of the reporting period to the contractual maturity date or if earlier, the date on which liabilities will be settled. When the counterparty has a choice of when the amount is paid, the liability is allocated to the earliest period in which the Fund can be required to pay. (iii) Equity As unitholders can request for redemption of their units, they have been categorised as having a maturity of up to 1 year. d. Reclassification of Shariah Status Risk The risk that the currently held Shariah-compliant securities in the portfolio of Shariah-compliant funds may be reclassified to be Shariah non-compliant upon review of the securities by the Shariah Advisory Council of the Securities Commission ( SACSC ) performed twice yearly. If this occurs, the Manager will take the necessary steps to dispose of such securities. Kenanga Shariah Growth Opportunities Fund Interim Report 21

28 3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES a. Basis of Accounting The financial statements of the Fund have been prepared in accordance with Malaysian Financial Reporting Standards ( MFRS ) as issued by the Malaysian Accounting Standards Board ( MASB ) and International Financial Reporting Standards ( IFRS ) issued by the International Accounting Standards Board ( IASB ). The accounting policies adopted are consistent with those of the previous financial year except for the adoption of the new and amended MFRS and Interpretation Committee ( IC ) Interpretations which became effective for the Fund on 1 December The adoption of the new and amended MFRS and IC Interpretations did not have any significant impact on the financial position or performance of the Fund. The financial statements have been prepared on the historical cost basis except as disclosed in the accounting policies below. b. Standards and Amendments Issued But Not Yet Effective As at the reporting date, the following Standards and Amendments that have been issued by MASB will be effective for the Fund in future financial periods. The Fund intends to adopt the relevant standards when they become effective. Description Effective for financial period beginning on or after Amendments to MFRS contained in the documents entitled Annual Improvements to MFRSs Cycle 1 January 2016 MFRS 14: Regulatory Deferral Accounts 1 January 2016 Amendments to MFRS 10, MFRS 12 and MFRS 128: Investment Entities: Applying the Consolidation Exception 1 January 2016 Amendments to MFRS 11: Accounting for Acquisitions of Interests in Joint Operations 1 January 2016 Amendments to MFRS 101: Disclosure Initiative 1 January 2016 Amendments to MFRS 116 and MFRS 138: Clarification of Acceptable Methods of Depreciation and Amortisation 1 January 2016 Amendments to MFRS 116 and MFRS 141: Agriculture: Bearer Plants 1 January 2016 Amendments to MFRS 127: Equity Method in Separate Financial Statements 1 January 2016 Amendments to MFRS 107: Disclosure Initiative 1 January 2017 Amendments to MFRS 112: Recognition of Deferred Tax Assets for Unrealised Losses 1 January 2017 MFRS 9: Financial Instruments 1 January 2018 MFRS 15: Revenue from Contracts with Customers 1 January 2018 MFRS 16: Leases 1 January 2019 Amendments to MFRS 10 and MFRS 128: Sale or Contribution of Assets between an Investor and its Associate or Joint Venture To be announced by MASB 22 Kenanga Shariah Growth Opportunities Fund Interim Report

29 3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Contd.) b. Standards and Amendments Issued But Not Yet Effective (Contd.) The Fund will adopt the above pronouncements when they become effective in the respective financial periods. These pronouncements are not expected to have any significant impact to the financial statements of the Fund upon their initial application, other than MFRS 9. MFRS 9 replaces MFRS 139 on the following requirements: classification and measurement of financial assets and financial liabilities as defined in MFRS 139, impairment methodology and hedge accounting. The Fund is in the process of making an assessment of the impact of this Standard. c. Financial Assets Shariah-compliant financial assets are recognised in the statement of financial position when, and only when, the Fund becomes a party to the contractual provisions of the financial instruments. When financial assets are recognised initially, they are measured at fair value, plus, in the case of financial assets not at FVTPL, directly attributable transaction costs. The Fund determines the classification of its financial assets at initial recognition. i. Financial assets at FVTPL Shariah-compliant financial assets are classified as financial assets at FVTPL if they are held for trading or are designated as such upon initial recognition. Shariah-compliant financial assets held for trading include quoted Shariahcompliant equity securities, quoted Shariah-compliant collective investment schemes and quoted Shariah-compliant warrants acquired principally for the purpose of selling in the near term. Subsequent to initial recognition, financial assets at FVTPL are measured at fair value. Changes in the fair value of those Shariah-compliant financial instruments are recorded in profit or loss. Profit earned and dividend revenue elements of such instruments are recorded separately in profit income and dividend income, respectively. ii. Receivables Financial assets with fixed or determinable payments that are not quoted in an active market are classified as receivables. Subsequent to initial recognition, receivables are measured at amortised cost using the effective yield method. Gain or loss is recognised in profit or loss when the receivable is derecognised or impaired, and through the amortisation process. Kenanga Shariah Growth Opportunities Fund Interim Report 23

30 3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTD.) c. Financial Assets (Contd.) A financial asset is derecognised when the contractual right to receive cash flows from the asset has expired. On derecognition of a financial asset, the difference between the carrying amount and the sum of the consideration received is recognised in profit or loss. d. Impairment of Financial Assets The Fund assesses at each reporting date whether there is any objective evidence that a financial asset is impaired. To determine whether there is objective evidence that an impairment loss on financial assets has been incurred, the Fund considers factors such as the probability of insolvency or significant financial difficulties of the debtor and default or significant delay in payments. If any such evidence exists, the amount of impairment loss is measured as the difference between the asset s carrying amount and the present value of estimated future cash flows discounted at the financial asset s original effective rate of return. The impairment loss is recognised in profit or loss. The carrying amount of the financial asset is reduced by the impairment loss directly for all financial assets, with the exception of receivables, where the carrying amount is reduced through the use of an allowance account. When a receivable becomes uncollectible, it is written off against the allowance account. 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, the previously recognised impairment loss is reversed to the extent that the carrying amount of the assets does not exceed its amortised cost at the reversal date. The amount of reversal is recognised in profit or loss. e. Income Income is recognised to the extent that it is probable that the economic benefits will flow to the Fund and the income can be reliably measured. Income is measured at the fair value of consideration received or receivable. Profit income is recognised using the effective yield method. Dividend income is recognised on declared basis, when the right to receive the dividend is established. The realised gain or loss on sale of Shariah-compliant investments is measured as the difference between the net disposal proceeds and the carrying amount of the Shariah-compliant investment. 24 Kenanga Shariah Growth Opportunities Fund Interim Report

31 3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTD.) f. Cash and Cash Equivalents For the purposes of the statement of cash flows, cash and cash equivalents include cash at bank and short term Islamic deposits with licensed financial institutions with insignificant risk of change in value. g. Income Tax Income tax on the profit or loss for the financial period comprises current tax. Current tax is the expected amount of income taxes payable in respect of the taxable profit for the financial period. As no temporary differences have been identified, no deferred tax has been recognised. h. Unrealised Reserves Unrealised reserves represent the net gain or loss arising from carrying Shariahcompliant investments at their fair values at reporting date. This reserve is not distributable. i. 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 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 are classified as other financial liabilities. The Fund s financial liabilities are recognised initially at fair value and subsequently measured at amortised cost using the effective yield method. A financial liability is derecognised when the obligation under the liability is extinguished. Gains and losses are recognised in profit or loss when the liabilities are derecognised, and through the amortisation process. j. Unitholders Contribution NAV Attributable to Unitholders The unitholders contribution to the Fund is classified as equity instruments. Distribution equalisation represents the average amount of undistributed net income included in the creation or cancellation price of units. This amount is either refunded to unitholders by way of distribution and/or adjusted accordingly when units are released back to the Trustee. k. Functional and Presentation Currency 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 also the Fund s functional currency. Kenanga Shariah Growth Opportunities Fund Interim Report 25

32 3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTD.) l. Distributions Distributions are at the discretion of the Manager. A distribution to the Fund s unitholders is accounted for as a deduction from retained earnings. m. Significant Accounting Judgments and Estimates The preparation of financial statements requires the use of certain accounting estimates and exercise of judgment. Estimates and judgments are continually evaluated and are based on past experience, reasonable expectations of future events and other factors. i. Critical judgments made in applying accounting policies There are no major judgments made by the Manager in applying the Fund's accounting policies. ii. Key sources of estimation uncertainty There are no key assumptions concerning the future and other key sources of estimation uncertainty at the reporting date, that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial period. 4. FINANCIAL ASSETS AT FVTPL RM RM Financial assets held for trading, at FVTPL: Quoted Shariah-compliant equity securities 7,985,619 8,254,768 Quoted Shariah-compliant collective investment schemes 570, ,520 Quoted Shariah-compliant warrants 21,192-8,577,156 8,599, RM RM Net (loss)/gain on financial assets at FVTPL comprised: Realised loss on disposals (68,988) (428,645) Unrealised changes in fair values 19, ,750 (49,204) 17, Kenanga Shariah Growth Opportunities Fund Interim Report

33 4. FINANCIAL ASSETS AT FVTPL (Contd.) Details of financial assets at FVTPL as at 31 May 2016: (Contd.) Quantity Aggregate Fair Percentage Cost value of NAV RM RM % Quoted Shariah-compliant equity securities Trading/Services Alam Maritim Resources Berhad 103, ,847 34, Axiata Group Berhad 46, , , Deleum Berhad 63, ,408 71, Dialog Group Berhad 105, , , Maxis Berhad 29, , , MISC Berhad 22, , , PESTECH International 38, , , SapuraKencana Petroleum Berhad 100, , , Suria Capital Holdings Berhad 68, , , Telekom Malaysia Berhad 47, , , Tenaga Nasional Berhad 34, , , TIME dotcom Berhad 16, , , Uzma Berhad 51, ,624 99, ,477,253 2,443, Industrial products BP Plastics Holding Berhad 83, , , Coastal Contracts Bhd. 23, ,050 35, EG Industries Berhad 61,000 49,647 53, Evergreen Fibreboard Berhad 206, , , Jaya Tiasa Holdings Berhad 118, , , Kossan Rubber Industries Berhad 30, , , Pecca Group Berhad 71, , , PETRONAS Chemicals Group Berhad 54, , , PETRONAS Gas Berhad 8, , , SKP Resources Bhd 174, , , SLP Resources Berhad 60,900 63, , Thong Guan Industries Berhad 31,000 92, , United U-LI Corporation Berhad 14,600 51,100 79, ,983,721 2,002, Kenanga Shariah Growth Opportunities Fund Interim Report 27

34 4. FINANCIAL ASSETS AT FVTPL (CONTD.) Details of financial assets at FVTPL as at 31 May 2016: (Contd.) Quantity Aggregate Percentage Cost Fair value of NAV RM RM % Quoted Shariah-compliant equity securities (Contd.) Properties Eastern & Oriental Berhad 138, , , Matrix Concepts Holdings Berhad 48, , , MCT Berhad 80, ,406 93, S P Setia Berhad 12,600 40,824 40, Sunsuria Berhad 128, , , Sunway Berhad 59, , , Tambun Indah Land Berhad 57, ,564 76, , , Constructions Econpile Holdings Berhad 172, , , Gadang Holdings Berhad 17,800 33,259 37, IJM Corporation Berhad 82, , , Mitrajaya Holdings Berhad 129, , , Muhibbah Engineering (M) Berhad 44, ,109 97, , , Infrastructure DiGi.Com Berhad 72, , , Malakoff Corporation Berhad 130, , , , , Finance BIMB Holdings Berhad 55, , , Syarikat Takaful Malaysia Berhad 76, , , , , Consumer products Homeritz Corporation Berhad 120, , , Nestlé (M) Berhad 4, , , NTPM Holdings Berhad 59,000 54,460 51, , , Kenanga Shariah Growth Opportunities Fund Interim Report