Manulife Global Bond Fund 1 Fund Information (28 Feb 2018) (Feb 2018) Unit NAV RM

Transcription

1 Page 1 of 5 MANULIFE INVESTMENT FUNDS MANULIFE INVESTMENT FUNDS Manulife Global Bond Fund 1 Fund Information (28 Feb 2018) (Feb 2018) Unit NAV RM Fund Size RM 7.89 million Investment Objective Units in circulation 8.71 million The Manulife Global Bond Fund is a tranche of the Manulife Global Bond Fund Series; Launch Date 10 July 2013 which invests fully in Singapore Dollar denominated underlying Fund namely the Management Fee 1.00%p.a. Franklin Templeton Investment Funds Templeton Global Bond Fund A (Mdis) SGD-H1 Dealing Daily (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. Fund Performance Since Launch (10 July 2013 to 28 February 2018) Top Five Holdings # Korea Treasury Bond, senior note, 2.00%, 4.33% 3/10/21 Government of Mexico, senior note, M, 5.00%, 3.82% 12/11/19 Nota Do Tesouro Nacional, 10.00%, 1/01/ % Letra Tesouro Nacional, Strip, 1/01/ % Government of Indonesia, senior bond, FR56, 2.41% 8.375%, 9/15/26 Performance Table Performance 1 Month 6 Months YTD 1 Year 3 Years 5 Years Since Inception Manulife Global Bond Fund JP Morgan Global Government Bond Index* -0.43% -0.20% -5.79% -7.86% -2.06% -2.61% -5.68% -6.42% 10.17% 16.72% N/A N/A 20.49% 34.68% Note: Fund's performance is calculated on NAV to NAV. This is strictly the performance of the investment-linked (IL) fund, and not to be treated as the returns on the actual premiums/contributions on the IL insurance product. The above returns are net of fund management charges and taxes. The value of units may go up as well as down. Past performance is not indicative of future results. The benchmark is in MYR terms. *Source : Morningstar 50% 45% 40% 35% 30% 25% 20% 15% 10% 5% 0% Jul-13 Nov-13Mar-14 Jul-14 Nov-14Mar-15 Jul-15 Nov-15Mar-16 Jul-16 Nov-16Mar-17 Jul-17 Nov-17 Fund Benchmark Graph depicts returns calculated on NAV to NAV basis Source: Morningstar # Underlying Fund Highest and Lowest Unit Price Since Launch Unit Price (RM) Highest Lowest Date 7-Apr Feb-16 Page 1 of 5

2 Market Review # The yield on the 10-year US Treasury (UST) note continued to rise in February, ending the month 16 basis points higher at 2.86%. Jay Powell was sworn in as the new US Federal Reserve (Fed) chairman on 5 February. There was no Fed meeting during the month, but fed funds futures at February-end indicated a likely rate hike at the Fed s upcoming 21 March meeting and two additional rate hikes later this year. During testimony to the US Congress, Powell indicated that quantitative easing (QE) reductions and anticipated rate hikes in 2018 would likely remain on course, but specified that policy adjustments would be data-dependent. Overall, we expect UST yields to continue rising as the Fed unwinds its balance sheet and tightens policy, while inflation pressures build on exceptional strength in the US labour market and resilient expansion of the US economy. In Europe, 10-year sovereign bond yields moderately declined in Germany and France while short-term yields remained negative. The euro weakened against the US dollar during the month we continue to expect the euro to depreciate on widening rate differentials between the rising yields in the US and the low to negative yields in the eurozone. European Central Bank (ECB) President Mario Draghi continued to indicate that monetary policy should remain accommodative in 2018, and that rates are not likely to rise until QE measures end. Currently, the ECB s bond-buying programme is scheduled to continue through at least September 2018, with the possibility of continuing at a reduced pace in subsequent months. We think the ECB will keep rates unchanged in We also continue to see ongoing risks to political cohesion across Europe as populist movements continue to influence the political discourse. In Germany, Angela Merkel agreed to a coalition government with the Social Democrats (SPD), but remained in a politically weakened position. The euro continues to be vulnerable to unresolved structural and political risks, in our view. In Japan, Prime Minister Shinzo Abe s political mandate has remained strong since his political coalition maintained its supermajority in the October 2017 elections. We expect Abenomics programmes to continue as planned with Abe s ongoing political strength. The Bank of Japan (BOJ) continued with its QE programme in February as short-term yields in Japan remained negative. Rising UST yields should produce a more effective environment for the BOJ to deploy additional monetary accommodation that weakens the yen, as it continues to target a 0.0% yield on the 10-year Japanese government bond. The Japanese yen strengthened against the US dollar in February; however, we expect it to weaken in upcoming quarters on widening rate differentials with the US. In emerging markets, yields rose across much of Latin America and Asia ex Japan, with a few notable exceptions such as Brazil. Emerging-market currencies broadly weakened against a moderately stronger US dollar in February, with notable depreciations in the Indonesian rupiah, Indian rupee, Argentine peso, Mexican peso and Brazilian real. Overall, we continue to see a number of local-currency markets that we believe remain undervalued, particularly in India, Indonesia, Mexico and Colombia. We also see attractive risk-adjusted yields in places like Brazil and Argentina. The impacts of rising rates in the US on emerging markets should vary from country to country, in our view. Several countries have significantly higher yields than the US Brazil has had around a 9.6% yield on 10-year bonds (as at 28 February 2018), Mexico around 7.7% and Indonesia around 6.8%. Countries with this type of yield advantage over USTs should fare better as the Fed unwinds its balance sheet; however, emerging markets with lower yields would likely be more vulnerable, particularly if the interest-rate differential flips. Overall, we see additional scope for currency appreciation and strengthening valuations in specific local-currency emerging markets, particularly in countries with economic resilience and relatively higher, maintainable rate differentials. Market Overview # The US has seen some meaningful policy adjustments in recent months that we largely expect to accelerate economic growth. Investment activity had been stifled by regulations enacted after the global financial crisis in 2008 removing those bottlenecks through deregulation has incentivised new investment across a number of sectors. Additionally, tax reform enacted in December and the likely repatriation of assets should further boost economic growth. However, steel and aluminium tariffs should raise costs for consumers. The greater risk from tariffs is the potential for provoking trade wars, particularly if tariffs expand to other sectors. Our main concern is that an aggressive retaliatory trade war with China would damage global growth. Overall, we continue to have a positive outlook for US growth and the global economy for 2018, but we continue to watch for potential economic disruptions. One of the trade-offs of tax reform was the likelihood that it will increase the deficit, which raises the borrowing needs of the government. Concurrently, the Fed is no longer funding the deficit through its QE program and is instead reducing its UST holdings. Rising deficits and diminished bond-buying from the Fed should pressure UST yields higher, in our view. We expect the glide path of monetary policy to remain largely unchanged in 2018, under the new Fed chairmanship of Jay Powell. The pace of balance sheet unwinding and expected rate hikes this year are likely to stay on the course outlined by the previous committee, in our view. The reduction of the Fed s balance sheet will be a significant change factor for bond markets in the upcoming year we think those effects are being underappreciated by markets and that USTs remain overvalued. On the whole, we continue to expect inflation pressures to rise with resilience in the US economy and exceptionally strong US labour markets. We have seen wage pressures pick up in specific pockets of the economy, and we expect those pressures to accelerate. Policy constraints on immigration have also been pressuring wages in various labour sectors. Additionally, financial sector deregulation has the potential to accelerate credit activity, stimulate investment and accelerate the velocity of money, which would further drive inflation. Fiscal expansion and the effects of tax reform can similarly add to the inflation dynamics. Overall, we see preconditions for rising inflation over the next couple years, which should pressure yields higher. In the major developed economies, we anticipate continued monetary accommodation and low rates in Japan and the eurozone while rates rise in the US those increasing rate differentials should depreciate the yen and euro against the US dollar, in our opinion. With the recent upturns in global growth and the rallies in risk assets, there should be less demand for perceived safehaven assets, yet the yen has strengthened that trend is inconsistent with historical correlations, in our assessment, and we expect it to reverse on stronger global growth and rising rates in the US. Additionally, we expect the BOJ s current monetary stance to remain largely unchanged in the upcoming year. With yields rising in the US, the rate differentials with Japanese government bonds should widen, which should ultimately flow through to the exchange rate, weakening the yen and strengthening the US dollar. Additionally, a large part of the recent strength in the euro has been driven by optimism in Europe. Yet the economy still needs accommodative monetary policy (according to the ECB), and inflation has remained persistently subdued, below the ECB s target. We expect widening rate differentials with the US to fundamentally weaken the euro and pull the US dollar stronger. We have recently focused on countries that are less externally vulnerable and more domestically driven, and that have demonstrated their resilience to potential increases in trade costs. Select emerging markets that have higher rate environments and domestically oriented economies are likely to fare better in a rising-rate environment than countries with low yields and more externally driven economies, in our view. In Asia, we currently prefer countries with strong domestic drivers that are less leveraged to China, such as India and Indonesia, while we have moved away from economies that are more externally dependent, such as Malaysia. In Latin America, we are focused on countries that have turned away from previous failed experiments with populism, such as Brazil and Argentina, and are now moving towards more orthodox policies with credible monetary policy, proactive business environments and outward-looking trade. We also see attractive valuations in countries like Mexico and Colombia that have maintained sound policy discipline while broadening their economies beyond commodities. China s economy remains in a soft landing, but ongoing rebalancing is needed for the long term. The near-term picture looks fairly stable, in our assessment, but we have concerns for two or three years down the road as China s pace of growth now depends on almost five times as much credit to generate one unit of gross domestic product as it took in the surge of post-global financial crisis growth, starting in The Chinese authorities appear aware of this, but it remains to be seen if they can effectively manage a slowdown in credit. We have seen a number of policies wind down, but we do not expect a hard landing at this point. However, if China has not reduced its credit dependence in a couple years and we get an exogenous shock, such as an eventual recession in the US, then China s ability to intervene to stimulate its economy will be substantially less effective than it was during the last US recession. These risks warrant ongoing monitoring, but the near-term picture appears to support a continued moderation in growth and not a hard landing. 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. Page 5 of 5