ANNUAL REPORT EASTSPRING INVESTMENTS GLOBAL EMERGING MARKETS FUND

Transcription

1 ANNUAL REPORT EASTSPRING INVESTMENTS GLOBAL EMERGING MARKETS FUND FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2014

2 Annual Report TABLE OF CONTENTS Fund Information 2 Key Performance Data 4 Manager s Report 6 Market Review 11 Rebates and Soft Commissions 13 Trustee s Report to the Unit Holders of Eastspring Investments Global Emerging Markets Fund 16 Independent Auditors Report to the Unit Holders of Eastspring Investments Global Emerging Markets Fund 17 Statement of Comprehensive Income 19 Statement of Financial Position 20 Statement of Changes in Equity 21 Statement of Cash Flows 22 Summary of Significant Accounting Policies 23 Notes to the Financial Statements 30 Corporate Directory 51 1

3 Eastspring Investments Global Emerging Markets Fund FUND INFORMATION Name of Fund Eastspring Investments Global Emerging Markets Fund ( the Fund ) Fund Category / Type Feeder fund (global equity)/growth Fund Objective The Fund seeks to achieve long-term capital growth by investing in a collective investment scheme called the Schroder International Selection Fund Emerging Markets, which in turn seeks to provide capital growth primarily through investment in equity securities of emerging markets companies. Should the Manager decide to invest in another collective investment scheme other than the Schroder International Selection Fund Emerging Markets or any reason whatsoever, Unit Holders approval is required. Performance Benchmark Morgan Stanley Capital International Emerging Markets Net Total Return United States Dollar (MSCI EM Net TR USD) Source: Note: The risk profile of the Fund is different from the risk profile of the performance benchmark. Fund Income Distribution Policy Incidental 2

4 Annual Report FUND INFORMATION (CONTINUED) Breakdown of Unit Holdings by Size As at 31 December 2014, the size of Eastspring Investments Global Emerging Markets Fund stood at million units. FUND SIZE Units (Million) Jan 2014 Feb 2014 Mar 2014 Apr 2014 May 2014 Jun 2014 Jul 2014 Aug 2014 Sep 2014 Oct 2014 Nov 2014 Dec 2014 BREAKDOWN OF UNIT HOLDINGS Unit Holdings No. of No. of Unit Units* Holders % ( 000) % 5,000 units and below ,001 to 10,000 units ,001 to 50,000 units , ,001 to 500,000 units , ,001 units and above , Total , *excludes units held by the Manager 3

5 Eastspring Investments Global Emerging Markets Fund KEY PERFORMANCE DATA FOR THE FINANCIAL YEAR ENDED Category (%) (%) (%) Collective investment scheme-foreign Cash and other assets Total Net Asset Value (NAV) (RM 000) 21,485 33,797 52,474 Units In Circulation (Units 000) 82, , ,822 Net Asset Value Per Unit (RM) Highest Net Asset Value Per Unit (RM) # Lowest Net Asset Value Per Unit (RM) # Total Return (%) - Capital Growth Income Distribution Total Return (%) Gross Distribution Per Unit (RM) Net Distribution Per Unit (RM) Management Expense Ratio (MER) (%)* Portfolio Turnover Ratio (PTR) (times)^ # Figures shown as ex-distribution. * There were no significant changes to the MER during the period under review. ^ There were no significant changes to the PTR during the period under review. 4

6 Annual Report KEY PERFORMANCE DATA (CONTINUED) Average total return (%) 1 year to years to years to Year ended Annual total return (%) to to to to (14.85) to (1.80) Source: Lipper for Investment Management, as at 31 December Bases of calculation and assumptions made in calculating returns: Percentage growth = NAV t -1 NAV 0 NAV t = NAV at the end of the period NAV 0 = NAV at the beginning of the period Performance annualised = (1 + Percentage Growth) 1/n - 1 n = Number of years Past performance is not necessarily indicative of future performance and unit prices and investment returns may go down, as well as up. 5

7 Eastspring Investments Global Emerging Markets Fund MANAGER S REPORT Fund Performance For the 5-year period, the Fund recorded a return of 1.61%, underperforming the benchmark return of 8.65% by 7.04%. During the period under review, the Fund registered a return of 1.09%, underperforming the benchmark return of 4.32% by 3.23%. The Fund met its investment objective to achieve capital-growth by investing in a collective investment scheme called the Schroder International Selection Fund Emerging Markets, which in turn seeks to provide capital growth primarily through investment in equity securities of emerging companies. 30% Eastspring Investments Global Emerging Markets Fund - 5 Years Return Vs Benchmark 30% 20% 20% % Change 10% 0% -10% 10% 0% -10% -20% -20% -30% -30% Dec- Apr- Jul- Sep- Dec- Mar- Jun- Sep- Dec- Mar- Jun- Sep- Dec- Mar- Jun- Sep- Dec- Mar- Jun- Sep- Dec Eastspring Investments Global Emerging Markets Fund Benchmark The performance is calculated on NAV-to-NAV basis with gross income or dividend reinvested. Benchmark: MSCI EM Net TR USD Source: Lipper for Investment Management and as at 31 December Past performance of the Fund is not necessarily indicative of its future performance. 6

8 Annual Report MANAGER S REPORT (CONTINUED) Analysis of Fund Performance For the financial year ended 31 December 2014 Income Capital Total Total Return of Return Return * Return Benchmark (%) (%) (%) (%) *Capital return components (NAV per unit to NAV per unit) 1) Collective Investment Scheme-Foreign 2) Cash and other assets Distribution / Unit Split No distribution or unit split were declared for the financial year ended 31 December Investment Strategy During Period Under Review During the first quarter, a small allocation was made to our Frontier Markets and GEM Smaller Companies funds to give the portfolio diversified exposure to the strong investment opportunities these funds target. In line with the model recommendation, Thailand was taken from overweight to neutral owing to deteriorating economic fundamentals and elevated political risk. Malaysia was reduced from neutral to an underweight owing to expensive valuations and a deteriorating earnings outlook. In the second quarter, Russia was taken from overweight to neutral. The basis for the decision was a combination of ongoing uncertainty and considerable downside risk, a weaker economic growth outlook, an increased risk premium for investing in Russia and the somewhat surprisingly muted market reaction to the ongoing unrest. We increased the size of the underweight in Malaysia in line with the model recommendation owing to expensive valuations and a deteriorating earnings outlook. The model recommendation was followed and Brazil was taken from a small underweight position to an overweight over the period. Despite poor economic fundamentals, earnings are reasonable and valuations have improved. We remained underweight Indonesia, although the size of the underweight was reduced. Although the external accounts have improved and ROE is strong, concerns remain over the sustainability of the recent improvement in the trade account. 7

9 Eastspring Investments Global Emerging Markets Fund MANAGER S REPORT (CONTINUED) Investment Strategy During Period Under Review During the third quarter, Turkey was taken from neutral to overweight in line with the model owing to attractive valuations and positive earnings revisions. However, the size of the position was moderated owing to Turkey s vulnerability to the global liquidity backdrop. The small overweight position in Hungary was taken to neutral in line with the model due to a deteriorating earnings outlook. Despite the model overweight recommendation, Russia was taken from neutral to a small underweight position. The size of the underweight position was subsequently increased at an intra-month strategy meeting given an ongoing deterioration in economic fundamentals and elevated geopolitical, sanctions and corporate governance risks. During the fourth quarter, India was taken from neutral to an overweight position, in line with the model, owing to reform optimism and improving economic and earnings growth. Thailand was taken from neutral to overweight in line with the model owing primarily to improving earnings growth. The position size was moderated given ongoing political uncertainty. Brazil was taken from overweight to neutral in line with the model, owing to deteriorating economic fundamentals and political uncertainty. We also increased the underweight position in Mexico closer to the model recommended magnitude given expensive valuations. Greece was taken from underweight to neutral owing to improving economic fundamentals in line with the model recommendation. 8

10 Annual Report MANAGER S REPORT (CONTINUED) Asset Allocation Asset Allocation 31-Dec 31-Dec Changes (%) (%) (%) Collective investment scheme-foreign (0.30) Cash and other assets Asset Allocation as at 31 December 2014 Cash and other assets 2.75% Collective investment scheme - Foreign 97.25% There were no significant changes in asset allocation of the Fund for the period under review. 9

11 Eastspring Investments Global Emerging Markets Fund MANAGER S REPORT (CONTINUED) State of Affairs of the Fund There have been neither significant change to the state of affairs of the Fund nor any circumstances that materially affect any interests of the unit holders during the period under review. With the coming into effect of the Goods and Services Tax Act 2014, the deed of the Fund has been amended to include the new clause as set out below: Upon the implementation of the Goods and Services Tax Act and/or other relevant statutory law relating to goods and services and/or consumption tax ( GST ), any sum set out in this Deed to be paid by or otherwise payable by a Unit Holder and/or the Fund, as the case may be (the Paying Party ), shall be exclusive of GST ( GST Excluded Payments ). The Paying Party shall in addition to the GST Excluded Payments and all other monies payable under this Deed, pay to the party entitled to collect the GST (the Receiving Party ) such amount as is determined by the Receiving Party to cover any GST payments, liabilities and/or obligations. Please note that the GST will be implemented with effect from 1 April 2015 at a rate of 6% or such other prescribed rate as may be imposed from time to time. All fees and charges payable to the Manager and/or the Trustee are subject to GST and incurred by the Unit Holder directly when purchasing or redeeming Units of the Fund and indirectly when investing in the Fund. 10

12 Annual Report MARKET REVIEW Global equities registered robust returns in US equities performed particularly well, supported by improving macroeconomic data and generally strong corporate profitability. The Federal Reserve (Fed) began scaling back its quantitative easing (QE) programme in January, completing its final taper in October. However, authorities have pledged to keep interest rates low while inflation is below the Fed s long-term objective and while unemployment remains high. In the eurozone, equity returns were negative as GDP and inflation data deteriorated. This prompted the European Central Bank (ECB) to implement a series of monetary policy easing measures. Meanwhile, the price of oil fell 46%, largely in H2, due to rising supply in the face of relatively lacklustre global demand. Emerging markets (EM) posted negative returns and underperformed developed markets, primarily due to concerns about the impact of QE tapering, slowing growth in certain countries and political uncertainty in some regions. In this environment, a number of EM currencies came under pressure. Emerging Asian markets registered the strongest returns. Indonesia led the way as reformist Jakarta governor Joko Widodo was elected president, sending the local market higher. The Philippines outperformed as GDP growth remained firm. The Indian market rallied sharply as Narendra Modi s BJP party won a general election, becoming the first single party for over twenty years to win a majority, which should enable them to push through much needed reforms. In Thailand a coup d état saw the military seize power in May but this led to a period of political stability that proved beneficial to local equities which finished ahead of the benchmark by some margin. In Taiwan, strong performance from technology stocks supported market outperformance. China performed well, despite a modest deceleration in growth. Policymakers demonstrated commitment to supporting the economy through the current period of transition, primarily via a number of targeted stimulus measures. Malaysia underperformed, hampered by lower oil prices and as the earnings outlook weakened. Korea was the regional laggard as GDP growth moderated and the government announced plans to increase budget spending above forecast in order to boost the economy. Some relatively weak 3Q corporate earnings results and corporate governance concerns at a number of large companies also weighed on the local market. Latin American emerging markets posted negative returns, with commodities stocks posting the weakest returns. Peru was the exception, posting strong outperformance, with index heavyweight Credicorp registering solid performance on the back of continued lending growth. Mexico underperformed. The market benefitted from an ongoing recovery in key trade partner, the US, throughout much of the period. However, a corruption scandal which resulted in the cancellation of a large infrastructure project and sharp falls in the price of oil weighed on the local market. Although the economy is not reliant on oil exports, energy reform was seen as a major contributor to the 11

13 Eastspring Investments Global Emerging Markets Fund growth outlook, and should oil prices remain low growth expectations are likely to be diminished. Chile lagged as GDP growth decelerated and President Bachelet returned to La Moneda with plans to fund education spending by raising corporation taxes. Brazil underperformed in a volatile period that saw some large swings in election opinion polls provide direction for the local market. The re-election of President Dilma Rousseff in October 2014 was followed by a drop in the local market, amid concerns over her administration s ability to combat slowing growth and above target inflation. The announcement of experienced economist Joaquim Levy as Finance Minister in November, and the central bank s moves to hike rates to 11.75% were well received by the market in what was interpreted as a potential return to more orthodox policy. Colombia underperformed by a wider margin, on the back of commodity price weakness which has spurred an 18.8% depreciation in the peso. Index heavyweight Ecopetrol led the market lower as weak production and a declining oil price hurt the stock price. Emerging EMEA markets underperformed, primarily due to very weak performance in Russia and Greece. Egypt registered the largest gain, as the military seized power and subsequently former army chief, Abdel Fattah al-sisi, was elected president, renewing stability in the local market. It was a volatile period for Turkey given the country s high current account deficit and a large external debt, in the face of ongoing concerns over Fed rate hikes. Events across its border in Syria and Prime Minister Erdogan s win in presidential elections also proved to be headwinds. However, the market is expected to be a key beneficiary of falling oil prices which should contribute to a lowering of inflation, which was 8.4% year on year in November. In June 2014 the UAE and Qatar were added to the index following an MSCI Classification Review in May. Whilst the markets have recently experienced weaker sentiment due to oil price falls, both generated double digit positive returns since their inclusion in the index. South Africa finished ahead of the benchmark in a period which saw the ANC retain power in a general election. More recently, oil price weakness has also been supportive for local equities. The Czech Republic only moderately lagged, supported by heavyweight stock CEZ. Eastern European markets felt some overspill effect from events in Ukraine and all posted negative returns. Poland in particular was hit by a number of food import bans, implemented by Russia in retaliation for Western sanctions. Local pension reforms also weighed on the local market. In Hungary, FX debt concerns acted as a headwind throughout much of the period, although a resolution was announced in November. Greece also lagged by some margin as concerns over the Eurozone economy, October s ECB asset quality review and ongoing political uncertainty contributed to sizeable falls in the local market. A snap presidential election in December was indecisive and the country now faces parliamentary elections in January 2015, with anti-bailout party Syriza leading in polls. Russia was the worst performing index market as geopolitical concerns were stoked by the country s move to annex Crimea, an autonomous republic of 12

14 Annual Report Ukraine. Tensions were heightened after a commercial airliner was brought down, allegedly by Kremlin backed separatists on the border between the two countries. Meanwhile a weak economy, falling oil prices and exacerbated corporate governance concerns have further weighed on the local market and contributed to a 45.9% sell-off in the rouble. REBATES AND SOFT COMMISSIONS During the period under review, the Manager and its delegates (if any) did not receive any rebates and soft commissions from stockbrokers. 13

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16 Annual Report EASTSPRING INVESTMENTS GLOBAL EMERGING MARKETS FUND FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 31 DECEMBER

17 Eastspring Investments Global Emerging Markets Fund TRUSTEE S REPORT TO THE UNIT HOLDERS OF EASTSPRING INVESTMENTS GLOBAL EMERGING MARKETS FUND We have acted as Trustee for Eastspring Investments Global Emerging Markets Fund (the Fund ) for the financial year ended 31 December To the best of our knowledge, for the year under review, Eastspring Investments Berhad (the Manager ) has operated and managed the Fund in accordance with the following:- (a) limitations imposed on the investment powers of the Manager and Trustee under the Deed, the Securities Commission s Guidelines on Unit Trust Funds, the Capital Markets and Services Act 2007 and other applicable laws; (b) the valuation/pricing for the Fund has been carried out in accordance with the Deed of the Fund and applicable regulatory requirements; and (c) creation and cancellation of units for the Fund have been carried out in accordance with the Deed of the Fund and applicable regulatory requirements. For Deutsche Trustees Malaysia Berhad Soon Lai Ching Manager, Trustee Operations Nadzathul Shera Jadli Head, Trustee Operations Kuala Lumpur Date: 17 February

18 Annual Report INDEPENDENT AUDITORS REPORT TO THE UNIT HOLDERS OF EASTSPRING INVESTMENTS GLOBAL EMERGING MARKETS FUND REPORT ON THE FINANCIAL STATEMENTS We have audited the financial statements of Eastspring Investments Global Emerging Markets Fund (the Fund ), which comprise the statement of financial position as at 31 December 2014, and statement of comprehensive income, statement of changes in equity and statement of cash flows of the Fund for the year then ended, and a summary of significant accounting policies and other explanatory notes, as set out on pages 19 to 50. Manager s Responsibility for the Financial Statements The Manager of the Fund is responsible for the preparation of financial statements so as to give a true and fair view in accordance with Malaysian Financial Reporting Standards and International Financial Reporting Standards. The Manager is also responsible for such internal control as the Manager determines are necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error. Auditors Responsibility Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with approved standards on auditing in Malaysia. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance whether the financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on our judgment, including the assessment of risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, we consider internal control relevant to the Fund s preparation of financial statements that give a true and fair view in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Manager s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by the Manager, as well as evaluating the overall presentation of the financial statements. 17

19 Eastspring Investments Global Emerging Markets Fund We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. Opinion In our opinion, the financial statements give a true and fair view of the financial position of the Fund as of 31 December 2014 and of its financial performance and cash flows for the year then ended in accordance with Malaysian Financial Reporting Standards and International Financial Reporting Standards. OTHER MATTERS This report is made solely to the unit holders of the Fund and for no other purpose. We do not assume responsibility to any other person for the content of this report. PRICEWATERHOUSECOOPERS (No. AF: 1146) Chartered Accountants Kuala Lumpur Date: 17 February

20 Annual Report STATEMENT OF COMPREHENSIVE INCOME FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2014 Note RM RM INVESTMENT INCOME Interest income from deposits with licensed financial institutions 14,020 16,178 Net gain on financial assets at fair value through profit or loss 6 204,248 1,705,266 Net foreign currency exchange (loss)/gain (4,809) 102, ,459 1,824,128 EXPENSES Management fee 3 (87,071) (129,567) Trustee fee 4 (21,380) (32,062) Audit fee (6,006) (6,006) Tax agent fee (3,400) (3,400) Other expenses (26,214) (28,512) (144,071) (199,547) PROFIT BEFORE TAXATION 69,388 1,624,581 TAXATION PROFIT AFTER TAXATION AND TOTAL COMPREHENSIVE INCOME 69,388 1,624,581 Profit after taxation is made up of the following: Realised amount 560, ,263 Unrealised amount (491,606) 1,243,318 69,388 1,624,581 The accompanying summary of significant accounting policies and notes to the financial statements form an integral part of these financial statements. 19

21 Eastspring Investments Global Emerging Markets Fund STATEMENT OF FINANCIAL POSITION AS AT 31 DECEMBER 2014 ASSETS Note RM RM CURRENT ASSETS Financial assets at fair value through profit or loss 6 20,893,487 32,966,856 Amount due from Manager 15,648 30,614 Cash and cash equivalents 7 631, ,816 TOTAL ASSETS 21,541,124 33,862,286 LIABILITIES CURRENT LIABILITIES Amount due to Manager 26,485 32,441 Accrued management fee 6,142 9,336 Amount due to Trustee 1,474 2,275 Other payables and accruals 22,424 21,722 TOTAL LIABILITIES 56,525 65,774 NET ASSET VALUE OF THE FUND 21,484,599 33,796,512 EQUITY Unit holders capital 26,393,337 38,774,638 Accumulated losses (4,908,738) (4,978,126) NET ASSET ATTRIBUTABLE TO UNIT HOLDERS 21,484,599 33,796,512 NUMBER OF UNITS IN CIRCULATION 8 82,887, ,806,350 NET ASSET VALUE PER UNIT (RM) The accompanying summary of significant accounting policies and notes to the financial statements form an integral part of these financial statements. 20

22 Annual Report STATEMENT OF CHANGES IN EQUITY FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2014 Unit holders Accumulated Note capital losses Total RM RM RM Balance as at 1 January ,774,638 (4,978,126) 33,796,512 Movement in unit holders contribution: Creation of units from applications 3,135,626-3,135,626 Cancellation of units (15,516,927) - (15,516,927) Total comprehensive income for the financial year - 69,388 69,388 Balance as at 31 December ,393,337 (4,908,738) 21,484,599 Balance as at 1 January ,077,020 (6,602,707) 52,474,313 Movement in unit holders contribution: Creation of units from applications 3,718,497-3,718,497 Cancellation of units (24,020,879) - (24,020,879) Total comprehensive income for the financial year - 1,624,581 1,624,581 Balance as at 31 December ,774,638 (4,978,126) 33,796,512 The accompanying summary of significant accounting policies and notes to the financial statements form an integral part of these financial statements. 21

23 Eastspring Investments Global Emerging Markets Fund STATEMENT OF CASH FLOWS FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2014 Note RM RM CASH FLOWS FROM OPERATING ACTIVITIES Proceeds from sale of investments 12,277,617 20,555,946 Interest income received from deposits with licensed financial institutions 14,020 16,178 Management fee paid net of rebates (90,265) (134,854) Trustee fee paid (22,181) (33,268) Payment for other fees and expenses (34,918) (40,832) Net foreign exchange (loss)/gain (4,809) 102,684 Net cash generated from operating activities 12,139,464 20,465,854 CASH FLOWS FROM FINANCING ACTIVITIES Cash proceeds from units created 3,150,592 3,764,591 Payments for cancellation of units (15,522,883) (24,341,921) Net cash used in financing activities (12,372,291) (20,577,330) NET DECREASE IN CASH AND CASH EQUIVALENTS (232,827) (111,476) CASH AND CASH EQUIVALENTS AT THE BEGINNING OF THE FINANCIAL YEAR 864, ,292 CASH AND CASH EQUIVALENTS AT THE END OF THE FINANCIAL YEAR 7 631, ,816 The accompanying summary of significant accounting policies and notes to the financial statements form an integral part of these financial statements. 22

24 Annual Report SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2014 The following accounting policies have been used in dealing with items which are considered material in relation to the financial statements. A BASIS OF PREPARATION OF THE FINANCIAL STATEMENTS The financial statements have been prepared under the historical cost convention, as modified by financial assets and financial liabilities (including derivatives instruments) at fair value through profit or loss, except as disclosed in this summary of significant accounting policies, and in accordance with Malaysian Financial Reporting Standards ( MFRS ) and International Financial Reporting Standards ( IFRS ). The preparation of financial statements in conformity with the MFRS and IFRS requires the use of certain critical accounting estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reported financial year. It also requires the Manager to exercise their judgment in the process of applying the Fund s accounting policies. Although these estimates and judgment are based on the Manager s best knowledge of current events and actions, actual results may differ. The areas involving a higher degree of judgement or complexity, or areas where assumptions and estimates are significant to the financial statements are disclosed in Note K. The new standards, amendments to published standards and interpretations to existing standards that are applicable to the Fund but not yet effective and have not been early adopted are as follows: (a) Financial year beginning on/after 1 January 2017 with revenue recognition and establishes principles for reporting useful information to users of financial statements about the nature, amount, timing and uncertainty of revenue and cash flows arising from an entity s contracts with customers. Revenue is recognised when a customer obtains control of a good or service and thus has the ability to direct the use and obtain the benefits from the good or service. The standard replaces MFRS 118 Revenue and MFRS 111 Construction contracts and related interpretations. 23

25 Eastspring Investments Global Emerging Markets Fund The Fund will apply this standard when effective. This standard is not expected to have a significant impact on the Fund s financial statements. (b) Financial year beginning on/after 1 January 2018 Financial Instruments: Recognition and Measurement. The complete version of MFRS 9 was issued in November MFRS 9 retains but simplifies the mixed measurement model in MFRS 139 and establishes three primary measurement categories for financial assets: amortised cost, fair value through profit or loss and fair value through other comprehensive income ( OCI ). The basis of classification depends on the entity s business model and the contractual cash flow characteristics of the financial asset. Investments in equity instruments are always measured at fair value through profit or loss with a irrevocable option at inception to present changes in fair value in OCI (provided the instrument is not held for trading). A debt instrument is measured at amortised cost only if the entity is holding it to collect contractual cash flows and the cash flows represent principal and interest. For liabilities, the standard retains most of the MFRS 139 requirements. These include amortised cost accounting for most financial liabilities, with bifurcation of embedded derivatives. The main change is that, in cases where the fair value option is taken for financial liabilities, the part of a fair value change due to an entity s own credit risk is recorded in other comprehensive income rather than the income statement, unless this creates an accounting mismatch. There is now a new expected credit losses model on impairment for all financial assets that replaces the incurred loss impairment model used in MFRS 139. The expected credit losses model is forward-looking and eliminates the need for a trigger event to have occurred before credit losses are recognised. The Fund will apply this standard when effective. This standard is not expected to have a significant impact on the Fund s financial statements. 24

26 Annual Report B INCOME RECOGNITION Interest income earned from short term deposits is recognised on the accrual basis using the effective interest method. Realised gain or loss on sale of investments is accounted for as the difference between the net disposal proceeds and the carrying amount of investments, determined on a weighted average cost basis for collective investment scheme. C TAXATION Current tax expense is determined according to the Malaysian tax laws at the current rate based upon the taxable income earned during the financial year. Tax on dividend income from foreign collective investment scheme is based on the tax regime of the respective country that the Fund invests in. D PRESENTATION AND FUNCTIONAL CURRENCY Items included in the financial statements of the Fund are measured using the currency of the primary economic environment in which the Fund operates (the functional currency ). The financial statements are presented in Ringgit Malaysia ( RM ), which is the Fund s presentation and functional currency. E FINANCIAL ASSETS AND FINANCIAL LIABILITIES (i) Classification The Fund designates its investment in collective investment scheme as financial assets at fair value through profit or loss at inception. Financial assets are designated at fair value through profit or loss when they are managed and their performance evaluated on a fair value basis. Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market and have been included in current assets. The Fund s 25

27 Eastspring Investments Global Emerging Markets Fund loans and receivables comprise cash and cash equivalents and amount due from Manager which are all due within 12 months. Financial liabilities are classified according to the substance of the contractual arrangements entered into and the definitions of a financial liability. The Fund s financial liabilities include amount due to Manager, accrued management fee, amount due to Trustee and other payables and accruals. (ii) Recognition and measurement Regular purchases and sales of financial assets are recognised on the trade-date, the date on which the Fund commits to purchase or sell the asset. Investments are initially recognised at fair value. Transaction costs are expensed in the statement of comprehensive income. Financial assets are derecognised when the rights to receive cash flows from the investments have expired or have been transferred and the Fund has transferred substantially all risks and rewards of ownership. Financial liabilities, within the scope of MFRS 139, are recognised in the statement of financial position when, and only when, the Fund becomes a party to the contractual provisions of the financial instrument. Financial liability is derecognised when the obligation under the liability is extinguished. Gain and losses are recognised in the statement of comprehensive income when the liabilities are derecognised, and through the amortisation process. Unrealised gains or losses arising from changes in the fair value of the financial assets at fair value through profit or loss category are presented in the statement of comprehensive income within net gain/(loss) on financial assets at fair value through profit and loss in the period in which they arise. Any unrealised gains however are not distributable. Dividend income from financial assets at fair value through profit or loss is recognised in the statement of comprehensive income as part of gross dividend income when the Fund s right to receive payments is established. 26

28 Annual Report Collective investment scheme are valued based on the last published net asset value per unit or share of such collective investment schemes or, if unavailable, on the average of the last published buying price and the last published selling price of such unit or share (excluding any sales charge included in selling in such selling price). Foreign exchange gains and losses on the financial instrument are recognised in statement of comprehensive income when settled or at date of the statement of financial position at which time they are included in the measurement of the financial instrument. Deposits with licensed financial institutions are stated at cost plus accrued interest calculated on the effective interest method over the period from the date of placement to the date of maturity of the respective deposits. Loans and receivables and other financial liabilities are subsequently carried at amortised cost using the effective interest method. For assets carried at amortised cost, the Fund assesses at the end of the reporting period whether there is objective evidence that a financial asset or group of financial assets is impaired. A financial asset or a group of financial assets is impaired and impairment losses are incurred only if there is objective evidence of impairment as a result of one or more events that occurred after the initial recognition of the asset (a loss event ) and that loss event (or events) has an impact on the estimated future cash flows of the financial asset or group of financial assets that can be reliably estimated. The amount of the loss is measured as the difference between the asset s carrying amount and the present value of estimated future cash flows (excluding future credit losses that have not been incurred) discounted at the financial asset s original effective interest rate. The asset s carrying amount of the asset is reduced and the amount of the loss is recognised in statement of comprehensive income. If loans and receivables or a held-to-maturity investment has a variable interest rate, the discount rate for measuring any impairment loss is the current effective interest rate determined under the contract. As a practical expedient, the Fund may measure impairment on the basis of an instrument s fair value using an observable market price. 27

29 Eastspring Investments Global Emerging Markets Fund If, in a subsequent period, the amount of the impairment loss decreases and the decrease can be related objectively to an event occurring after the impairment was recognised (such as an improvement in the debtor s credit rating), the reversal of the previously recognised impairment loss is recognised in statement of comprehensive income. When an asset is uncollectible, it is written off against the related allowance account. Such assets are written off after all the necessary procedures have been completed and the amount of the loss has been determined. F CASH AND CASH EQUIVALENTS For the purpose of the statement of cash flows, cash and cash equivalents comprise bank balance and deposit with a licensed financial institution that are readily convertible to known amounts of cash and which are subject to an insignificant risk of changes in value. G FOREIGN CURRENCY TRANSLATION Foreign currency transactions in the Fund are translated into the functional currency using the exchange rates prevailing at the transaction dates. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation at year-end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognised in the statement of comprehensive income, except when deferred in other comprehensive income as qualifying cash flow hedges. H CREATION AND CANCELLATION OF UNITS The Fund issues cancellable units, which are cancelled at the unit holder s option and are classified as equity. Cancellable units can be returned to the Fund at any time for cash equal to a proportionate share of the Fund s net asset value ( NAV ). The outstanding units are carried at the redemption amount that is payable at the statements of financial position date if the unit holder exercises the right to return the unit to the Fund. Units are created and cancelled at the unit holder s option at prices based on the Fund s NAV per unit at the time of creation or cancellation. The Fund s NAV per unit is calculated by dividing the net asset attributable to unit holder with the total number of outstanding units. 28

30 Annual Report I UNIT HOLDERS CAPITAL The unit holders contributions to the Fund meet the definition of puttable instruments classified as equity instruments under MFRS 132 Financial Instruments: Presentation. The units in the Fund are puttable instruments which entitle the unit holders to a pro-rata share of the net asset value of the Fund. The units are subordinated and have identical features. There is no contractual obligation to deliver cash or another financial asset other than the obligation on the Fund to repurchase the units. The total expected cash flows from the units in the Fund over the life of the units are based on the change in the net asset value of the Fund. J SEGMENTAL INFORMATION Operating segments are reported in a manner consistent with the internal reporting used by chief operating decision-maker. The chief operating decision-maker, who is responsible for allocating resources and assessing performance of the operating segments, has been identified as the Investment Committee of the Fund s manager that undertakes strategic decisions for the Fund. K CRITICAL ACCOUNTING ESTIMATES AND JUDGMENTS IN APPLYING ACCOUNTING POLICIES The Fund makes estimates and assumptions concerning the future. The resulting accounting estimates will, by definition, rarely equal the related actual results. To enhance the information content of the estimates, certain key variables that are anticipated to have material impact to the Funds results and financial position are tested for sensitivity to changes in the underlying parameters. Estimates and judgments are continually evaluated by the Manager and the Trustee and are based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances. 29

31 Eastspring Investments Global Emerging Markets Fund NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 31 DECEMBER INFORMATION ON THE FUND Eastspring Investments Global Emerging Markets Fund (the Fund ) was constituted pursuant to the execution of a Deed dated 7 December 2007 (the Deed ), Second Supplemental Master Deed dated 30 November 2009 entered into between Eastspring Investments Berhad (the Manager ) and HSBC (Malaysia) Trustee Berhad ( HSBC Trustee ). The Fund replaced HSBC Trustee with Deutsche Trustees Malaysia Berhad (the Trustee ) effective 1 October A Supplemental Master Deed was entered into between Eastspring Investments Berhad (the Manager ) and Deutsche Trustees Malaysia Berhad (the Trustee ) on 30 July 2010 to effect the change of trustee from HSBC Trustee to the Trustee, followed by a Second Supplemental Master Deed dated 28 January 2011, a Third Supplemental Master Deed dated 9 March 2011, a Fourth Supplemental Master Deed dated 20 January 2012 and a Fifth Supplemental Master Deed dated 26 March 2014 (collectively referred to as the Deeds ). The Fund was launched on 11 January 2008 and will continue its operations until terminated by the Trustee or the Manager as provided under Clause 12 of the Deed. The Fund invests in a foreign collective investment scheme primarily the Schroder International Selection Fund - Emerging Markets (the Target Fund ), incorporated in Luxembourg. The Fund seeks to achieve long-term capital growth by investing in a collective investment scheme called the Schroder International Selection Fund Emerging Markets (the Target Fund ), which in turn seeks to provide capital growth primarily through investment in equity securities of emerging markets companies. All investments will be subject to the SC Guidelines, the SC requirements, the Deed, except where exemptions or variations have been approved by the SC, internal policies and procedures and the Fund s objective. The Manager is a company incorporated in Malaysia and is related to Prudential Plc., a public listed company in the United Kingdom. The principal activity of the Manager is the establishment and management of unit trust funds and asset management. 30

32 Annual Report 2 FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES The Fund is exposed to a variety of risks which include market risk (inclusive of price risk, interest rate risk and foreign exchange/currency risk), stock/issuer risk, fund management risk, liquidity risk, credit/default risk, country risk, emerging markets risk, non-compliance risk and capital risk. Financial risk management is carried out through internal control processes adopted by the Manager and adherence to the investment restrictions as stipulated in the Deed. Financial instruments of the Fund are as follows: Financial assets at fair Loans and value through Note receivables profit or loss Total RM RM RM 2014 Collective investment scheme 6-20,893,487 20,893,487 Amount due from Manager 15,648-15,648 Cash and cash equivalents 7 631, , ,637 20,893,487 21,541, Collective investment scheme 6-32,966,856 32,966,856 Amount due from Manager 30,614-30,614 Cash and cash equivalents 7 864, , ,430 32,966,856 33,862,286 All current liabilities are financial liabilities which are carried at amortised cost. 31

33 Eastspring Investments Global Emerging Markets Fund Market risk (a) Price risk This risk refers to changes and developments in regulations, politics and the economy of the country. The very nature of a unit trust fund, however, helps mitigate this risk. The Underlying Fund that is the Schoder International Selection Fund Emerging Markets would generally hold a well-diversified portfolio of securities from different market sectors that the collapse of any one security or any one market sector would not impact too greatly on the value of the Schoder International Selection Fund Emerging Markets. The table below shows assets of the Fund as at 31 December which are exposed to price risk RM RM Collective investment scheme designated at fair value through profit or loss 20,893,487 32,966,856 32

34 Annual Report The following table summarises the sensitivity of the Fund s net asset value and profit after tax to movements in prices of collective investment scheme at the end of the reporting year. The analysis is based on the assumptions that the market price of the collective investment scheme increased and decreased by 5% with all other variables held constant. This represents management s best estimate of a reasonable possible shift in the collective investment scheme, having regard to the historical volatility of the prices. % Change in Impact on price of collective Market profit after tax/ investment scheme value net asset value RM RM % 21,938,161 1,044,674-5% 19,848,813 (1,044,674) % 34,615,199 1,648,343-5% 31,318,513 (1,648,343) (b) Interest rate risk Cash flow interest rate risk is the risk that the future cash flows of a financial instrument will fluctuate because of changes in market interest rates. Fair value interest rate risk is the risk that the value of a financial instrument will fluctuate due to changes in market interest rates. Interest rate is a general economic indicator that will have an impact on the management of the Fund. The Fund s exposure to the interest risk is mainly confined to short term placements with financial institutions. The Manager overcomes the exposure by way of maintaining deposits on short-term basis. The Fund s investments in deposits with licensed financial institutions are short term in nature. Therefore, exposure to interest rate fluctuations is minimal. 33

35 Eastspring Investments Global Emerging Markets Fund (c) Foreign exchange/currency risk As the Underlying Fund, Schroder International Selection Fund Emerging Markets may invest its assets in securities denominated in a wide range of currencies other than Ringgit Malaysia, the net asset value of the fund expressed in Ringgit Malaysia may be affected favourably or unfavourably by exchange control regulations or changes in the exchange rates between Ringgit Malaysia and such other currencies. This risk is minimised through investing in a wide range of foreign currencies denominated assets and thus, diversifying the risk of single currency exposure. In the normal course of investment, the Fund Manager will usually not hedge foreign currency exposure. The Fund Manager may however depending on prevailing market circumstances at a particular point in time, choose to use forward or option contracts for hedging and risk reduction purposes. The following table sets out the foreign exchange/currency risk concentrations and counterparties of the Fund. Financial assets at fair value through profit or loss RM Total RM 2014 EURO 20,893,487 20,893, EURO 32,966,856 32,966,856 34

36 Annual Report The table below summarises the sensitivity of the Fund s financial assets to changes in foreign exchange movements at the end of the reporting year. The analysis is based on the assumption that the foreign exchange rate changes by 5% with all variables remain constants. This represents management s best estimate of a reasonable possible shift in the foreign exchange rate having regard to historical volatility of this rate. Disclosures below are shown in absolute terms, changes and impacts could be positive or negative. Change Impact on profit Impact on net in price after tax asset value % RM RM 2014 EURO 5 1,044,674 1,044, EURO 5 1,648,343 1,648,343 Stock/issuer risk The performance of equities and money market instruments held by the Underlying Fund is also dependent on company specific factors like the issuer s business situation. If the company-specific factors deteriorate, the price of the specific security may drop significantly and permanently, possibly even regardless of an otherwise generally positive stock market trend. Risks include but are not limited to competitive operating environments, changing industry conditions and poor management. 35

37 Eastspring Investments Global Emerging Markets Fund Fund management risk There is the risk that the management company may not adhere to the investment mandate of the respective fund. With close monitoring by the investment committee, back office system being incorporated with limits and controls, and regular reporting to the senior management team, the management company is able to manage such risk. The Trustee has an oversight function over management of the Fund by the management company to safeguard the interest of unit holders. Liquidity risk Liquidity risk is the risk that the Fund will encounter difficulty in meeting its financial obligations. Generally, all investments are subject to a certain degree of liquidity risk depending on the nature of the investment instruments, market, sector and other factors. For the purpose of the Fund, the fund manager will attempt to balance the entire portfolio by investing in a mix of assets with satisfactory trading volume and those that occasionally could encounter poor liquidity. This is expected to reduce the risks for the entire portfolio without limiting the Fund s growth potentials. The Fund maintains sufficient level of liquid assets, after consultation with the Trustee, to meet anticipated payments and cancellations of units by unit holders. Liquid assets comprise cash, deposits with licensed financial institutions and other instruments which are capable of being converted into cash within 7 days. 36