Select Balanced Fund. Interim Report 30 September MANAGER Affin Hwang Asset Management Berhad ( T)

Transcription

1 Affin Hwang Select Balanced Fund Interim Report 30 September 2015 MANAGER Affin Hwang Asset Management Berhad ( T) TRUSTEE HSBC (Malaysia) Trustee Berhad (1281-T)

2 AFFIN HWANG SELECT BALANCED FUND Interim Report and Unaudited Financial Statements For the 3 Months Financial Period Ended 30 September 2015 Content Page MANAGER S REPORT... 2 FUND PERFORMANCE DATA... 7 TRUSTEE S REPORT... 8 STATEMENT OF COMPREHENSIVE INCOME... 9 STATEMENT OF FINANCIAL POSITION STATEMENT OF CHANGES IN EQUITY STATEMENT OF CASH FLOWS SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES NOTES TO THE FINANCIAL STATEMENTS STATEMENT BY THE MANAGER DIRECTORY OF SALES OFFICE

3 MANAGER S REPORT (1) MANAGER S VIEW ON PORTFOLIO AND MARKET Fund Type, Category, Objective and Distribution Policy Affin Hwang Select Balanced Fund (the Fund) is a growth and income fund categorized as balanced fund that provides investors affordable access into a diversified investment portfolio containing a balanced mixture of equities and fixed income securities to achieve a balance of growth and income over medium to long term. The Fund endeavours to distribute income, if any, on a semi-annual basis. However, the amount of income available for distribution may fluctuate from year to year. Benchmark The benchmark used by the Manager in measuring the performance of the Fund is a weighted average of the FTSE Bursa Malaysian Top 100 Index (FBM 100) performance (for equity investment) and current Maybank 12-month Fixed Deposit Rate*. If current Maybank 12-month Fixed Deposit rate is 3.2%, the benchmark for fixed income securities would be 3.2%. The weightings assigned are in the proportion of 50:50. For example, if the FTSE 100 Index was to return 10% during the year and given the above Fixed Deposit rate, the benchmark s return for the Fund would be 6.6% i.e. (50% x 3.2%) + (50% x 10%). * The risk profile of this Fund is different from the risk profile of the benchmark. Performance of the Fund (1 July 2015 to 30 September 2015) For the period from 1 July 2015 to 30 September 2015, the Fund registered a return of -1.86%. The Fund outperformed the Benchmark by 0.04% compared to the Benchmark return of -1.90% for the same period. (See Table 1 for performance of the Fund and Figure 1 for movement of the Fund versus the Benchmark respectively). The Net Asset Value (NAV) per unit of the Fund as at 30 September 2015 was RM while the NAV per unit as at 30 June 2015 was RM Since commencement, the Fund has outperformed the benchmark by % with returns of % compared to the benchmark return of 88.93%. The Fund has declared a total gross income distribution of RM per unit to date. As such, the objective of the Fund which is to provide investors with a mixture of income and capital growth is being met. Table 1: Performance of the Fund For the Period (1/7/15-30/9/15) 1 Year (1/10/14-30/9/15) 3 Years (1/10/12-30/9/15) 5 Years (1/10/10-30/9/15) Since Commencement (18/8/03-30/9/15) Fund (1.86%) (0.12%) 18.37% 49.23% % Benchmark (1.90%) (4.87%) 5.04% 15.91% 88.93% Outperformance /(Underperformance) 0.04% 4.75% 13.33% 33.31% % Source of Benchmark: Bursa Malaysia Berhad & Maybank 2

4 Table 2: Average Total Return 1 Year (1/10/14-30/9/15) 3 Years (1/10/12-30/9/15) 5 Years (1/10/10-30/9/15) Since Commencement (18/8/03-30/9/15) Fund (0.12%) 5.78% 8.33% 9.84% Benchmark (4.87%) 1.65% 2.99% 5.39% Outperformance 4.75% 4.13% 5.34% 4.45% Source of Benchmark: Bursa Malaysia Berhad & Maybank Table 3: Annual Total Return FYE 2015 (1/7/14-30/6/15) FYE 2014 (1/7/13-30/6/14) FYE 2013 (1/7/12-30/6/13) FYE 2012 (1/7/11-30/6/12) FYE 2011 (1/7/10-30/6/11) Fund 0.36% 9.27% 13.07% 7.34% 22.30% Benchmark (3.29%) 4.11% 7.80% 2.35% 12.49% Outperformance 3.65% 5.16% 5.28% 4.99% 9.81% Source of Benchmark: Bursa Malaysia Berhad & Maybank Figure 1: Movement of the Fund versus the Benchmark This information is prepared by Affin Hwang Asset Management Berhad for information purposes only. Past earnings or the Fund s distribution record is not a guarantee or reflection of the Fund s future earnings/future distributions. Investors are advised that Unit prices, distributions payable and investment returns may go down as well as up. Source of Benchmark is from Bloomberg. Benchmark: FTSE Bursa Malaysian Top 100 Index (FBM 100) performance (for equity investment) and current Maybank 12-month Fixed Deposit Rate Investment Strategy (1 July 2015 to 30 September 2015) Equity: The Manager had reduced the portfolio s equity exposure over the period under review amid the growing volatility in the market. The equity exposure was reduced from 48.1% to 43.6% as at the end of September Given the uncertainties backed by the slowdown in the growth China s economy along with the weakening of Emerging Market currencies, the Manager reduced the Fund s exposure into the equity market and maintained relatively higher cash holdings as a defensive measure. Fixed Income: The Fund held an exposure of approximately 47% into fixed income instruments as at the end of September. Yields were generally stable over the period under review until August. The uncertainties in the timeline of the US Federal Reserve rate hike, and a surprise devaluation of the Renminbi (RMB) by 3

5 the People s Bank of China (PBoC) dragged down investors sentiment and nudged yields higher. Given the on-going volatility and thin liquidity in the market, the Manager expects to maintain a shorter duration for its fixed income exposure, while bottom-up credit selection will continue to be key consideration for portfolio construction. The Manager had also maintained a hedging policy on Fund s fixed income exposure to mitigate foreign currency risk for the portfolio given the volatile currency movements. Asset Allocation As at 30 September 2015, the asset allocation of the Fund stood at 43.93% in equities, 47.93% in fixed income securities, and the balance of 8.14% in cash. For a snapshot of the Fund s asset allocation as at 30 September 2015, refer to Figure 2. Figure 2: Summary of Asset Allocation Sector Allocation 30 Sept 2015 % 31 Dec 2014 % 31 Dec 2013 % Equities - local Oil and Gas Consumer Services Consumer Goods Financial Industrial REITs Telecommunications Utilities Warrants Consumer Products Construction Trading / Services Properties Plantation Industrial Products Infrastructure Project Companies Equities - foreign Consumer Services Financials Technology Industrial Telecommunications Consumer Goods REITs Healthcare Facilities Services Basic Industry & Chemicals Consumer Products Marine Transportation Agriculture Property & Real Estate Manufacturing Properties Fixed Income Securities - local Fixed Income Securities - foreign Cash Total The equities allocation for the Fund was reduced to 43.93% from 47.88% in the previous year. This is due to the heightened market volatility over the period under review. On the fixed income side, allocations to the bonds have been increased to 47.93%. 4

6 Market Review (1 July 2015 to 30 September 2015) Equity: Concerns surrounding the pace of global growth had remained a key concern for global markets. While US had continued to release generally satisfactory economic data that suggested its economy may well be back on track, China was seen to be on a different route. Weak economic data backed by the decline in MSCI Asia ex-japan Index of 3.6% has signalled the slowing growth in China and the Emerging Markets. Markets which had rejoiced in the stimulus measures that the People s Bank of China (PBoC) had continued to roll out to provide support for its ailing economy took a turn after the PBoC took the decision to devalue its currency. Investors viewed the move as a potential threat for a currency war, fearing other economies doing the same to boost its export growth. The Shanghai Composite Index took the brunt of the hit as investors shied away from the market the index substantially slipped 18.5% in MYR terms over the period under review. Most regional currencies continued to suffer in the face of US Dollar strength in anticipation of the impending rate hike by the US Federal Reserve. This contributed to investors shifting funds away from the region which contributed to the weakness of the broader equity market. The FTSE Bursa Malaysia KLCI shed 5% in the period under review, and remained one of the weaker performing markets among its peers. Fixed Income: The US Dollar continued to see an uptrend over the period under review, especially against the Emerging Markets. Encouraging data flowing out of the US, along with the anticipated rate hike by the US Feds remained a support driver for the currency. Fund flows moving back into the US had driven demand for bonds and dragged down yields. The heightened uncertainties surrounding global financial markets led to further broad-based rise in yields for global bonds. The volatility has led to the US high yields being one of the worst performing segments, alongside Emerging Market debt. The 10-year US Treasury yields held on steadily to close the period at 2.06%. China continued its loosening monetary policy by lowering its 1-year lending rate by a quarter of a percentage point to 4.85% and its 1-year deposit rate by the same scale to 2% in a bid to stabilise its market, adjust structures and lower social financial costs. China fell back on its major levers to stem the biggest stock market rout since 1996 and deepening slowdown, cutting interest rates for the fifth (5) time in 10 months since November. The PBoC is also expected to provide further liquidity into the market through the injection of an estimated RMB700 billion worth of liquidity into the banking system. The growing signs that China s economy is struggling, coupled with the uncertainty over the direction of its policy makers took its toll on Asia s growth outlook. Meanwhile, mounting pressure faced by the domestic economy on the back of weak Ringgit, low oil prices and on-going political concerns had gradually nudged yields back up. Malaysian government bonds fell, pushing the 10-years yield to its highest since Investment Outlook Equity: Concerns for most investors remain on the repercussions to the end of the US zero interest rate policy. Especially for Emerging Markets, concerns of a similar reaction to the taper tantrums of last May (2013) have increased the number of investors. Speculation that US Federal Reserves will keep interest rates lower for a longer period of time and expectations for more policy support from the Chinese authorities is deemed to help the global equities. We are still seeing resumption in US Dollar strength and an increase in volatility in financial markets across the major asset classes. Our view is that, near-term fluctuations and pullbacks aside, investors will conclude that any interest rate hikes would be very gradual in nature. The end of quantitative easing in the US would be negated partially by continued loose monetary policies by the Bank of Japan, and the European Central Bank. Investors should also be more discerning when it comes to investing in Emerging Markets. They would be able to differentiate between the better markets from the weaker ones. We will similarly adopt this view and focus on the countries that have undergone the adjustment process and that present thematic and bottom-up opportunities. 5

7 Fixed Income: The Manager will remain guided by the US and global economic data, which we believe will guide the US Federal Reserve s rate hike decision. As China s economy continue to find its footing, regional performance of financial markets will likely look towards China s next course of action. Asian currencies are expected to remain under pressure given the impending rate hike in the US, which has continued to push the US Dollar strength. Liquidity is expected to remain thin in the interim as investors focus on quality of new issuances. The US rate hike, and China s slowing growth is expected to be the key focal points for the fixed income market. (2) SOFT COMMISSIONS RECEIVED FROM BROKERS As per the requirements of the Securities Commission s Guidelines on Unit Trust Funds and Guidelines on Compliance Function for Fund Management Companies, soft commissions received from brokers/dealers may be retained by the management company only if the : (i) (ii) goods and services provided are of demonstrable benefit to Unit holders of the Fund; and goods and services are in the form of research and advisory services that assists in the decisionmaking process. During the financial period under review, the management company had received on behalf of the Fund, soft commissions in the form of research materials, data and quotation services, investment-related publications, market data feed and industry benchmarking agencies which are of demonstrable benefit to Unitholders of the Fund. (3) BREAKDOWN OF UNITHOLDERS BY SIZE AS AT 30 SEPTEMBER 2015 Size of holdings (Units) No. of Unitholders No. of Units held * ( 000) 5,000 and below 602 1,831 5,001 to 10, ,618 10,001 to 50,000 1,370 30,684 50,001 to 500, , ,001 and above ,515 Total 3, ,321 * Note : Excluding Manager s Stock There is neither any significant change to the state affairs of the Fund nor any circumstances that materially affect any interests of the unit holders during the period under review. 6

8 FUND PERFORMANCE DATA Source: HSBC Trustee As at 30 Sept 2015 As at 31 Dec 2014 As at 31 Dec 2013 Total NAV (RM million) NAV per Unit (RM) Units in Circulation (million) Highest NAV Lowest NAV Return of the Fund (%) iii Capital Return (%) i Income Return (%) ii Nil Gross Distribution per Unit (sen) Nil Net Distribution per Unit (sen) Nil Management Expense Ratio (%) Portfolio Turnover Ratio (times) Basis of calculation and assumption made in calculating the returns:- The performance figures are a comparison of the growth/decline in NAV for the stipulated period taking into account all the distribution payable (if any) during the stipulated period. An illustration of the above would be as follow:- Capital return = NAV per Unit end / NAV per Unit begin 1 Income return = Income distribution per Unit / NAV per Unit ex-date Total return = (1+Capital return) x (1+Income return) - 1 i Capital Return = {NAV per NAV per x 100 = { } x 100 = -1.86% ii Total Income Return = {Income Distribution per Unit NAV per x 100 = Nil iii Return of the Fund = [{(1+Capital Return)x(1+Total Income Return)} 1] x 100 = [{(1 + (1.86%) x ( %)} 1] x 100 = -1.86% *Source: HSBC Trustee Past performance is not necessarily indicative of future performance and that unit prices and investment returns may go down, as well as up. 1 The MER was lower in the period under review due to increased average net asset value 2 The PTR was lower over the period under review as the Fund s transaction levels were lesser on cautious market outlook. 7

9 TRUSTEE S REPORT TO THE UNITHOLDERS OF AFFIN HWANG SELECT BALANCED FUND We have acted as Trustee of Affin Hwang Select Balanced Fund ( the Fund ) for the financial period ended 30 September To the best of our knowledge, Affin Hwang Asset Management Berhad ( the Management Company ), has operated and managed the Fund in accordance with the following:- (a) (b) (c) limitations imposed on the investment powers of the Management Company and the Trustee under the Deeds, the Securities Commission s Guidelines on Unit Trust Funds, the Capital Markets and Services Act 2007 and other applicable laws. valuation/pricing is carried out in accordance with the Deeds and any regulatory requirements; and creation and cancellation of units are carried out in accordance with the Deeds and any regulatory requirements. For HSBC (Malaysia) Trustee Berhad Tan Bee Nie Head, Trustee Operations Kuala Lumpur Date: 20 November

10 STATEMENT OF COMPREHENSIVE INCOME FOR THE 3 MONTHS FINANCIAL PERIOD ENDED 30 SEPTEMBER 2015 INVESTMENT LOSS 3 months 6 months financial financial period ended period ended Note RM RM Dividend income 725,912 2,266,686 Interest income 4 2,243,576 5,538,380 Net gain on foreign currency exchange 808, ,049 Net loss on forward foreign currency contracts at fair value through profit or loss - (3,521,966) Net loss on financial assets at fair value through profit or loss 9 (8,808,074) (22,353,734) (5,029,810) (17,139,585) EXPENSES Management fee 5 (1,226,301) (4,015,928) Trustee fee 6 (57,227) (187,410) Auditors' remuneration (1,714) (3,428) Tax agent's fee (895) (1,790) Transaction cost (292,392) (1,275,276) Other expenses (118,110) (35,700) (1,696,639) (5,519,532) NET LOSS BEFORE TAXATION (6,726,449) (22,659,117) TAXATION 7 (3,880) (37,748) NET LOSS AFTER TAXATION AND TOTAL COMPREHENSIVE LOSS FOR THE FINANCIAL PERIOD (6,730,329) (22,696,865) Net loss after taxation is made up of the following: Realised amount 544,119 4,522,413 Unrealised amount (7,274,448) (27,219,278) (6,730,329) (22,696,865) The accompanying summary of significant accounting policies and notes to the financial statements form an integral part of these financial statements. 9

11 STATEMENT OF FINANCIAL POSITION AS AT 30 SEPTEMBER 2015 ASSETS Note RM RM Financial assets at fair value through profit or loss 9 278,634, ,866,365 Cash and cash equivalents 10 23,832,914 26,467,369 Dividends receivables 171, ,700 Amount due from brokers 3,516,371 5,688,552 Tax recoverable - 138,045 TOTAL ASSETS 306,155, ,271,031 LIABILITIES Amount due to Manager - cancellation of units 2,394,044 1,122,353 - management fee 376, ,835 Amount due to Trustee 17,572 29,672 Amount due to brokers - 2,704,143 Auditors remuneration 8,514 3,428 Tax agent s fee 4,445 5,340 Other payables and accruals 34,348 2,507 TOTAL LIABILITIES 2,835,474 4,503,278 NET ASSET VALUE OF THE FUND 303,320, ,767,753 EQUITY Unitholders capital 284,241, ,365,532 Retained earnings 19,079,250 7,402,221 NET ASSETS ATTRIBUTABLE TO UNIT HOLDERS 303,320, ,767,753 NUMBER OF UNITS IN CIRCULATION ,588, ,597,000 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. 10

12 STATEMENT OF CHANGES IN EQUITY FOR THE 3 MONTHS FINANCIAL PERIOD ENDED 30 SEPTEMBER 2015 Unitholders Retained capital earnings Total RM RM RM Balance as at 1 July ,152,281 25,809, ,961,860 Total comprehensive loss for the financial period - (6,730,329) (6,730,329) Movement in Unitholders capital: Creation of units arising from application 3,459,730-3,459,730 Cancellation of units (46,371,009) - (46,371,009) Balance as at 30 September ,241,002 19,079, ,320,252 Balance as at 1 July ,382,384 37,323, ,705,914 Total comprehensive loss for the financial period - (22,696,865) (22,696,865) Distribution (Note 8) - (7,224,444) (7,224,444) Movement in Unitholders capital: Creation of units arising from application 46,532,072-46,532,072 Creation of units arising from distribution 7,046,535-7,046,535 Cancellation of units (65,595,459) - (65,595,459) Balance as at 31 December ,365,532 7,402, ,767,753 The accompanying summary of significant accounting policies and notes to the financial statements form an integral part of these financial statements. 11

13 STATEMENT OF CASH FLOWS FOR THE 3 MONTHS FINANCIAL PERIOD ENDED 30 SEPTEMBER 2015 CASH FLOW FROM OPERATING ACTIVITIES 3 months 6 months financial financial period ended period ended Note RM RM Proceeds from sale of investments 96,786, ,684,570 Purchase of investments (57,520,509) (327,610,247) Dividends received 1,382,269 2,731,232 Interest received 2,535,076 5,342,303 Management fee paid (1,301,204) (4,012,846) Trustee fee paid (60,723) (187,267) Payment for other fees and expenses (122,561) (42,993) Realised losses on forward foreign currency contracts - (2,398,698) Net realised foreign currency exchange gains 6,020,038 88,562 Net cash generated from/(used in) operating activities 47,719,171 (28,405,384) CASH FLOW FROM FINANCING ACTIVITIES Proceeds from creation of units 3,459,730 48,354,136 Payments for cancellation of units (47,980,980) (64,473,106) Payment of distribution - (177,909) Net cash (used in)/generated from financing activities (44,521,250) 16,296,879 NET INCREASE/(DECREASE) IN CASH AND CASH EQUIVALENTS 3,197,921 (44,702,263) EFFECTS OF FOREIGN CURRENCY EXCHANGE 799, ,189 CASH AND CASH EQUIVALENTS AT THE BEGINNING OF THE FINANCIAL PERIOD 19,835,704 70,206,443 CASH AND CASH EQUIVALENTS AT THE END OF THE FINANCIAL PERIOD 10 23,832,914 26,467,369 The accompanying summary of significant accounting policies and notes to the financial statements form an integral part of these financial statements. 12

14 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES FOR THE 3 MONTHS FINANCIAL PERIOD ENDED 30 SEPTEMBER 2015 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 in accordance with the provisions of the Malaysian Financial Reporting Standards ( MFRS ) and International Financial Reporting Standards ( IFRS ), as modified by financial assets at fair value through profit or loss. The preparation of financial statements in conformity with MFRS 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 revenue 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 judgment or complexity, or areas where assumptions and estimates are significant to the financial statements are disclosed in Note N. (a) The new standards and amendments to published standards that are applicable to the Fund but not yet effective and have not been early adopted are as follows: (i) Financial year beginning on/after 1 April 2018 MFRS 15 Revenue from contracts with customers (effective from 1 January 2017) deals 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. This standard is not expected to have a significant impact on the Fund s financial statements. (ii) Financial year beginning on/after 1 April 2019 MFRS 9 "Financial Instruments" (effective from 1 January 2018) will replace MFRS 139 "Financial Instruments: Recognition and Measurement". The complete version of MFRS 9 was issued in November

15 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES A BASIS OF PREPARATION OF THE FINANCIAL STATEMENTS (CONTINUED) (a) The new standards and amendments to published standards that are applicable to the Fund but not yet effective and have not been early adopted are as follows: (continued) (ii) Financial year beginning on/after 1 April 2019 (continued) 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 an 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. This standard is not expected to have a significant impact on the Fund s financial statements. B INCOME RECOGNITION Interest income from short term deposits with licensed financial institutions and unquoted fixed income securities are recognised based on effective interest rate method on an accrual basis. Dividend income is recognised on the ex-dividend date, when the right to receive the dividend has been established. For quoted investments, realised gains and losses on sale of investments are accounted for as the difference between the net disposal proceeds and the carrying amount of investments, determined on a weighted average cost basis. For unquoted fixed income securities, realised gains and losses on sale of investments are accounted for as the difference between the net disposal proceeds and the carrying amount of investments, determined on cost adjusted for accretion of discount or amortisation of premium on investments. 14

16 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES C TRANSACTION COSTS Transaction costs are costs incurred to acquire financial assets or liabilities at fair value through profit or loss. They include the bid-ask spread, fees and commissions paid to agents, advisors, brokers and dealers. Transaction costs, when incurred, are immediately recognised in the statement of comprehensive income as expenses. D DIVIDEND DISTRIBUTION A distribution to the Fund s unitholders is accounted for as a deduction from realised reserve. A proposed distribution is recognised as a liability in the period in which it is approved by the Trustee of the Fund. E TAXATION Current tax expense is determined according to the Malaysian tax laws at the current rate based upon the taxable profit earned during the financial period. Tax on investment income from foreign investments is based on the tax regime of the respective countries that the Fund is invests in. F FUNCTIONAL AND PRESENTATION CURRENCY Items included in the financial statements of the Fund are measured using the currency of the primary economic environment in which the Fund operates (the functional currency ). The financial statements are presented in Ringgit Malaysia, which is the Fund s functional and presentation currency. G FOREIGN CURRENCY TRANSLATION Foreign currency transactions are translated into the functional currency using the exchange rates prevailing at the dates of the transactions or valuation where items are re-measured. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation at period-end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognised in statement of comprehensive income, except when deferred in other comprehensive income as qualifying cash flow hedges. 15

17 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES H FINANCIAL ASSETS AND FINANCIAL LIABILITIES (i) Classification The Fund designates its investment in quoted securities and unquoted fixed income securities 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 loans and receivables comprise cash and cash equivalents, dividend receivables and amount due from brokers. Financial liabilities are classified according to the substance of the contractual arrangements entered into and the definitions of a financial liability. The Fund classifies amount due to Manager, amount due to Trustee, auditors remuneration, tax agent s fee, and other payables and accruals as other financial liabilities. (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 liabilities, within the scope of MFRS 139, are recognised in the statement of financial position when, and only when, the Fund becomes a party to the contractual provisions of the financial instrument. Financial assets are derecognised when the rights to receive cash flows from the investments have expired or have been transferred and the Fund has transferred substantially all risks and rewards of ownership. Financial liabilities are derecognised when it is extinguished, i.e. when the obligation specified in the contract is discharged or cancelled or expires. Gains or losses arising from changes in the fair value of the financial assets at fair value through profit or loss category including the effects of foreign transactions are presented in the statement of comprehensive income within net (loss)/gain on financial assets at fair value through profit and loss in the period which they arise. 16

18 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES H FINANCIAL ASSETS AND FINANCIAL LIABILITIES (CONTINUED) (ii) Recognition and measurement (continued) 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. If a valuation based on the market price does not represent the fair value of the securities, for example during abnormal market conditions or when no market price is available, including in the event of a suspension in the quotation of the securities for a period exceeding 14 days, or such shorter period as agreed by the Trustee, then the securities are valued as determined in good faith by the Manager, based on the methods or basis approved by the Trustee after appropriate technical consultation. Unquoted fixed income securities denominated in Ringgit Malaysia are revalued on a daily basis based on fair value prices quoted by a bond pricing agency ( BPA ) registered with the SC as per the SC Guidelines on Unit Trust Funds. Where such quotation are not available or where the Manager is of the view that the price quoted by the BPA for a specific unquoted fixed income securities differs from the market price by more than 20 basis points, the Manager may use the market price, provided that the Manager: (i) (ii) (iii) records its basis for using non-bpa price; obtains necessary internal approvals to use the non-bpa price; and keeps an audit trail of all decisions and basis for adopting the market yield. Unquoted fixed income securities denominated in foreign currencies are revalued at least twice a week by reference to the mid-price quoted in Bloomberg. We use the Composite Bloomberg Bond Trader (CBBT) which is a weighted average bid and ask of price contributions submitted by Bloomberg Dealers. However if such quotations are not available, the fair value shall be determined by reference to the bid and offer prices quoted by independent and reputable financial institutions. 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 deposit. 17

19 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES H FINANCIAL ASSETS AND FINANCIAL LIABILITIES (CONTINUED) (ii) Recognition and measurement (continued) 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 profit or loss. 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. If, in a subsequent year, 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. I CASH AND CASH EQUIVALENTS For the purpose of statement of cash flows, cash and cash equivalents comprise cash and bank balances and deposits held in highly liquid investments that are readily convertible to known amounts of cash and which are subject to an insignificant risk of changes in value. 18

20 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES J AMOUNTS DUE FROM/(TO) BROKERS Amounts due from and to brokers represent receivables for securities sold and payables for securities purchased that have been contracted for but not yet settled or delivered on the statement of financial position date respectively. These amounts are recognised initially at fair value and subsequently measured at amortised cost using the effective interest method, less provision for impairment for amounts due from brokers. A provision for impairment of amounts due from brokers is established when there is objective evidence that the Fund will not be able to collect all amounts due from the relevant broker. Significant financial difficulties of the dealer, probability that the dealer will enter bankruptcy or financial reorganisation, and default in payments are considered indicators that the amount due from dealers is impaired. Once a financial asset or a group of similar financial assets has been written down as a result of an impairment loss, profit income is recognised using the rate of interest used to discount the future cash flows for the purpose of measuring the impairment loss. The effective interest method is a method of calculating the amortised cost of a financial asset or financial liability and of allocating the interest income or loans expense over the relevant period. The effective interest rate is the rate that exactly discounts estimated future cash payments or receipts throughout the expected life of the financial instrument, or, when appropriate, a shorter period, to the net carrying amount of the financial asset or financial liability. When calculating the effective interest rate, the Fund estimates cash flows considering all contractual terms of the financial instrument but does not consider future credit losses. The calculation includes all fees and points paid or received between parties to the contract that are an integral part of the effective interest rate, transaction costs and all other premiums or discounts. K CREATION AND CANCELLATION OF UNITS The Fund issues cancellable units, which are cancelled at the unitholder s option and are classified as equity. Cancellable units can be put back to the Fund at any time for cash equal to a proportionate share of the Fund s Net Asset Value or NAV. The outstanding units are carried at the redemption amount that is payable as at the date of the statement of financial position if the unitholder exercises the right to put the unit back to the Fund. Units are created and cancelled at the unitholder 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 assets attributable to unitholders with the total number of outstanding units. L UNITHOLDERS CAPITAL The unitholder s capital to the Fund meets the definition of puttable instruments classified as equity instruments under the MFRS 132 Financial Instruments: Presentation. The units in the Fund are puttable instruments which entitle the unitholders to a pro-rata share of the net asset 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 of the Fund. 19

21 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES M SEGMENT REPORTING Operating segments are reported in a manner consistent with the internal reporting used by the 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 strategic asset allocation committee of the Manager that makes strategic decisions. N CRITICAL ACCOUNTING ESTIMATES AND JUDGEMENTS IN APPLYING ACCOUNTING POLICIES The preparation of financial statements in conformity with the Malaysian Financial Reporting Standards requires the use of estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the financial period. Although these estimates are based on the Manager s best knowledge of current events and actions, actual results could differ from those estimates. 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 contents on the estimates, certain key variables that are anticipated to have material impacts to the Fund s results and financial position are tested for sensitivity to changes in the underlying parameters. Estimates and judgements are continually evaluated by the Manager and are based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances. 20

22 FOR THE 3 MONTHS FINANCIAL PERIOD ENDED 30 SEPTEMBER INFORMATION ON THE FUND The Unit Trust Fund was constituted under the name HwangDBS Select Balanced Fund (the Fund ) pursuant to the execution of a Deed dated 1 July 2003, First Supplemental Deed dated 29 December 2005, Second Supplemental Deed dated 18 June 2007 and Third Supplemental Deed dated 15 October The Fund has changed its name from HwangDBS Select Balanced Fund to Hwang Select Balanced Fund as amended by the Fourth Supplemental Deed dated 18 January 2012 and from Hwang Select Balanced Fund to Affin Hwang Select Balanced Fund as amended by Fifth Supplemental Deed dated 27 June 2014 (the Deeds ) entered into between Affin Hwang Asset Management Berhad (the Manager ), HSBC (Malaysia) Trustee Berhad (the Trustee ) and the registered unitholders of the Fund. The Fund commenced operations on 28 July 2003 and will continue its operations until being terminated by the Trustee as provided under Clause 3.1 of the Deed. The Fund may invest in securities traded on the Bursa Malaysia, unlisted securities, futures contracts and any other investments approved by the Securities Commission ( SC ) from time to time. All investments will be subjected to the SC s Guidelines on Unit Trust Funds, the Deeds and the objective of the Fund.. All investments will be subjected to the SC s Guidelines on Unit Trust Funds, the Deed and the objective of the Fund. The main objective of the Fund is to provide investors an affordable access into a diversified investment portfolio containing a balanced mixture of equities and fixed income securities to achieve a balance of growth and income over medium to long term. The Manager is a company incorporated in Malaysia. The principal activities of the Manager are establishment and management of unit trust funds and private retirement schemes as well as providing fund management services to private clients. The financial statements were authorised for issue by the Manager on 20 November

23 2 FINANCIAL INSTRUMENTS, RISK MANAGEMENT OBJECTIVE AND POLICIES Financial instruments are as follows: Financial assets/ at fair Loans and value through Note receivables profit or loss Total RM RM RM Quoted equities 9-133,252, ,252,497 Unquoted fixed income securities 9-145,382, ,382,100 Cash and cash equivalents 10 23,832,914-23,832,914 Dividend receivables 171, ,844 Amount due from brokers 3,516,371-3,516,371 Total 27,521, ,634, ,155, Quoted equities 9-233,560, ,560,663 Unquoted fixed income securities 9-226,305, ,305,702 Cash and cash equivalents 10 26,467,369-26,467,369 Dividend receivables 110, ,700 Other receivables 5,688,552-5,688,552 Total 32,266, ,866, ,132,986 All current liabilities are financial liabilities which are carried at amortised cost. The Fund is exposed to a variety of risks which include market risk (including price risk, interest rate risk and currency risk), credit risk, liquidity 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 by the SC s Guidelines on Unit Trust Funds. Market risk (a) Price risk Price risk arises mainly from the uncertainty about future prices of investments. It represents the potential loss the Fund might suffer through holding market positions in the face of price movements. The Manager manages the risk of unfavourable changes in prices by continuous monitoring of the performance and risk profile of the investment portfolio. 22

24 2 FINANCIAL INSTRUMENTS, RISK MANAGEMENT OBJECTIVE AND POLICIES (CONTINUED) Market risk (continued) (a) Price risk The Fund s overall exposure to price risk was as follow RM RM Quoted equities Quoted equities designated at fair value through profit or loss 133,252, ,560,663 Unquoted investment Unquoted fixed income securities designated at fair value through profit or loss* 145,382, ,305,702 *Include interest receivable of RM1,610,323 (2014: RM2,147,383) The following table summarises the sensitivity of the Fund s profit after taxation and net asset value to price risk movements. The analysis is based on the assumptions that the market price increased by 5% and decreased by 5% with all other variables held constant. This represents management s best estimate of a reasonable possible shift in the unquoted investments, having regard to the historical volatility of the prices Impact on profit after % change in price Market value tax/nav RM RM -5% 263,173,060 (13,851,214) 0% 277,024, % 290,875,488 13,851,214-5% 434,833,033 (22,885,949) 0% 457,718, % 480,604,931 22,885,949 23

25 2 FINANCIAL INSTRUMENTS, RISK MANAGEMENT OBJECTIVE AND POLICIES (CONTINUED) Market risk (continued) (b) Interest rate risk In general, when interest rates rise, unquoted fixed income securities prices will tend to fall and vice versa. Therefore, the NAV of the Fund may also tend to fall when interest rates rise or are expected to rise. However, investors should be aware that should the Fund hold an unquoted fixed income securities until maturity, such price fluctuations would dissipate as it approaches maturity, and thus the growth of the NAV shall not be affected at maturity. In order to mitigate interest rates exposure of the Fund, the Manager will manage the duration of the portfolio via shorter or longer tenured assets depending on the view of the future interest rate trend of the Manager, which is based on its continuous fundamental research and analysis. This risk is crucial in an unquoted fixed income securities fund since unquoted fixed income securities portfolio management depends on forecasting interest rate movements. Prices of unquoted fixed income securities move inversely to interest rate movements, therefore as interest rates rise, the prices of unquoted fixed income securities decrease and vice versa. Furthermore, unquoted fixed income securities with longer maturity and lower yield coupon rates are more susceptible to interest rate movements. Investors should note that unquoted fixed income securities and money market instruments are subject to interest rate fluctuations. Such investments may be subject to unanticipated rise in interest rates which may impair the ability of the issuers to make payments of interest income and principal, especially if the issuers are highly leveraged. An increase in interest rates may therefore increase the potential for default by an issuer. The table below summarises the sensitivity of the Fund s profit after taxation and net asset value to movements in prices of unquoted fixed income securities held by the Fund as a result of movement in interest rate. The analysis is based on the assumptions that the interest rate increased and decreased by 1% (100 basis points) with all other variables held constant. % change in interest rate Impact on profit after tax/nav RM RM basis point (250,935) (776,043) basis point 251, ,933 The Fund s exposure to interest rate risk associated with deposit with a licensed financial institution is not material as the carrying value of the deposit is a reasonable estimate of fair value as the deposit are held on a short term basis. 24

26 2 FINANCIAL INSTRUMENTS, RISK MANAGEMENT OBJECTIVE AND POLICIES (CONTINUED) Market risk (continued) (c) Currency risk Currency risk is associated with investments denominated in foreign currencies. When the foreign currencies fluctuate in an unfavourable movement against Ringgit Malaysia, the investments will face currency losses in addition to the capital gain/(loss). The Manager will evaluate the likely directions of the foreign currency versus Ringgit Malaysia based on considerations of economic fundamentals such as interest rate differentials, balance of payments position, debt levels, and technical chart considerations. The following table sets out the foreign currency risk concentrations and counterparties of the Fund: Unquoted Cash fixed and Other Quoted income cash receivables*/ equities securities equivalents payables** Total RM RM RM RM RM Australian Dollar - - 1,031-1,031 Hong Kong Dollar 27,299,381-2,538, ,630 30,351,318 Indonesia Rupiah 3,194, ,194,513 Korean Won Singapore Dollar 7,556,589 9,638,849 3,452,915 3,054,624 23,702,977 Thailand Baht 3,363, ,363,402 United States Dollar 4,935,548 23,711,933 3,876,293-32,523,774 46,349,433 33,350,782 9,868,556 3,568,254 93,137, Australian Dollar - 1,546, ,547,493 Chinese Yuen - - 3,164-3,164 Hong Kong Dollar 11,899,362-1,216,556-13,115,918 Indonesia Rupiah 5,383, ,383,618 Korean Won 15,451, ,451,966 Singapore Dollar 24,618,728 18,441,872 2,656,301 (2,638,814) 43,078,087 Thailand Baht 9,167, ,167,687 United States Dollar 4,423,629 33,094,300 6,581,058 44,098,987 Philippines Peso 5,228, ,228,986 76,173,971 53,082,774 10,457,975 (2,638,814) 137,075,906 * Other receivables consist of dividend receivables and amount due from brokers. ** Other payables consist of amount due to brokers. 25