SIP Balanced Portfolio (Jul 2018) # Fund Information (31 Jul 2018) SIPBAL KULSIPBAL Bid Price/Unit NAV USD

Transcription

1 MANULIFE INVESTMENT FUNDS SIP Balanced Portfolio (Jul 2018) # Fund Information (31 Jul 2018) SIPBAL KULSIPBAL Bid Price/Unit NAV USD Investment Objective Fund Size USD 4.43 million SIP Balanced Portfolio is a unitized fund, which is designed to provide medium Units in circulation 3.28 million to long term capital growth for those who hold a long term investment view and Fund Currency USD who are prepared to accept fluctuations in the value of their investments in order Launch Date 23 July 2008 to achieve long term returns. Management Fee 1.20% p.a. Dealing Daily FUND PERFORMANCE SINCE INCEPTION Portfolio Breakdown 1 (23 July 2008 to 31 July 2018) Equities 50% 40% 30% 20% 10% 0% -10% -20% -30% Jul-08 Jul-09 Jul-10 Jul-11 Jul-12 Jul-13 Jul-14 Jul-15 Jul-16 Jul-17 Jul-18 Fund Graph depicts returns calculated on NAV to NAV basis Source: Bloomberg MGF - American Growth Fund (A Share) 20.0% MGF - European Growth Fund (A Share) 7.5% MGF - Global Property Fund (AA Share) 5.0% MGF - US Small Cap Equity Fund (AA Share) 3.9% MGF - Japanese Growth Fund (A Share) 2.4% MGF - Asian Equity Fund (A Share) 0.9% MGF - Global Resources Fund (AA Share) - Bonds and Others MGF - US Bond Fund (AA Share) 41.4% MGF - US Special Opportunities Fund (AA Share) 13.1% MGF - US Treasury Inflation-Protect Fund (AA Share) 4.1% Liquidity and others 1.7% Fund Performance Performance SIP Balanced Portfolio 1 Month 0.42% 3 Months 0.31% 6 Months -3.05% YTD -2.17% 1 Year -0.64% 3 Years 3.21% 5 Years 8.58% Since Inception 35.22% *Source: Bloomberg Note: Fund's performance is calculated on NAV to NAV. The value of units may go up as well as down. ¹The percentages presented hereof are internally sourced and computed for indication purposes only

2 Asia Pacific ex Japan Asia equity markets ticked higher in July on the back of a rebound in ASEAN markets and strong corporate earnings amid continued US- China trade tensions. Regional corporate earnings also stayed strong for the second quarter as forecast earnings-per-share (EPS) growth for 2018 stayed robust, although future estimates showed downward pressure. In China, rising trade tensions and economic slowdown worries sent China s equity markets lower. The US and China placed reciprocal 25% tariffs on US$34 billion, with more tariffs threatened by the US government. Although second-quarter GDP came in at consensus, fixed asset investment, and industrial production growth slowed for June indicating sluggish demand. In response to these economic pressures, the Chinese government released a raft of economic supportive measures as the State Council announced a fiscal stimulus package, while the People s Bank of China (PBoC) injected funds into the banking market. Strong performance by large cap technology stocks led Taiwan s equity market higher in July. Large-cap technology stocks (particularly semiconductors) were the main contributor to the market s positive performance: better-than-expected second quarter sales and earnings prints, as well as higher earnings guidance, helped the IT sector outperform. South Korea equity markets were impacted by negative economic data with continued US-China trade friction. Second-quarter GDP came in marginally below expectations due to a deceleration in capital investment and exports, while export growth also slowed in June. The macro backdrop in India turned favourable as crude oil prices declined which helped ease concerns about current account pressures, thus bringing some stability to the country's currency. The rebound of ASEAN markets was the main positive regional catalyst. After a difficult second quarter, relief rallies in Southeast Asia provided strong support as macroeconomic headwinds subsided and capital outflows lessened or even turned positive. In Indonesia, equity markets rebounded into positive territory in July after a volatile second quarter. The country s financial markets showed signs of stabilisation after substantial capital outflows in the previous quarter: the rupiah stabilised and foreigners were net buyers (US$54 million), breaking the streak of five consecutive months of outflows. In Thailand, strong earnings among financials and positive domestic demand data propelled Thailand to the top regional performer in July. The four largest banks posted above-consensus second-quarter earnings that bolstered market sentiment and sparked a sector rotation back to exporters and domestic-demand driven stocks. Equities remain an attractive asset class in 2018 as earnings growth is expected to sustain through the year, thanks to a more broadbased recovery in the global economy. Significant reforms have taken place in the past two years and most Asian economies are more resilient to an interest rate tightening cycle compared to the period of the first taper tantrum. We expect that economic growth in the region will be supported by a relatively benign interest rate environment as inflation stays at reasonable levels. More importantly, valuations remain undemanding. China has clearly stated its plan to promote stable and quality growth. We expect deleveraging to continue. Balance sheet and cash flow strengths remain the key factors to consider in stock selection. Consumer price index (CPI) is expected to gain momentum and consumer companies with pricing power are expected to outperform. The real estate sector is expected to remain stable. However, we expect the cycle will shift in favour of the larger companies as the industry begins to consolidate amid a tighter liquidity environment. The energy sector in China has underperformed its regional peers last year. As oil price rises further, we expect interest will return to the sector as valuations appear attractive and earnings expectations are low. In Taiwan, we expect upstream tech suppliers to continue to deliver robust growth, thanks to rising demand for higher processing power and speed from artificial intelligence and Internet-of-Thing products. With the proliferation of interest in e-sports and PC games, growth momentum in the PC and mobile gaming supply chain is expected to accelerate in the second half of Similarly, interest in the Apple supply chain is expected to return in the second half of 2018 as we enter the season of new product launches. In South Korea, domestic demand is expected to recover thanks to a stronger domestic economy supported by robust export growth. We see strength in outbound tourism. The thawing of geopolitical tension between China and South Korea also raised hope of a recovery in inbound tourism. We continue to like the banking sector as loan growth and asset quality remain healthy. The South Korean banks have outperformed their regional peers in terms of recovery in asset quality and return on equity but stocks are undervalued relative to their regional peers. In Southeast Asia, the regime change in Malaysia is expected to create some uncertainties in the near term. Major projects initiated by the previous government will either be reviewed or cancelled. However, the impact of slower government infrastructure spending is expected to be offset by domestic consumption following the removal of the Goods and Services Tax (GST) and reduction of expressway toll tariffs. The Indonesian market continued to be hit by outflows in June. The central bank raised interest rate by 100 basis points (bps) in the past two months to ease pressure on the Indonesian rupiah and liquidity flight. While the contagion risk should not be taken lightly, we believe the fundamentals of the Indonesia economy remain robust and our long-term growth thesis of the market remains unchanged. GDP growth in Thailand has continued to gather pace and the rebound in rice prices should bode well for domestic consumption in due course. North America Positive US economic data and better-than-expected quarterly earnings drove the US stock market to its best monthly gain since January. In the US equity market, stocks in the industrials sector were notable outperformers, especially following late-period concessions from the EU that eased trade tensions. The healthcare and financials sectors also stood out. In contrast, energy stocks disappointed as oil prices pulled back. More defensive, dividend-paying sectors also were laggards. Page 2 of 5

3 We remain cautiously optimistic about the stock market s prospects, given that the US economy is in good shape, interest rates are still relatively low, the banking system is solid, and consumer balance sheets seem healthy. Plus, we ve seen some progress on trade issues and demand for housing continues to outstrip supply. The Fund has retained an economically sensitive bias, with overweightings at period end in the consumer discretionary and financials sectors. Europe European equities were buoyed by an easing of trade tensions between the US and Europe, as US President Trump appeared to focus his efforts on persuading China to liberalise its economy. However, second-quarter results showed that metal tariffs and trade war uncertainty had impacted some European exporters, which suffered from deferred orders and gross margin pressure on rising steel costs. Having led the market year-to-date, the energy sector was the laggard this month. Investors were concerned about the risk of near-term oversupply of crude oil after Russia and the Organization of the Petroleum Exporting Countries (OPEC) agreed to raise production to offset the impact of fresh sanctions on Iran. Financials were strong in July, benefiting from a rise in long bond yields driven by global monetary tightening, which should improve banks lending margins. The healthcare sector rose on a multitude of upgrades following better-than-expected second-quarter results. It has become more difficult to find value in general as the stock market has recovered again. Good long-term opportunities still exist in idiosyncratic stock situations, although we will likely encounter many unattractive opportunities along the way. A modestly rising interest rate environment with gentle economic expansion such as the one we are in now should be positive for financial companies, as it typically translates into stronger earnings. For this reason, we continue to hold a favourable view of this sector. The difficulties the banks faced following the global financial crisis are no longer a major factor owing to the banks far higher capital reserves. Within non-bank stocks in the financials sector, we like the exchanges and long-term emerging markets growth story as opportunities for some of our holdings. Elsewhere, we believe oil and mining companies still offer ongoing restructuring and rising cash generation stories. In our view, a good number of companies are trading at attractive dividend yields, backed by healthy cash flows at current commodity prices. The restructuring efforts will likely continue to reduce cash operating costs, while capital expenditure spending may fall to levels that can generate substantial cash flows to be returned to shareholders. One business we like, for example, in the oil industry, is promising much higher cash flows and dividends that are attractive at current oil prices. Therefore, we do not need to take a specific view on oil price appreciation. The new projects that this business has yet to fund offer more than 20% internal rates of return at US$50, as it has cut operating and capital expenditures costs thus far. Japan The market rose slightly in July as global markets experienced a relief rally due to fading concerns over Trump tariffs. The biggest issue under discussion over the month was what action the Bank of Japan (BoJ) might take in terms of tightening monetary policy and reducing its purchase of equity exchange-traded funds (ETF). In the end, the BoJ made almost no change. It increased the allowable range for the 10-year JGB yield from 10 basis points (bps) to 20 bps above 0% and decided to switch some of its Nikkei ETF purchases into Topix ETF purchases. The best performing sectors over the month were oil, mining, and banks while the worst performing sectors were retail, food, and textiles. Oddly, the oil and mining sectors performed well despite a decline in the oil price over the month. Fiscal year 2018 (to year end in March) was a strong year for both the Japanese economy and the equity market. After a weak start due to conservative forecasts based on a stronger currency, the market rallied on upward earnings revisions driven by demand for machinery and technology exports, as well as support from the domestic economy. We expect the same to be true for fiscal year 2019, despite the concerns over eurozone politics and Trump s imposition of tariffs in some sectors. As well as a continued positive outlook for global economic growth, we are expecting to see a more inflationary domestic economy which would be supportive to the financial sector. Domestic demand from construction and other sectors in the run-up to the Tokyo Olympics in 2020, combined with the tight labour market, should lead to further pressures on the inflation rate. Mr Kuroda has retained his role as governor of the BoJ and will continue to pursue the stated target of 2% inflation. Japan remains the cheapest developed market on both price to earnings and price to book. Japan s return on equity (ROE) has also been steadily improving and currently stands at 9%. We believe this could reach 10% by Although this is still well below the US (18%), it is on a faster growth path. One of the drivers for higher ROE is the record level of share buybacks. Most Japanese corporates have a net cash position giving them ample opportunity to make further buybacks in Page 3 of 5

4 Global Developed equity markets performed well over the month as investor sentiment recovered. Diminishing trade frictions between the US and some of its trading partners were key to these gains, along with continued corporate earnings growth. US equities remained strong in July as economic data for the month and second calendar quarter of 2018 remained positive, highlighted by a 4.1% quarter-on-quarter rise in GDP. Nearly 90% of US companies reported corporate earnings that surpassed estimates in July. Europe rallied during the month as recent discussions between the US and the EU put plans for tariffs on automobiles and other EU goods on hold. In contrast, trade tensions between the US and China escalated, and corporations expressed concern about the impact of tariffs between the two countries on the global economy. Emerging markets reported a monthly gain for the first time since January, led by currency strength in Latin America. Healthcare was the best-performing sector, while the consumer discretionary sector lagged. The IT sector especially e-commerce and internet technology stocks struggled in response to disappointing subscriber and revenue growth from prominent industry leaders. Large-capitalisation stocks and value stocks outperformed small-capitalisation and growth stocks during the month, which is a notable shift from the second quarter. Global equities reported solid results during the month despite ongoing global trade tensions and their effect on the global economy. In our view, these tensions could lead to the unwinding of globalisation and borderless supply chains, factors that in the past have contributed to corporate margin expansion and muted price inflation. We believe global cyclical companies could be vulnerable in this environment, as escalating trade disputes would likely damage growth, margins, and the overall cash flow of these companies. While our portfolio has some exposure to cyclical stocks, it is broadly more defensive, and we believe it should be well prepared for a possible escalation in trade concerns. Our analysis shows that debt levels have risen, even as profit margins appear to be near peak levels. We believe solid global economic growth should translate into double-digit earnings growth, but our concern is that current valuations have largely priced this in. Valuation concerns aside, we believe there are additional macroeconomic issues that should be a focus for investors. The Fed appears committed to increasing the federal funds rate, supported by early signs of inflation in the economy. In addition, tight labour markets appear to be affecting employment costs, and commodity prices have risen partly in response to potential tariffs. However, disinflationary forces should limit the Fed to three or four interest rate increases this year. Negative demographics (where younger workers are replacing an older, more expensive workforce), alongside a surplus of inexpensive labour and technology, continue to hamper wage growth. International markets, on the other hand, have experienced weaker inflation numbers. We maintain an overweight allocation to international markets as they are at extended valuation discounts relative to the US on a historical basis. However, given the previously mentioned risk to cyclical stocks, US positions could prove more favourable if investors begin looking for safe havens. We continue to focus on companies that have enduring businesses; strong management teams with solid track records of effective capital allocation; strong balance sheets; and sustainable free cash flow. We continue to view the US financials sector positively, although we remain cautious of European firms within the sector. We also continue to favour sustainable, quality franchises across sectors, but we recognise that in a growth environment, the benefits that these companies provide in the event of a market decline may not be valued in the short term. As our portfolio is focused on valuation, momentum markets may prove challenging as the portfolio seeks to provide protection against potential market downturns. Growth stocks remain the best performers so far this year, relative to value and income stocks. Growth stocks have historically declined the most during market downturns, however, and we believe this will likely happen again, especially at their current valuations. July was a significant month for stock selection within the IT sector, as investors witnessed pressure on the handful of growth stocks that had been largely defining the market s performance so far this year. Meanwhile, the value-oriented IT sector companies performed well for the month. Broadly speaking, July was a positive month for value investors, as well as for stocks with quality, income, and/or bond-like characteristics. The SIP Balanced Portfolio is managed by Manulife Asset Management Services Berhad and is fund of funds structures. It invests all or substantially all of its assets into the Underlying Funds under the Manulife Global Fund platform. Please refer to the Portfolio Breakdown for the list of the Underlying Funds and the allocation. Past performance is not an indication for future results. This report is prepared for information purposes only. Important Notes: The fund performances are strictly the performance of the investment-linked (IL) fund and not to be treated as the gross premium/contribution of the IL insurance product. In the event of exceptional circumstances, such as high volume of sale investment within a short period of time, Manulife Insurance Berhad ("the Company") reserves the right to defer or suspend issuance or redemption of units. Page 4 of 5

5 Investment in the fund is subject to certain risks, including but not limited to: Risk Type Description Risk Management (Bond funds) Risk Management (Equity funds) Fund Management Risk The selection of securities which make up the investments of the fund is subjective and securities selected may perform better or worse than overall market. To mitigate this risk, the investment Manager has in place a disciplined investment process and practices prudent risk management. Manager has in place a disciplined investment process and practices prudent risk management. In addition, risk is also monitored through risk models. Liquidity Risk The risk of the funds being unable to meet their obligations at the reasonable cost or at any time. Manager will review and monitor the Fund continuously, and actively manage asset allocations of the Fund. In addition, the investment Manager will practice prudent liquidity management to enable the Fund to meet short term obligations. Manager will review and monitor the Fund continuously, and actively manage asset allocations of the Fund. In addition, the Investment Manager will practice prudent liquidity management. Market or Price Risk Market risk arises when the value of the securities fluctuate in response to the general market and economic conditions. The Investment Manager will attempt to diversify the portfolio, and monitor the investment climate and market conditions to take measures, where necessary and appropriate, to mitigate this risk. This may include lowering the fixed income exposure and/or reallocating the investments into more defensive investment instruments such as cash, deposits and/or other money market instruments. This risk is managed through sector/stock diversification and asset allocation. This risk is managed through sector/stock diversification and asset allocation. This may include reallocating the investments into more defensive investment instruments such as cash, deposits, money market and/or other fixed income instruments. Timing Risk Company / Stock Specific Risk Interest Rate Risk The risk is subject to the volatility of the market/interest rate. The risk of loss due to the fall of stocks/shares prices given the deteriorating business condition. The Investment Manager will manage it based on its professional knowledge and experienced investment skill. Timing risk will be managed via technical tools (i.e. from Bloomberg) as well as based on the Investment Manager's professional knowledge and experience investment skill. N/A Manager will be performing continuous research and analysis on the balance sheet strength, earnings generation capability and strength of management team of the company. The interest rate is a general economic This risk will be mitigated via the N/A indicator that will have an impact on the management of the duration of the fixed management of the Fund. This risk refers income securities. to the effect of interest rate changes on the market value of fixed income securities. In the event of rising interest rates, prices of fixed income securities will decrease and vice versa. Meanwhile, fixed income securities with longer maturities and lower coupon/profit rates are more sensitive to interest rate changes. Inflation Risk This is the risk that investors' investment in The risk may be mitigated by investing in N/A the Fund may not grow or generate income fixed income securities that can provide at a rate that keeps pace with inflation. positive real rate of return. Credit Risk The risk of loss due to the counter party's Credit risk may be managed by N/A inability to make payment of coupon/profit performing continuous fundamental and/or principal. credit research and analysis to ascertain the creditworthiness of its issuer. Page 5 of 5