Interim Report March For the Period Ended 31 March 2016

Transcription

1 Interim Report March 2016 For the Period Ended 31 March 2016

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3 I NTERIM REPORT MARCH 2016 Contents CORPORATE DIRECTORY 2 MANAGER S REPORT Fund Information, Performance & Review 3 Market Review & Outlook 9 TRUSTEE S REPORT 11 STATEMENT BY THE MANAGER 11 UNAUDITED FINANCIAL STATEMENTS FOR 12

4 C O R P O R A T E D I R E C T O R Y MANAGER Areca Capital Sdn Bhd ( D) 107, Blok B, Pusat Dagangan Phileo Damansara 1 No. 9, Jalan 16/11, Off Jalan Damansara Petaling Jaya, Selangor Tel: , Fax: website: invest@arecacapital.com BOARD OF DIRECTORS Dato Wee Hoe Gooi Hoe Soon (Independent, Chairman) Wong Teck Meng (Executive) Raja Datuk Zaharaton Bt Raja Dato Zainal Abidin (Non-Executive Non-Independent) Dr. Junid Saham (Independent) INVESTMENT COMMITTEE MEMBERS Dato Wee Hoe Gooi Hoe Soon (Independent, Chairman) Raja Datuk Zaharaton Bt Raja Dato Zainal Abidin (Non-Independent) Dr. Junid Saham (Independent) AUDIT COMMITTEE MEMBERS Dato Wee Hoe Gooi Hoe Soon Wong Teck Meng Dr. Junid Saham TRUSTEE Maybank Trustees Berhad (5004-P) 8th Floor, Menara Maybank 100 Jalan Tun Perak Kuala Lumpur Tel: Fax: AUDITOR PricewaterhouseCoopers (AF1146) Level 10, 1 Sentral, Jalan Travers Kuala Lumpur Sentral, P O Box Kuala Lumpur Tel: , Fax: TAX ADVISER PricewaterhouseCoopers Taxation Services Sdn Bhd ( M) Level 10, 1 Sentral, Jalan Travers Kuala Lumpur Sentral, P O Box Kuala Lumpur Tel: , Fax: M A N A G E R S O F F I C E A N D B R A N C H E S HEAD OFFICE 107, Blok B, Pusat Dagangan Phileo Damansara 1, No. 9, Jalan 16/11, Off Jalan Damansara, Petaling Jaya, Selangor Tel: , Fax: website: invest@arecacapital.com PENANG PULAU TIKUS Belissa Row Jalan Burma, Georgetown Pulau Pinang Tel : Fax: PERAK IPOH 11A, (First Floor) Persiaran Greentown 5 Greentown Business Centre Ipoh, Perak Tel : /6698 Fax: MALACCA 95A, Jalan Melaka Raya 24 Taman Melaka Raya Melaka Tel : Fax:

5 F U N D I N F O R M A T I O N Name of the Fund Fund Category/ Type Objective of the Fund Benchmark Distribution Policy of the Fund Profile of Unit Holdings * excluding units held by the Manager Equity / Growth To provide investors with an opportunity for capital growth. MSCI AC Asia Ex Japan Index (obtainable from Bloomberg) Incidental. In the absence of instruction to the contrary from a Unit Holder, the Manager is entitled to reinvest the income distributed from the Fund in additional Units of that Fund at the NAV per Unit at the end of the distribution day with no entry fee. As at 31 March 2016 No. of Size of Holding No. of % units held % (Units) accounts million Up to 5, ,001 to 10, ,001 to 50, ,001 to 500, ,001 and above Total* Rebates & Soft Commissions The Management Company retains soft commissions received from stockbrokers, provided these are of demonstrable benefit to the Unit Holders. The soft commissions may take the form of goods and services provided such as data and quotation services, computer software and investment related publications incidental to the management of the Fund. Cash rebates, if any, are directed to the account of the Fund. During the period under review, the Manager had not received any soft commissions. Inception Date 12 March 2010 Commencement Date Initial Offer Price 12 April 2010 RM per unit during the initial offer period of 21 days ended 1 April 2010 Pricing Policy Single Pricing Selling and repurchase of units by Manager are at Net Asset Value per unit Financial year end 30 September 3

6 F U N D P E R F O R M A N C E NET ASSET VALUE ( NAV ) as at 31 March Total Net Asset Value (RM million) Units in circulation (million units) NAV per unit (RM) HIGHEST & LOWEST NAV PER UNIT for the period ended 31 March Please refer to Note 1 for further information on NAV and pricing policy Highest NAV per unit (RM) Lowest NAV per unit (RM) ASSET ALLOCATION % of NAV as at 31 March Quoted equities & equity-related securities (Local) Main Market Construction Consumer Products Finance Industrial Products Infrastructure Project Co Plantations Properties Technology Trading / Services Quoted equities & equity-related securities (Foreign) Agriculture Conglomerates Consumer Goods Consumer Services ETF Finance Financials- Insurance Industrial Goods/ Products Information Technology Fixed Income Collective Investment Scheme Cash & cash equivalent including placements & repo DISTRIBUTION & UNIT SPLITS There was no unit split exercise for the financial period under review EXPENSE/ TURNOVER for the period ended 31 March Management expense ratio (MER) (%) Please refer to Note 2 for further information Portfolio turnover ratio (PTR) (times) Please refer to Note 3 for further information 4

7 TOTAL RETURN for the period ended 31 March Please refer to Note 4 for further information F U N D P E R F O R M A N C E Total Return (%) Capital Return (%) Income Return (%) Annual Total Return (%) MSCI AC Asia Ex Japan Index (%) yr 3-yrs 5-yrs Average Total Return (%) NOTES: Note 1: Selling of units by the Management Company (i.e. when you purchase units and invests in the Fund) and redemption of units by the Management Company (i.e. when you redeem your units and liquidate your investments) will be carried out at NAV per unit (the actual value of a unit). The entry/ exit fee (if any) would be computed separately based on your net investment/ liquidation amount. Note 2: MER is calculated based on the total fees and expenses incurred by the Fund, divided by the average net asset value calculated on a daily basis. The increase in MER for the period is mainly due to the decrease in fund size. A lower average net asset value compounded with an increase in fund expenses has increased the Fund s MER for the period. Note 3: PTR is computed based on the average of the total acquisitions and total disposals of the investment securities of the Fund, divided by the average net asset value calculated on a daily basis. A drop in PTR was caused mainly by the fall of RM3.3 mil in the average total acquisitions & disposals compared to the previous period. With a challenging Q and Q fund managers were very prudent with stock selection and country allocation. Note 4: Fund performance figures are calculated based on NAV to NAV and assume reinvestment of distributions (if any) at NAV. The total return and the benchmark data are sourced from Lipper. Past performance is not necessarily indicative of future performance. Unit prices and investment returns may go down, as well as up. 5

8 F U N D R E V I E W The Fund via the Deed dated 12 November 2009, as modified by the First Supplemental Deed dated 17 December 2012 and Second Supplemental Deed dated 6 October 2015, replaced the former Trustee, Deutsche Trustees Malaysia Berhad, to the current Trustee, Maybank Trustees Berhad. Danny Wong was fully responsible for the overall portfolio management of the Fund (UOB Asset Management (Malaysia) Berhad is no longer the appointed external fund manager for the Fund). While the overall strategy remains unchanged, the Manager balanced the focus on stock selection and country allocation, taking into account costs of investing offshore and foreign currencies exchange exposure. The small-size fund in general may affect the performance of the Fund due to higher Management Expense Ratio (MER), especially in terms of cost of investing offshore. During the period from October 2015 to March 2016, the Fund s Net Asset Value (NAV) per unit increased by 1.86% compared to benchmark return (MSCI Asia Ex-Japan) of -6.77%. The Fund achieved its objective of providing investors with an opportunity for capital growth for the period under review. The Fund outperformed its benchmark mainly due to country allocation. The Fund was overweight Malaysia with a circa 80% in MYR assets (MYR +11.8% during the period), in particular small caps. The small caps index better performed than the big caps market in Bursa with 6.4% in 6 months period under review. The Fund has a 21% exposure to two Exchange Traded Funds (ETFs) listed in HongKong as at Mar 2016, which underperformed the Hang Seng and Shanghai Composite index. Investment Policy and Strategy The Fund will invest in domestic and Asian equities and equity-related securities with capital growth potential including collective investment schemes with similar objective as the Fund. Equity-related securities include but not limited to different classes of shares, warrants, options and convertible securities that are related to the listed securities. The Fund s minimum and maximum exposures in equities and equity-related securities are 70% and 98%of the Fund s NAV respectively. The Fund will maintain at least 2% of the Fund s NAV in liquid assets at all times. In achieving its objective, we may employ an aggressive investment strategy with frequent review of portfolio allocation and actively transact in securities. Besides Malaysia, the Fund may invest into foreign markets which include China, Hong Kong, Indonesia, Thailand, Singapore, Taiwan, Korea and other permitted markets within the Asia region. NAV per unit as at 31 March 2016 RM

9 F U N D R E V I E W Asset Allocation/ Portfolio Composition as at 31 March % 15.98% 21.46% 48.30% Equities and equity related Securities - local 48.30% 55.63% 34.35% - foreign 21.46% 27.48% 60.14% Fixed income collective investment scheme 15.98% - - Cash & cash equivalents 14.26% 16.89% 5.51% Total assets held as stocks fell this period mainly due to the Fund s continued strategy on stock picking focusing on sectors and companies that were still solid and growing despite the challenges in the domestic and global economy. 7

10 F U N D R E V I E W Performance of for the financial period since inception to 31 March 2016 Total Return of vs Benchmark MSCI AC Asia ex Japan Areca growthtrust 8

11 MARKET REVIEW & OUTLOOK ECON OMIC REVIEW & OUTLOOK It was an eventful period during the last 6 months. From the largest economy in the world, we waited with bated breath to what seemed like an eternity for the first United States (US) rate hike in more than 9 years (after 7 years of zero interest rates policy) in mid-december Unemployment trended down and recorded 5% in March 2016, virtually at full employment. The advanced release of US real Gross Domestic Product (GDP) showed growth decelerating to an annualised pace of 0.5% in 1Q 2016, the slowest pace in two years, from +1.4% in 4Q 2015 and compared with +2.0% in 3Q, due to a slowdown in consumer spending and further consolidation in private investment and exports. It is expected that the US may have another 1 to 2 time interest rate adjustment in the next 12 months, hinging on external risks. China s GDP, now at 60% that of the US (vs 20% 10 years ago) continues to moderate after hitting US10trn in Q12016 GDP grew at 6.7% year-on-year (yoy) compared with Q3 and Q of 6.9% and 6.8% respectively, The only other times it dipped below 7% in the last 30 years were during the Asian Financial Crisis and at the start of the sub-prime crisis. China s GDP will continue to moderate over the next few years, but hard landing could be remote. China s declining growth has been blamed for plunging oil prices. Crude Brent oil slid from over USD50 per barrel in September 2015 to USD27.88 on 20 th Jan before recovering to USD39.60 a barrel on 31 March Other factors are the strong USD (3.20 mid 2014 against MYR vs 4.30 at end of 2015), increased supply (from unyielding Organisation of Petroleum Exporting Countries (OPEC) oversupply and impending oil from Iran following lifting of economic sanctions) and marked increase in US oil reserves stockpile. Oil since then recovered to USD45 a barrel end of April 2016 as USD weakened. Other events during the period included Indonesia starting an easing cycle a move which was well received by the markets. The Bank of Japan surprised the market with negative policy rates in Jan Commodities including crude oil saw some strength since beginning of the year. Generally commodity is on an uptrend albeit remained uncertain on supply and demand. Apart from these external headwinds, Malaysia continues to be embroiled in political instability and embarrassing financial scandals. International rating agencies were on our backs, as our oil revenue dependant budget raised doubt on our ability to retain fiscal discipline. As foreign funds exited our system, MYR weakened from 3.80 to test Asian Financial crisis levels circa 4.45 to USD. It closed the year at As oil price rebounded, MYR strengthened to close 1Q2016 at 3.9. Malaysia s real GDP growth moderated further to 4.5% y-o-y in 4Q 2015, slowing from +4.7% in 3Q and +4.9% in 2Q, resulting in the annual GDP slowing to 5.0% in 2015, from +6.0% in Inflation had been contained thus far with exception of February at 4.2% yoy before it slows back to 2.6% in March It registered 2.1% for the With the help of weaker MYR, exports remain strong with Trade Surplus for 2015 in excess of RM94 bil (18th consecutive year of surplus). The foreign exchange reserves narrowed in Q but recovered in Q1 to USD97.0bn as at 31 March 2016, likely attributed to a surge in capital inflows following the US Federal Reserve s decision to slow down its pace of rate hikes in mid-march. Consumer sentiments continue to be weak but expect retail consumption to stabilize towards the year end. EQUITY MARKET REVIEW, OUTLOOK AND STRATEGY During the period under review, the MSCI AC Asia Ex-Japan index lost 7.2% in MYR term whilst the Bursa key composite index gained near 6.0%. Indonesia, Malaysia and Thailand led the gainers while Japan, China and Hong Kong were among the laggards in the region. The Q was very challenging for Malaysian bourse due to low commodities price, weak MYR, dismal corporate earnings and down-trend consumer sentiments. The portfolio outflow was the major culprit for the sell-off in equity market since 2014 in anticipation of the US Federal Reserve interest rates (Fed Rate) upward adjustment. The concern on China s slower growth added on the 9

12 selling pressure. During this period, the Malaysian Government announced some measures to boost the economy, to cushion the weakening MYR and to ease the impact on higher cost of living. Valuecap Sdn Bhd was reactivated to buy undervalued shares on Bursa. The announcements by 1MDB of deals to trim down its debts were well received by equity investors. Shares price recovered from 1,621 at Sep 2015 to 1, at the end of the year amid low oil price ($37.28 a barrel) and weak MYR (4.29 / USD) begun on a bearish note as the Malaysian bourse was caught in the global selloff, which saw the benchmark index testing the 1,600 point support level. Crude oil price hit lowest at $27.88 on 20 th January. However, market sentiment turned positive towards the end of the month on the back of the Budget 2016 recalibration announced by the Prime Minister and the rapid strengthening of the Ringgit, which attracted foreign inflows back into the Malaysian market. Commodities saw some strength in Q12016 seemed positive to Bursa Malaysia. Dollar strength stalled, dovish central banks, moderation in concerns over capital outflows from China, policy easing in Emerging Asia were the key catalysts for the rally in Asian markets equities and currencies. The domestic equities rally was driven mainly by foreign fund inflows, with foreigners registering net inflows of RM6.1bn for the month of March alone. This compares to a net outflow of RM19.5bn in 2015 and total net inflow of RM5.5bn year to date. Foreign buying has also spurred the ringgit to strengthen 7.2% to RM3.90 against the dollar. Brent Crude was the best performing commodity, up 8% and closed the quarter at $39.60 a barrel. The domestic benchmark index closed at 1, Moving forward, with the expectation of the Federal Rate adjustment would be less than 2 times in the year, coupled with recovery of commodities prices and potential stabilization of China s economy, Emerging Markets especially Asia and Asean may appeal to funds from developed markets. On the domestic front, the announcement on the infrastructure projects and the recovery of consumer sentiment (with the declining negative effect of GST) along with improvement in foreign inflow due to potential recovery of commodities prices may be beneficial to equity market, though could be volatile in short term. As such the fund may continue to be well invested and employ more focus on stock picking approach selecting companies with solid book orders, potentially benefitting s from contract flows and recovery of commodities price. Sectors to watch include construction, manufacturing, plantation, oil and gas and specialized industries. 10

13 T R U S T E E S R E P O R T For The Period Ended 31 March 2016 To the Unit holders of We have acted as Trustee of ( the Fund ) for the financial period ended 31 March In our opinion, Areca Capital Sdn Bhd ( the Manager ) has managed the Fund in the financial period under review in accordance with the following:- 1. The limitations imposed on the investment powers of the Management Company and the Trustee under the Deeds, the Securities Commission Malaysia s Guidelines on Unit Trust Funds, the Capital Markets and Services Act 2007 and other applicable laws; 2. The valuation or pricing of the Fund is carried out in accordance with the Deeds and any regulatory requirements; and 3. The creation and cancellation of units are carried out in accordance with the Deeds and any regulatory requirements. For Maybank Trustees Berhad (Company No: 5004-P) ANIS AWATIF BT ZAKARIA Associate Director Kuala Lumpur 18 May 2016 S T A T E M E N T B Y T H E M A N A G E R To the Unit holders of We, Wong Teck Meng and Dato Wee Hoe Gooi Hoe Soon, being two of the Directors of Areca Capital Sdn Bhd, do hereby state that in our opinion as the Manager, the unaudited financial statements are drawn up in accordance with the provisions of the Deed and give a true and fair view of the financial position of the Fund as at 31 March 2016 and of its financial performance, changes in equity and cash flows of the financial period ended 31 March 2016 in accordance with the Malaysian Financial Reporting Standards and International Financing Reporting Standards. For and on behalf of the Manager ARECA CAPITAL SDN BHD WONG TECK MENG EXECUTIVE DIRECTOR DATO WEE HOE GOOI HOE SOON INDEPENDENT DIRECTOR Kuala Lumpur Kuala Lumpur 18 May May

14 UNAUDITED STATEMENT OF FINANCIAL POSITION As At 31 March 2016 Note RM RM ASSETS CURRENT ASSETS Financial assets at fair value through profit or loss 6 1,129,304 2,037,270 Cash and cash equivalents 7 157, ,164 Amount due from a stockbroker 50,000 84,285 Dividend receivable 864 3,772 TOTAL ASSETS 1,337,302 2,471,491 LIABILITIES CURRENT LIABILITIES Accrued management fee 1,518 3,322 Accrued Trustee s fee Other payables and accruals 18,420 16,751 Total Liabilities 20,032 20,239 Net Assets Value of the Fund 8 1,317,270 2,451,252 EQUITY Unit holder s capital 1,353,366 2,402,512 (Accumulated losses)/ Retained earnings (36,096) 48,740 Total Net Assets Attributable to Unit Holders 8 1,317,270 2,451,252 Number of Units in Circulation 8 2,529,188 4,483,252 Net Asset Value Per Unit (RM) The accompanying notes form an integral part of these financial statements. 12

15 UNAUDITED STATEMENT OF COMPREHENSIVE INCOME For 6-month Period ended 31 March 2016 INVESTMENT INCOME Note to RM to RM Gross dividend income 11,225 15,706 Interest income from deposits with licensed financial institutions Net gain on financial assets at fair value through profit or loss 6 EXPENSES 3,309 4,876 46,713 5,337 61,247 25,919 Management fee 3 (9,854) (19,214) Trustee s fee 4 (553) (961) Transaction cost (4,251) (28,331) other expenses (13,074) (26,712) (27,732) (75,218) Net Income/ (Loss) Before Taxation 33,515 (49,299) Taxation Net Income/ (Loss) After Taxation And Total Comprehensive Income For The Financial period Net Income/ (Loss) After Taxation Is Made Up Of The Following: 33,515 (49,299) Realised amount 3,712 (200,610) Unrealised amount 29, ,311 33,515 (49,299) The accompanying notes form an integral part of these financial statements. 13

16 UNAUDITED STATEMENT OF CHANGES IN EQUITY For 6-month Period ended 31 March 2016 Note Unit holders capital (Accumulated losses)/ Retained earnings Total RM RM RM Balance as at 1 October ,626,378 (69,611) 1,556,767 Movement in unit holders capital: Creation of units from applications 8 5,456-5,456 Cancellation of units 8 (278,468) - (278,468) Total comprehensive income for the financial period - 33,515 33,515 Balance as at 31 March ,353,366 (36,096) 1,317,270 Balance as at 1 October ,438,373 98,039 2,536,412 Movement in unit holders capital: Creation of units from applications 8 173, ,590 Cancellation of units 8 (209,451) - (209,451) Total comprehensive loss for the financial period - (49,299) (49,299) Balance as at 31 March ,402,512 48,740 2,451,252 The accompanying notes form an integral part of these financial statements. 14

17 UNAUDITED STATEMENT OF CASH FLOWS For 6-month Period ended 31 March 2016 Cash Flows From Operating Activities Note to RM to Proceeds from sale of investments 689,142 3,894,052 Purchase of investments (495,087) (3,709,177) Subscription for initial public offering/ right issue RM (492) (371,489) Dividend income received 11,431 13,749 Interest income received from deposit with licensed financial institution 3,308 4,876 Management fee paid (10,434) (19,256) Trustee s fee paid (17,745) (16,763) Payment for other fees and expenses (12,313) (20,861) Net Cash Generated From/ (Used In) Operating Activities Cash Flows From Financing Activities 167,810 (224,869) Cash proceeds from units created 5, ,590 Payment for cancellation of units (278,468) (209,451) Net Cash Used In From Financing Activities (273,012) (35,861) Net Decrease In Cash And Cash Equivalents (105,202) (260,730) Cash And Cash Equivalents At The Beginning of The Financial Period 262, ,894 Cash And Cash Equivalents At The End Of The Financial Period 7 157, ,164 The accompanying notes form an integral part of these financial statements. 15

18 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES FOR THE FINANCIAL PERIOD ENDED 31 MARCH 2016 The following accounting policies have been used consistently 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 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 judgment or complexity, or areas where assumptions and estimates are significant to the financial statements are disclosed in Note L. (a) The new standards, amendments to published standards, and interpretations to existing standards that are applicable are relevant to the Fund but not yet effective and have not been early adopted are as follows: (i) Financial year beginning on/after 1 October 2017 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. The Fund will apply this standard when effective. This standard is not expected to have a significant impact on the Fund s financial statements. 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 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 16

19 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. B INCOME RECOGNITION Interest income from short term deposits is recognised on an accrual basis using the effective interest method. Dividend income is recognised on the ex-dividend date, when the right to receive the dividend has been established. Realised gain or loss on sale of investments is accounted for as the difference between the net disposal proceeds and the carrying amount of the investments, determined on a weighted average cost basis. C TAXATION Current tax expense is determined according to the Malaysian tax laws at the current based upon the taxable profits earned during the financial year. Tax on dividend income from foreign quoted investments is based on the tax regime of the respective countries that the Fund invests in. D PRESENTATION AND FUNCTIONAL CURRENCY Items included in the financial statements of the Fund are measured using the currency as 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 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. F FINANCIAL ASSETS AND LIABILITIES (i) Classification The Fund designates its investment in quoted investments 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. 17

20 The Fund s loans and receivables comprise cash and cash equivalents, amount due from stockbrokers and dividend receivables 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 fees, accrued Trustee fee, amount due to stockbrokers 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. Quoted 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 quoted 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 liabilities are derecognised when it is extinguished, i.e. when the obligation specified in the contract is discharged or cancelled or expires. 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. Quoted investments outside Malaysia are valued at the market bid prices quoted of the respective foreign stock exchanges as at the date of the statement of financial position. If a valuation based on the market price does not represent the fair value of the securities, for example during abnormal market conditions or 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 bases approved by the Trustee after appropriate technical consultation. 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 financial institutions 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. 18

21 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 financing 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 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. G AMOUNT DUE FROM/(TO) STOCKBROKERS Amounts due from and to stockbrokers 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 stockbrokers. A provision for impairment of amounts due from stockbrokers is established when there is objective evidence that the Fund will not be able to collect all amounts due from the relevant stockbroker. Significant financial difficulties of the stockbroker, probability that the stockbroker will enter bankruptcy or financial reorganisation, and default in payments are considered indicators that the amount due from stockbrokers is impaired. Once a financial asset or a group of similar financial assets has been written down as a result of an impairment loss, interest 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 interest 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. H CASH AND CASH EQUIVALENTS For the purpose of statement of cash flows, cash and cash equivalents comprise deposits with a licensed financial institution and bank balance with a licensed bank that are readily convertible to known amounts of cash and which are subject to an insignificant risk of changes in value. I 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 19

22 proportionate share of the Fund s net asset value ( NAV ). The outstanding units are carried at the redemption amount that is payable at the statement 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 assets attributable to unit holders with the total number of outstanding units. J UNIT HOLDER S CAPITAL The unit holders contributions to the Fund meet the definition of puttable instruments classified as equity instruments under the revised 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. K 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. L CRITICAL ACCOUNTING ESTIMATES AND JUDGEMENTS 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 Fund s 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. 20

23 NOTES TO THE FINANCIAL STATEMENTS 31 MARCH INFORMATION ON THE FUND ( the Fund ) was established pursuant to a Trust Deed dated 12 November 2009 as modified by the First Supplemental Deed dated 17 December 2012 ( the Deed ) between Areca Capital Sdn Bhd as the Manager, Deutsche Trustees Malaysia Berhad as the Trustee and all the registered unit holders of the Fund. The First Supplemental Deed was executed to reflect the change to the Fund s name, to remove the Fund s maturity date, to change its objective and other consequential amendments of the Fund. The Manager has registered a Second Supplemental Deed dated 6 October 2015 entered into between the Manager and Maybank Trustees Berhad with the Securities Commission Malaysia to appoint Maybank Trustees Berhad as a trustee for the Fund, replacing Deutsche Trustees Malaysia Berhad. The principal activity of the Fund is to invest in investments as defined under Schedule 6 of the Deed, which include stocks and shares of companies quoted on any recognised stock exchange(s) in Malaysia and permitted foreign stock exchanges, and deposits with financial institutions. The Fund commenced operations on 12 March 2010 and will continue its operations until terminated in accordance with Part 12 of the Deed. The objective of the Fund is to provide investors with an opportunity for capital growth. The Manager of the Fund is Areca Capital Sdn Bhd, a company incorporated in Malaysia. Its principal activities are managing private and unit trust funds. 2 FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES The Fund is exposed to a variety of risks which include market risk (inclusive of price risk, exposure to interest rate risk and currency risk), business risk, capital risk, credit risk and liquidity 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 Securities Commission Malaysia s Guidelines on Unit Trust Funds. Financial instruments of the Fund are as follow: Financial Note Loans and receivables assets at fair value through profit or loss Total 31 March 2016 RM RM RM Financial assets at fair value through profit or loss 6-1,129,304 1,129,304 Dividends receivable Cash and cash equivalents 7 157, , ,998 1,129,304 1,287, March 2015 Financial assets at fair value through profit or loss 6-2,037,270 2,037,270 Dividends receivable 3,772-3,772 Cash and cash equivalents 7 346, , ,936 2,037,270 2,387,206 All current liabilities are financial liabilities which are carried at amortised cost. 21

24 Market risk (i) Price risk The risk refers to changes and developments in regulations, politics and economy of the country. The very nature of a unit trust fund, however, helps mitigate this risk because a fund would generally hold a well-diversified portfolio of securities from different market sectors that the collapse of any security or any one market sector would not impact too greatly on the value of the Fund. The table below show assets of the Fund as at 31 March which are exposed to price risk: RM RM Quoted securities designated at fair value through profit or loss 1,129,304 2,037,270 The following table summarises the sensitivity of the Fund s net asset value and profit/(loss) after tax to movements in prices of quoted securities at the end of the reporting year. The analysis is based on the assumptions that the price of the quoted securities 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 quoted securities, having regard to the historical volatility of the prices. Increase/(decrease) Change in price of financial assets at fair value through profit or loss Market value in profit /(loss) after taxation and net asset value % RM RM % 1,185,769 56,465-5% (1,072,839) (56,465) % 2,139, ,864-5% (1,935,406) (101,864) (ii) Exposure to 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 financial instrument will fluctuate due to changes in market interest rates. As at the date of the statement of financial position, all the financial assets and financial liabilities have no exposure to interest rate movement except for deposits with licensed financial institutions of RM152,112 (2015: RM340,418) which have maturities of less than one year. The Fund s investments in deposits with licensed financial institutions are short term in nature. Therefore, exposure to interest rate fluctuations is minimal. 22

25 (iii) Currency risk As the Fund 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. The 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 Dividends receivable Total 2016 RM RM RM HKD 282, , HKD 576, ,001 IDR 97,712 1,734 99, ,713 1, ,447 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. Disclosure below are shown in absolute terms, changes in impacts could be positive or negative. Change in foreign exchange rate Impact on income/(loss) after taxation Impact on net asset value 2016 % RM RM HKD 5 14,133 14, HKD 5 28,800 28,800 IDR 5 4,972 4,972 Business risk Business risk of emerging companies with a short track record that tends to be higher than matured and well-established companies. The Fund gives preference to invest in companies with a reasonable track record compared to a new company. 23

26 The Manager can manage the market cycles and short-term fluctuations by virtue of its experience, the analytical process adopted by its Fund Manager and by constructing a diversified investment portfolio. Redemption and subscription of units are important in the day-to-day management of the Fund. Liquidity is monitored everyday to ensure the Fund is not affected especially by unexpected redemption. The compliance unit is in place to ensure no breaches in investment limits. If there is any breach, the compliance unit can quickly notify the Fund Manager to take corrective action. In managing the Fund, the Manager has established policies and procedures outlining the internal control mechanism, reporting responsibilities and internal audit and compliance function. The performance and investment activities of the Fund are regularly reviewed by the Investment Committee and the Board of Directors of the Manager. Capital risk The capital of the Fund is represented by equity consisting of unit holders capital and retained earnings. The amount of equity can change significantly on a daily basis as the Fund is subject to daily subscriptions and redemptions at the discretion of unit holders. The Fund s objective when managing capital is to safeguard the Fund s ability to continue as a going concern in order to provide returns for unit holders and benefits for other stakeholders and to maintain a strong capital base to support the development of the investment activities of the Fund. Credit risk Credit risk refers to the ability of an issuer or a counter party to make timely payments of profit, principals and proceeds from realisation of investments. Credit risk arising from placements of deposits in licensed financial institutions is managed by ensuring that the Fund will only place deposits in reputable licensed financial institutions. For amount due from stockbrokers, the settlement terms are governed by the relevant rules and regulations as prescribed by Bursa Malaysia Securities Berhad ( Bursa Malaysia ). The credit risk is minimal as all transactions in quoted securities are settled/paid upon delivery using approved brokers. Liquidity risk Liquidity risk is the risk that the Fund will encounter difficulty in meetings its financial obligations. The Manager manages this risk by maintaining sufficient level of liquid assets, after consultation with the Trustee, to meet anticipated payments and cancellations of units by unit holders. Liquid assets comprise bank balance with a licensed bank, deposit with a licensed financial institution and other instruments which are capable of being converted into cash within 7 days. The table below summarises the Fund s financial liabilities into relevant maturity groupings based on the remaining period as at the statement of financial position date to the contractual maturity date. The amounts in the table are the contractual undiscounted cash flows. Less than More than 1 month 1 month Total 2016 RM RM RM Accrued management fee 1,518-1,518 Accrued trustee fee

27 Less than More than 1 month 1 month Total 2016 RM RM RM Others payables and accruals - 18,420 18,420 Contractual cash out flows 1,612 18,420 20, Accrued management fee 3,322-3,322 Accrued trustee fee Others payables and accruals - 16,751 16,751 Contractual cash out flows 3,488 16,751 20,239 Fair value estimation Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (i.e. an exit price). The fair value of financial assets traded in active market (such as publicly traded derivatives and trading quoted securities) are based on quoted market prices at the close of trading on the year end date. Prior to 1 October 2013, the quoted market price used for financial assets held by the Fund was the current bid price. The Fund adopted MFRS 13 Fair Value Measurement from 1 October 2013 and changed its fair valuation inputs to utilise the last traded market price for financial assets. An active market is a market in which transactions for the asset or liability take place with sufficient frequency and volume to provide pricing information on an ongoing basis. The fair value of financial assets that are not traded in an active market is determined by using valuation techniques. Fair value hierarchy (i) The table below analyses financial instruments carried at fair value by valuation method. The different levels have been defined as follows: Level 1: Quoted prices (unadjusted) in active market for identical assets or liabilities. Level 2: Inputs other than quoted prices included within level 1 that are observable for the asset or liability, either directly (that is, as prices) or indirectly (that is, derived from prices) Level 3: Inputs for the asset and liability that are not based on observable market data (that is, unobservable inputs) The level in the fair value hierarchy within which the fair value measurement is categorised in its entirety is determined on the basis of the lowest level input that is significant to fair value measurement in its entirety. For this purpose, the significance of an input is assessed against the fair value measurement in its entirety. If a fair value measurement uses observable inputs that require significant adjustment based on unobservable inputs, that measurement is a level 3 measurement. Assessing the significance of a particular input to the fair value measurement in its entirety requires judgment, considering factors specific to the asset or liability. The determination of what constitutes observable requires significant judgment by the Fund. The Fund considers observable data to be that market data that is readily available, regularly distributed or updated, reliable and verifiable, not proprietary, and provided by independent sources that are actively involved in the relevant market. 25