SCHRODER BRIC FUND Semi-Annual Report & Financial Statements June 2018

Transcription

1 Semi-Annual Report & Financial Statements June 2018

2 Manager Schroder Investment Management (Singapore) Ltd 138 Market Street #23-01 CapitaGreen Singapore Company Registration No H Trustee HSBC Institutional Trust Services (Singapore) Limited 21 Collyer Quay #13-02 HSBC Building Singapore Company Registration No R Auditor PricewaterhouseCoopers LLP 7 Straits View Marina One East Tower, Level 12 Singapore Solicitor to the Manager Allen & Gledhill LLP One Marina Boulevard #28-00 Singapore Solicitor to the Trustee Shook Lin & Bok LLP 1 Robinson Road #18-00 AIA Tower Singapore Further Information Schroders is a Foreign Account Tax Compliance Act ( FATCA ) compliant organisation. Please find the FATCA classification of this Fund and its Global Intermediary Identification Number ( GIIN ) below. FATCA entity classification: GIIN: Nonreporting IGA FFI / Sponsored Investment Entity WM9S4Z SF.702 1

3 COMMENTARY BRIC markets generated a negative return over the period under review. The MSCI BRIC Index decreased in value and underperformed the MSCI World Index but outperformed the MSCI Emerging Markets Index. Brazilian equities declined as domestic political uncertainty, together with the more challenging external environment, increased the cost of financing and triggered a currency sell-off. This was exacerbated by a truck driver strike which paralysed the economy and amplified political uncertainty ahead of October s presidential election. India posted a negative return as domestic bond yields increased on rising external pressures from higher oil prices, as well as concerns over the fiscal deficit. Downward revisions to earnings forecasts, fraud at a state-owned bank and incrementally negative political developments also weighed on sentiment. China recorded a small negative return. First quarter GDP growth remained stable at 6.8% year-on-year. However, an escalation in trade tensions with the US, together with signs of slowing momentum in the domestic economy, contributed to weakness in the Yuan towards the end of the period. No sustainable trade agreement was reached, and the US moved ahead with plans to implement a 25% tariff on $50 billion of Chinese goods, $34 billion of which took effect in July. China responded with tariffs of equal measure. The central bank reduced the reserve requirement ratio for banks by a total of 150 basis points over the period, in an effort to provide support to growth. Russia registered a positive return, led higher by energy sector names as the price of crude oil rallied strongly. However, this masked high volatility which was triggered by the US s announcement of new sanctions on Russia in April. Meanwhile, President Putin was re-elected for another six-year term in March. The Fund recorded a positive return and outperformed the benchmark with stock selection underpinning excess returns. Country allocation had a small positive impact, with the overweight to Russia, underweight to India and, earlier in the period, the overweight to Brazil adding value. At a stock level, selection in China contributed the most to relative returns. This included off-benchmark positions in online entertainment provider iqiyi. The stock, which we purchased through the initial public offering at the end of March, rallied sharply on expectations of rapid subscriber growth. The overweights to oil companies Sinopec and CNOOC also worked well, with the rally in crude oil prices supportive of both stocks. For CNOOC, operating and capital expenditures continued to be controlled, further boosting the outlook for earnings. Sinopec also announced a higher-than-expected dividend. Stock selection in India was also positive. Contributors include the overweight to Infosys, and off-benchmark holdings in HDFC Bank. Infosys stock gained on expected demand improvement, with Rupee weakness aiding competitiveness. Meanwhile, HDFC Bank continued to gain market share, benefitting from public sector banking woes. Its share price was also boosted by a change to foreign investor ownership restrictions. The overweight to Hindustan Unilever also worked well as first quarter earnings results were slightly above expectations, supported by strong volume growth. 2

4 The first half of 2018 has seen the synchronised global growth environment challenged somewhat by creeping stagflationary concerns. Eurozone growth has surprised to the downside, while escalating trade tensions threaten to weigh on global activity. Higher crude oil prices are now stoking inflation and to a certain extent impairing consumer spending. The strong US Dollar has caused a degree of stress in BRIC currencies. The safe-haven characteristics of the US Dollar may see the currency appreciate further, should trade uncertainty persist. However, as we move towards 2019 we believe that US Dollar strength should be contained by policy tightening measures from the European Central Bank and Bank of Japan. Recent Renminbi depreciation has caused some concern. So far, this looks to be a combination of trade tensions, decelerating Chinese growth and monetary policy divergence with the US. Global trade risk has risen, with a recent increase in protectionist rhetoric challenging our base assumptions that an escalation is not expected. Although China is limited in its ability to implement tariffs on US goods, the authorities hold other cards. For instance, US businesses operating in China could be targeted. Meanwhile, additional US tariffs on Chinese imports would add upward pressure to US inflation. It remains likely that these tensions extend beyond the US midterm elections in November but given the vulnerabilities on either side, we continue to expect rationality to prevail. There has been a clear increase in uncertainty for BRIC equities in the past month. Sentiment has weakened, and earnings per share forecasts have fallen slightly on the back of negative trade developments. However, we continue to hold a cautiously positive outlook. BRIC economies are midway through the market cycle, with a number of cases in the relatively early part of the cycle. External balances are also healthier than in previous periods of US Dollar strength. On a relative basis, the MSCI BRIC Index trades on a discount of over 23% to the MSCI World Index. Resolution to trade tensions, confidence that US Dollar strength has peaked or improvements in Eurozone growth could provide some relief to markets. Idiosyncratic events in certain EM countries bear monitoring in the coming months, in particular elections in Brazil. We have moderately adjusted portfolio positioning, scaling back exposure to China and adding to Brazil where recent price action has begun to create opportunities. As a result, we took Brazil from neutral to a modest overweight. This was funded by increasing the magnitude of the underweight to China. We maintain an overall overweight position in Russia. US sanctions have likely lifted the risk premium for the Russian market on a sustained basis, but the gradual economic rebound should remain intact and valuations look cheap. The Fund is overweight in Brazil where valuations are attractive, despite uncertainty ahead of the presidential election. The Fund is underweight China. Valuations are reasonable but growth is decelerating and there is risk stemming from US trade tensions. Stock selection is also complicated further by the number of state-owned enterprises in the market. India is our largest underweight. Although economic growth appears to be improving, valuations remain expensive and strong crude oil prices remain a fiscal headwind. June

5 STATEMENT OF TOTAL RETURN For the financial period ended 30 June 2018 (Unaudited) 30 Jun Jun 2017 $ $ Expenses Trustee fees 19,937 19,763 Valuation fees 8,579 8,642 Audit fees 8,523 8,624 Transaction costs Others 9,934 17,711 47,156 54,998 Net expense (47,156) (54,998) Net gains or losses on value of investments and financial derivatives Net gains on investments 1,623,768 9,446,588 Net gains/(losses) on spot foreign exchange contracts 7,474 (14,578) Net foreign exchange (losses)/gains (3,067) 6,996 1,628,175 9,439,006 Total return for the period 1,581,019 9,384,008 4

6 STATEMENT OF FINANCIAL POSITION As at 30 June 2018 (Unaudited) ASSETS 30 Jun Dec 2017 $ $ Portfolio of investments 81,405,569 88,192,649 Bank balances 967, ,602 Receivables 6,524 48,697 Total assets 82,379,730 89,239,948 LIABILITIES Payables 518, ,232 Total liabilities 518, ,232 EQUITY Net assets attributable to unitholders 81,861,638 89,004,716 5

7 STATEMENT OF MOVEMENTS OF UNITHOLDERS FUNDS For the financial period ended 30 June 2018 (Unaudited) 30 Jun Dec 2017 $ $ Net assets attributable to unitholders at the beginning of the financial period/year 89,004,716 85,788,748 Operations Change in net assets attributable to unitholders resulting from operations 1,581,019 23,971,099 Unitholders contributions/(withdrawals) Creation of units 2,228,424 3,153,887 Cancellation of units (10,952,521) (23,909,018) Change in net assets attributable to unitholders resulting from net creation and cancellation of units (8,724,097) (20,755,131) Total (decrease)/increase in net assets attributable to unitholders (7,143,078) 3,215,968 Net assets attributable to unitholders at the end of the financial period/year 81,861,638 89,004,716 6

8 STATEMENT OF PORTFOLIO As at 30 June 2018 (Unaudited) Primary Percentage of total net assets attributable to Holdings Fair value unitholders at at at 30 Jun Jun Jun 2018 By geography $ % Quoted Collective investment scheme LUXEMBOURG (country of domicile) Schroder International Selection Fund - BRIC (Brazil, Russia, India, China) A Accumulation Share Class 246,215 81,405, Portfolio of investments 81,405, Other net assets 456, Net assets attributable to unitholders 81,861,

9 STATEMENT OF PORTFOLIO As at 30 June 2018 (Unaudited) Primary (continued) Percentage Percentage of total net of total net assets assets attributable attributable to to unitholders unitholders at at 30 Jun Dec 2017 By geography (summary) % % Quoted Luxembourg Portfolio of investments Other net assets Net assets attributable to unitholders As the Fund invests wholly into an underlying collective investment scheme, it is not meaningful to show any secondary segmentation analysis. 8

10 UNITS IN ISSUE For the financial period ended 30 June 2018 (Unaudited) 30 Jun 2018 Units 31 Dec 2017 Units At the beginning of the financial period/year 57,787,075 73,196,094 Created 1,381,949 2,292,806 Cancelled (6,770,988) (17,701,825) At the end of the financial period/year 52,398,036 57,787,075 $ $ Net assets attributable to unitholders 81,861,638 89,004,716 Net assets attributable to unitholders per unit

11 FINANCIAL RATIOS For the financial period ended 30 June 2018 (Unaudited) 30 Jun Jun 2017 Expense ratio 1 (excluding underlying fund s unaudited expense ratio) 0.11% 0.12% Expense ratio 2 (including underlying fund s unaudited expense ratio) 1.96% 1.96% Turnover ratio The expense ratio has been computed based on the guidelines laid down by the Investment Management Association of Singapore ( IMAS ). The calculation of the expense ratio was based on total operating expenses divided by the average net asset value for the year. The total operating expenses do not include brokerage and other transaction costs, performance fee, interest expense, distribution paid out to unitholders, foreign exchange gains/losses, front or back end loads arising from the purchase or sale of other funds and tax deducted at source or arising out of income received. The Fund does not pay any performance fee. The respective values used in the calculation of the expense ratio are disclosed below. The average net asset value is based on the daily balances. Expense ratio calculations 30 Jun Jun 2017 $ $ Total operating expenses 94, ,163 Average net asset value 88,510,187 86,795, The expense ratio is the sum of the Fund s expense ratio and the underlying fund s unaudited expense ratio. The unaudited expense ratio of the underlying fund, a Luxembourg domiciled fund, is obtained from Schroder Investment Management (Europe) SA (formerly known as Schroder Investment Management (Luxembourg) SA). There is no requirement for the expense ratio of this Luxembourg domiciled fund to be published or audited. The portfolio turnover ratio is calculated in accordance with the formula stated in the Code on Collective Investment Schemes. The calculation of the portfolio turnover ratio was based on the lower value of purchases or sales of the underlying investments divided by the average daily net asset value. Turnover ratio calculations 30 Jun Jun 2017 $ $ Lower of purchases or sales - (purchases) - (purchases) Average net asset value 88,153,984 87,164,154 10

12 REPORT TO UNITHOLDERS 30 June 2018 The following is a report on the (the Fund ): 1. The only security holding of the Fund as at 30 June 2018: Percentage of total net assets attributable to Fair value unitholders $ % Schroder International Selection Fund - BRIC (Brazil, Russia, India, China) A Accumulation Share Class 81,405, The only security holding of the Fund as at 30 June 2017: Percentage of total net assets attributable to Fair value unitholders $ % Schroder International Selection Fund - BRIC (Brazil, Russia, India, China) A Accumulation Share Class 83,624, The Fund was not invested in other unit trusts, mutual funds or collective investment schemes as at 30 June 2018 other than as stated in the Statement of Portfolio. 2. The Fund did not have any exposure to financial derivatives as at 30 June The Fund did not have any borrowings as at 30 June The amount of subscriptions and redemptions during the period 1 January 2018 to 30 June 2018 were as follows: Subscriptions 2,228,424 Redemptions 10,952, Expense Ratio (including underlying fund) 1 July 2017 to 30 June % 1 July 2016 to 30 June % $ 11

13 REPORT TO UNITHOLDERS 30 June Turnover of Portfolio 1 January 2018 to 30 June January 2017 to 30 June Soft dollar commissions/arrangements: The Fund invests substantially into the underlying fund. In the management of the underlying fund, the manager may accept soft dollar commissions from, or enter into soft dollar arrangements with, stockbrokers who execute trades on behalf of the underlying fund and the soft dollars received are restricted to the following kinds of services: (i) (ii) (iii) (iv) research, analysis or price information; performance measurement; portfolio valuations; and administration services. In the management of the Fund, the Manager currently does not receive or enter into any soft dollar commissions or arrangements. 8. Related Party Transactions The Manager of the Fund is Schroder Investment Management (Singapore) Ltd. The Registrar for the Fund is Schroder Investment Management (Europe) SA (formerly known as Schroder Investment Management (Luxembourg) SA), a related party of the Manager. The Trustee is HSBC Institutional Trust Services (Singapore) Limited, a subsidiary of the HSBC Group. The management fees payable by the Fund to the Manager is currently waived by the Manager. The registration fees payable by the Fund to the Registrar has been waived by the Registrar. The trustee fees and valuation fees charged by the HSBC Group are shown in the Statement of Total Return. As at reporting date, the Fund maintained with the HSBC Group, the following bank balances: 30 Jun Dec 2017 $ $ Current accounts 967, ,602 In addition to the above, the respective management fees are chargeable by: i) Schroder Investment Management (Europe) SA (formerly known as Schroder Investment Management (Luxembourg) SA) as Management Company of the following underlying fund: Underlying fund Per annum of NAV Schroder International Selection Fund - BRIC (Brazil, Russia, India, China) A Acc 1.500% 12

14 REPORT TO UNITHOLDERS 30 June Performance of Fund for periods ended 30 June mths 6 mths 1 yr 3 yrs* 5 yrs* 10 yrs* Since Launch* # Fund -0.3% 1.4% 19.7% 9.0% 9.1% 0.5% 3.7% Benchmark** -3.0% -2.7% 14.6% 7.0% 8.6% 0.7% 4.0% * Returns of more than 1 year are annualised # Since launch figures from 16 February 2006 ** Benchmark: MSCI BRIC Net TR Source: Schroders, S$, bid to bid, net income reinvested. 10. The Fund invests more than 30% of its assets in Schroder International Selection Fund - BRIC (Brazil, Russia, India, China) A Accumulation Share Class. The following are the key information on the underlying fund: i. Top 10 holdings as at 30 June 2018: Percentage of total net Market value assets US$ % Tencent Hldg Ltd 122,670, Alibaba Group Hldg Ltd 120,346, China Construction Bank Corp 103,043, China Petroleum & Chemical Corp 60,948, HDFC Bank Ltd 55,782, Infosys Ltd 49,455, China Pacific Insurance Group Co Ltd 48,035, Lukoil PJSC 45,452, CNOOC Ltd 43,128, Maruti Suzuki India Ltd 35,897,

15 REPORT TO UNITHOLDERS 30 June 2018 Top 10 holdings as at 30 June 2017: Percentage of total net Market value assets US$ % Alibaba Group Hldg Ltd 85,409, Tencent Hldg Ltd 84,972, China Construction Bank Corp 73,158, China Pacific Insurance Group Co Ltd 44,630, China Petroleum & Chemical Corp 43,142, China Mobile Ltd 41,304, HDFC Bank Ltd 35,529, Sberbank of Russia PJSC 29,140, New Oriental Education & Technology Group Inc 28,440, Hindustan Unilever Ltd 25,815, ii. Expense Ratio 1 July 2017 to 30 June % 1 July 2016 to 30 June % Brokerage and other transaction costs, performance fees, interest expense, foreign exchange gains/losses, front or back end loads arising from the purchase or sale of other funds, tax deducted at source or arising out of income received and dividends paid to unitholders are not included in the expense ratio. iii. Turnover of Portfolio 1 July 2017 to 30 June % 1 July 2016 to 30 June % 14

16