AFFIN HWANG TACTICAL FUND

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2 AFFIN HWANG TACTICAL FUND Interim Report and Unaudited Financial Statements For the 6 Months Financial Period Ended 31 August 2018 Content Page FUND INFOATION... 2 FUND PERFOANCE DATA... 3 MANAGER S REPORT... 5 TRUSTEE S REPORT... 9 STATEMENT OF COMPREHENSIVE INCOME STATEMENT OF FINANCIAL POSITION STATEMENT OF CHANGES IN NET ASSET VALUE STATEMENT OF CASH FLOWS SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES NOTES TO THE FINANCIAL STATEMENTS STATEMENT BY THE MANAGER DIRECTORY OF SALES OFFICE

3 FUND INFOATION Fund Name Affin Hwang Tactical Fund Fund Type Capital Growth Fund Category Mixed Asset Investment Objective Benchmark To seek a stable return and generate capital growth over medium to long term period in diversified mix of assets 50% FTSE-Bursa Malaysia KLCI (for equities and equity linked instruments) + 50% RAM Quantshop MGS All Index (for fixed income instruments) Distribution Policy Distribution (if any) is incidental and will be subject to the availability of income BREAKDOWN OF UNITHOLDERS BY SIZE AS AT 31 AUGUST 2018 Size of holdings (units) No. of unitholders No. of units held * ( 000) 5,000 and below 67, ,038 5,001 to 10,000 6,359 43,394 10,001 to 50,000 1,879 25,875 50,001 to 500, ,001 and above 1 2,913 Total 75, ,776 * Note: Excluding Manager s stock 2

4 FUND PERFOANCE DATA Category As at 31 Aug 2018 (%) As at 31 Aug 2017 (%) As at 31 Aug 2016 (%) Portfolio composition Quoted equities local - Construction Consumer discretionary Consumer Finance Industrial products Infrastructure project companies Plantation Properties REITs Technology Trading and services Total quoted equities local Unquoted fixed income securities local Cash & cash equivalent Total Total NAV ( million) NAV per Unit () Unit in Circulation (million) Highest NAV Lowest NAV Return of the Fund (%) iii Capital Growth (%) i Income Distribution (%) ii 3.66 Nil Nil Gross Distribution per Unit (sen) 1.00 Nil Nil Net Distribution per Unit (sen) 1.00 Nil Nil Management Expense Ratio (%) Portfolio Turnover Ratio (times) Basis of calculation and assumption made in calculating the returns:- The performance figures are a comparison of the growth/decline in NAV for the stipulated period taking into account all the distribution payable (if any) during the stipulated period. An illustration of the above would be as follow:- Capital return = NAV per Unit end / NAV per Unit begin 1 Income return = Income distribution per Unit / NAV per Unit ex-date Total return = (1+Capital return) x (1+Income return) 1 Capital Return i = (NAV per 31/8/18 NAV per 28/2/18* - 1) x 100 = ( ) x 100 = -6.92% Income ex-date = {Income distribution per Unit NAV per Unit on ex- date} + 1 = { /07/18} + 1 = Total Income Return ii = {Income distribution per Unit NAV per Unit on ex-date} x 100 = {1.0366} 1 x 100 = 3.66% 1 The MER of the Fund remained relatively unchanged, albeit marginally lower during the period under review. 2 The PTR of the Fund was higher than previous year due to the lower average net asset value for the financial period. 3

5 Return of the Fund iii = [{(1 + Capital Return) x (1 + Income Return)} 1] x 100 = [{(1 + (-6.92%)) x ( %)} 1] x 100 = -3.51% * Source Amanahraya Trustees Berhad Table 1: Performance of the Fund 6 Months (1/3/18-31/8/18) 1 Year (1/9/17-31/8/18) 3 Years (1/9/15-31/8/18) 5 Years (1/9/13-31/8/18) Since Commencement (10/8/10-31/8/18) Fund (3.51%) 0.61% 23.91% 14.67% 36.91% Benchmark 0.04% 3.17% 13.03% 32.18% 67.04% Outperformance / (Underperformance) (3.55%) (2.56%) 10.88% (17.51%) (30.13%) Source of Benchmark: Bursa Malaysia Table 2: Average Total Return 6 Months (1/3/18-31/8/18) 1 Year (1/9/17-31/8/18) 3 Years (1/9/15-31/8/18) 5 Years (1/9/13-31/8/18) Since Commencement (10/8/10-31/8/18) Fund 0.61% 7.40% 2.77% 3.97% 36.91% Benchmark 3.17% 4.16% 5.74% 6.57% 67.04% Outperformance / (Underperformance) (2.56%) 3.24% (2.97%) (2.60%) (30.13%) Source of Benchmark: Bursa Malaysia Table 3: Annual Total Return FYE 2018 (01/3/17-28/2/18) FYE 2017 (01/3/16-28/2/17) FYE 2016 (01/1/15-29/2/16) FYE 2014 (01/1/14-31/12/14) FYE 2013 (01/1/13-31/12/13) Fund 12.46% 8.22% (3.42%) (3.41%) 7.32% Benchmark 6.94% 2.96% 8.18% 8.12% 8.00% Outperformance / (Underperformance) 5.52% 5.26% (11.60%) (11.53%) (0.68%) Source of Benchmark: Bursa Malaysia Past performance is not necessarily indicative of future performance and that Unit prices and investment returns may go down, as well as up. 4

6 MANAGER S REPORT Performance Review For the period 1 March 2018 to 31 August 2018, the Fund registered a return of -3.51%. The Net Asset Value (NAV) per unit of the Fund as at 31 August 2018 was while the NAV at 28 February 2018 was The Benchmark for the period registered a return of 0.04%. The Fund underperformed the Benchmark by 3.55 percentage points (See Table 1 for performance of the Fund and Figure 1 for the movement of the Fund versus the Benchmark respectively). Since its inception to 31 August 2018, the Fund registered a return of 36.91% while its Benchmark recorded a return of 67.04%. Despite underperforming its Benchmark, the Fund had recorded a positive return based on the change on its NAV per Unit over the same period. As such, we believe the Fund has met its objective of providing stable return and generate capital growth over medium to long term period. Figure 1: Movement of the Fund versus the Benchmark This information is prepared by Affin Hwang Asset Management Berhad (AFFINHWANGAM) for information purposes only. Past earnings or the fund s distribution record is not a guarantee or reflection of the fund s future earnings/future distributions. Investors are advised that unit prices, distributions payable and investment returns may go down as well as up. Source of the Benchmark is from Bloomberg. Benchmark: 50% FTSE-Bursa Malaysia KLCI (for equities and equity linked instruments) + 50% RAM Quantshop MGS Income Distribution / Unit Split Affin Hwang Asset Management Berhad recently declared a gross distribution of per Unit for investors of the Affin Hwang Tactical Fund over the period under review. The Net Asset Value per unit prior and subsequent to the distribution was as follows:- Cum Date Ex-Date Cum-distribution () Distribution per Unit () Ex-distribution () 23 Jul Jul No unit split were declared for the financial year ended 31 August

7 Asset Allocation For a snapshot of the Fund s asset mix during the period under review, please refer to Figure 2. Figure 2: Asset allocation of the Fund 31 Aug Aug Aug 2016 (%) (%) (%) Quoted equities local Unquoted fixed income securities local Cash & Cash equivalent Total During the period under review, the Fund s investment level were reduced while cash level were raised to a moderately higher level of 15.96%. The Fund s portfolio remained relatively unchanged except that the Manager had ceased exposure into the construction sector. As at 31 August 2018, the Fund s asset allocation stood at 73.11% in equities, 10.93% in fixed income instruments while the remaining was held in cash and cash equivalent. Strategies Employed With the return of volatility in markets, we are gradually raising our cash holdings and will stay more defensive in our allocation with capital protection taking precedence. We are deploying into domestic-driven sectors that are less directly impacted from trade tariffs as well as defensive high yields sectors. Market Review Regionally, the MSCI Asia ex-japan Index was weighed down by external risk plunging 8.57% in the period under review. Emerging markets are seeing a tantrum-like sell-off, where investors appetite for risk-assets have tapered off significantly on the back of fractious developments within Turkey and Argentina that have sent both their currencies into free fall. Investors are ploughing back money into the US on signs of quicker growth, rising interest rates and a stronger greenback that has undermined the attraction of riskier EM assets. Risk of a contagion effect to the rest of EMs have investors treading cautiously even though economic linkages between the two countries and the rest of Asia isn t apparent. The market sell-off was exacerbated further by outflows from global EM funds who were de-risking portfolios. Global fund managers have posited similar characteristics from Turkey & Argentina to other economies that might share some of these symptoms such as a high current account deficit and reliance on foreign debt. Countries with twin deficits such as Indonesia and Philippines are more fragile in this current market environment and susceptible to outflows. Their currencies were buffeted with the rupiah plunging 10% YTD to 14,700 against the greenback nearing its 20-year low during the 1998 Asian financial crisis whilst the peso weakened by over 6% against the dollar. A lacklustre earnings season for the 2Q 18 did little to provide an uplift for markets. Softer earnings beat overall prompted downward revision by analysts citing challenging market conditions with moderating economic growth amidst creeping trade tensions. The tech space fared less well with heavyweights like Tencent and Alibaba reporting mixed results dragging down the rest of the broader market. Rising trade tensions between the US and China which threatens to escalate further also sent jitters across markets. US President Donald Trump announced a slew of protectionist measures including steel and aluminium tariff imports before scoping its aim to target China directly by proposing tariff imports in key strategic sectors identified by Beijing in its Made in China 2025 plan. China sought to retaliate with its own tit-for-tat measure by imposing tariffs on US imports. A sharp depreciation of the Chinese yuan also dragged down the rest of EMs, as a high correlation between markets led to further pain within other Asian currencies. The yuan has shed over 5% of its value YTD, when trade tensions started to brew. Due to concerns over trade-frictions with the US and possible second-order impacts on the Chinese economy that could manifest into slower investment and softer consumption, Beijing 6

8 has shifted slightly towards a more neutral tone that leaves more room for China to loosen its grip on deleveraging and policy easing. Mini-stimulus measures announced by China to prop-up growth and cushion the impact from its painful trade conflict with the US provided some reprieve for markets. Beijing has been gradually resorting to a more vigorous fiscal policy and also tax cuts to address slowing credit growth as it embarks on its deleveraging exercise. Further efforts by the People's Bank of China (PBOC) PBoC to bolster the yuan by tweaking its methodology for the daily pricing of the yuan which has lost close to 4.8% YTD against the dollar. On the local front, the 14th General Election (GE14) concluded with jaw-dropping results that stunned political pundits and pollsters. In a watershed election, the opposition won GE14 by wrestling traditionally held strongholds from the incumbent by taking over states such as Johor, Kedah, and Melaka. Tun Dr. Mahathir aged 93 returns to parliament with a second stint as Prime Minister pledging institutional and fiscal reforms for the country. The benchmark KLCI fell 1.97% in the period under review, whilst the small-cap rout deepened with the small-cap index down by % YTD. Investment Outlook The recent market correction will likely presage a new era of higher volatility in markets. We expect volatility to pick-up in the year, as markets adjust to a reversal of a rate-cut cycle, with global central banks expected to gradually lift interest rates and embark on their balance-sheet unwinding. The gradual withdrawal of monetary stimulus would be a key focal point in markets, as markets adjust to tighter liquidity conditions. Inflation data may be a key-data point to monitor in coming quarters, especially if inflation picks up more than market s expectation, which would lead to an acceleration in rate hikes. We expect a ramping-up of trade protectionist rhetoric and politicking in the lead up to the US midterm elections in November, as President Trump attempts to rile up support for his presidency and protectionist agenda. Nonetheless, our base case is that the outcome will be more modest than the intended threats or rhetoric used, as both parties will have to bring all their bargaining chips onto the negotiation table before eventually arriving at a middle ground. Having said that, we are not dismissing the risk especially due to the severity of the sell-down. Domestically, markets will look to further clarity from the new government on policy direction of its fiscal and debt management. This includes covering a revenue shortfall from GST collections that is slated to be zerorated effective June Nonetheless, proactive measures taken so far to cut operating expenditure including salary deduction of ministers, plugging of leakages and revamps across ministries could stem the bleeding. We expect reform policies to generate a return of monetary and human capital that would drive back capital flows. Whilst, markets could be volatile in the short-term as a result of regulatory uncertainty and kitchensinking exercises undertaken by the new government, we expect such concerns to ease as the government clarifies its position and sets policy direction. Nonetheless, a robust governance framework will eventually lend to business stability that would attract more sustainable forms of FDIs. This, coupled with fresh progrowth policies would provide the uplift of growth for the economy and increase wealth distribution. 7

9 State of Affairs of the Fund There is neither any significant change to the state affairs of the Fund nor any circumstances that materially affect any interests of the unit holders during the period under review. Soft Commissions received from Brokers As per the requirements of the Securities Commission s Guidelines on Unit Trust Funds and Guidelines on Compliance Function for Fund Management Companies, soft commissions received from brokers/dealers may be retained by the management company only if the (i) (ii) goods and services provided are of demonstrable benefit to Unit holders of the Fund; and goods and services are in the form of research and advisory services that assists in the decision making process. During the financial period under review, the management company had received on behalf of the Fund, soft commissions in the form of research materials, data and quotation services, investment-related publications, market data feed and industry benchmarking agencies which are of demonstrable benefit to Unitholders of the Fund. 8

10 TRUSTEE S REPORT For the Six Months Financial Period Ended 31 August 2018 TO THE UNIT HOLDERS OF AFFIN HWANG TACTICAL FUND We, AMANAHRAYA TRUSTEES BERHAD, have acted as Trustee of AFFIN HWANG TACTICAL FUND for the six months financial period ended 31 August In our opinion, AFFIN HWANG ASSET MANAGEMENT BERHAD, the Manager, has operated and managed AFFIN HWANG TACTICAL FUND in accordance with the limitations imposed on the investment powers of the management company under the Deed, securities laws and the applicable Guidelines on Unit Trust Funds for the six months financial period ended 31 August We are of the opinion that: (a) (b) (c) Valuation and pricing is carried out in accordance with the Deed and any regulatory requirement; and Cancellation of units are carried out in accordance with the Deed and other regulatory requirement. The distribution of income made by AFFIN HWANG TACTICAL FUND as declared by the manager is appropriate and reflects the investment investment objective of AFFIN HWANG TACTICAL FUND. Yours faithfully AMANAHRAYA TRUSTEES BERHAD HABSAH BINTI BAKAR Chief Executive Officer Kuala Lumpur, Malaysia 12 October

11 STATEMENT OF COMPREHENSIVE INCOME FOR THE 6 MONTHS FINANCIAL PERIOD ENDED 31 AUGUST 2018 INVESTMENT (LOSS)/INCOME 6 months 6 months financial financial period ended period ended Note Dividend income 682, ,956 Interest income 4 234, ,409 Net (loss)/gain on financial assets at fair value through profit or loss 8 (2,301,421) 4,225,558 (1,385,010) 5,392,923 EXPENSES Management fee 5 (402,306) (464,358) Trustee fee 6 (21,555) (24,977) Auditors' remuneration (4,537) (3,630)) Tax agent's fee (3,025) (3,025) Transaction cost (156,993) (110,667) Other expenses (26,593) (44,062) (615,009) (650,719) NET (LOSS)/PROFIT BEFORE TAXATION (2,000,019) 4,742,204 TAXATION 7 (3,985) (5,162) NET (LOSS)/PROFIT AFTER TAXATION AND TOTAL COMPREHENSIVE (LOSS)/INCOME FOR THE FINANCIAL PERIOD (2,004,004) 4,737,042 Net (loss)/profit after taxation is made up of the following: Realised amount 717,408 2,751,641 Unrealised amount (2,721,412) 1,985,401 (2,004,004) 4,737,042 The accompanying summary of significant accounting policies and notes to the financial statements form an integral part of these financial statements. 10

12 STATEMENT OF FINANCIAL POSITION FOR THE 6 MONTHS FINANCIAL PERIOD ENDED 31 AUGUST 2018 ASSETS Note Financial assets at fair value through profit or loss 9 43,753,816 56,297,514 Cash and cash equivalents 10 6,454,783 4,428,786 Dividend receivables 55,205 48,816 Amount due from brokers 2,112,847 - TOTAL ASSETS 52,376,652 60,775,116 LIABILITIES Amount due to Manager - management fee 66,486 76,678 - cancellation of units 32,074 54,435 Amount due to Trustee 3,535 4,079 Amount due to brokers 184, ,250 Auditor s remuneration 4,557 3,630 Tax agent s fee 10,262 8,625 Other payable and accruals 9,896 11,705 TOTAL LIABILITIES 311,034 1,028,402 NET ASSET VALUE OF THE FUND 52,065,618 59,746,714 EQUITY Unitholders capital 42,555,508 48,812,461 Retained earnings 9,510,110 10,934,253 NET ASSETS ATTRIBUTABLE TO UNITHOLDERS 52,065,618 59,746,714 NUMBER OF UNITS IN CIRCULATION ,779, ,120,000 NET ASSET VALUE PER UNIT () The accompanying summary of significant accounting policies and notes to the financial statements form an integral part of these financial statements. 11

13 STATEMENT OF CHANGES IN NET ASSET VALUE FOR THE 6 MONTHS FINANCIAL PERIOD ENDED 31 AUGUST 2018 Unitholders Retained capital earnings Total Balance as at 1 March ,982,386 13,355,044 57,337,430 Total comprehensive loss for the financial period - (2,004,004) (2,004,004) Movement in unitholders capital: Creation of units arising from applications 702, ,166 Creation of units arising from distribution 1,840,930 1,840,930 Distribution (Note 8) (1,840,930) (1,840,930) Cancellation of units (3,969,974) - (3,969,974) Balance as at 31 August ,555,508 9,510,110 52,065,618 Balance as at 1 March ,801,966 6,197,211 61,999,177 Total comprehensive income for the financial period - 4,737,042 4,737,042 Movement in unitholders capital: Cancellation of units (6,989,505) - (6,989,505) Balance as at 31 August ,812,461 10,934,253 59,746,714 The accompanying summary of significant accounting policies and notes to the financial statements form an integral part of these financial statements. 12

14 STATEMENT OF CASH FLOWS FOR THE 6 MONTHS FINANCIAL PERIOD ENDED 31 AUGUST 2018 CASH FLOW FROM INVESTING AND OPERATING ACTIVITIES 6 months 6 months financial financial period ended period ended Note Proceeds from sale of investments 26,525,548 24,472,715 Purchase of investments (23,342,821) (18,713,749) Interest received 243, ,399 Dividend received 669, ,153 Management fee paid (401,735) (459,570) Trustee s fee paid (21,525) (24,722) Payment for other fees and expenses (195,997) (48,945) Net cash generated from operating activities 3,476,124 6,288,281 CASH FLOW FROM FINANCING ACTIVITIES Proceeds from creation of units 702,166 Payments for cancellation of units (3,974,079) (6,975,707) Net cash used in financing activities (3,271,913) (6,975,707) NET INCREASE/(DECREASE)IN CASH AND CASH EQUIVALENTS 204,211 (687,426) CASH AND CASH EQUIVALENTS AT THE BEGINNING OF THE FINANCIAL PERIOD 6,250,572 5,116,212 CASH AND CASH EQUIVALENTS AT THE END OF THE FINANCIAL PERIOD 10 6,454,783 4,428,786 The accompanying summary of significant accounting policies and notes to the financial statements form an integral part of these financial statements. 13

15 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES FOR THE 6 MONTHS FINANCIAL PERIOD ENDED 31 AUGUST 2018 The following accounting policies have been used in dealing with items which are considered material in relation to the financial statements. A BASIS OF PREPARATION OF THE FINANCIAL STATEMENTS The financial statements have been prepared under the historical cost convention, except as disclosed in the summary of significant accounting policies and comply with Malaysian Financial Reporting Standards ( MFRS ) and International Financial Reporting Standards ( IFRS ). The preparation of financial statements in conformity with MFRS requires the use of certain critical accounting estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenue and expenses during the reported financial period. 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) Standards, amendments to published standards and interpretations that are effective: The Fund has applied the following amendments for the first time for the financial year beginning on 1 March 2018: Amendments to MFRS 107 Statement of Cash Flows Disclosure Initiative. The adoption of these amendments did not have any impact on the current year and is not likely to affect future years. (b) The new standard and amendments to the published standard that is applicable to the Fund but not yet effective and has not been early adopted is as follows: (i) Financial year beginning on/after 1 March 2019 MFRS 9 Financial Instruments (effective from 1 January 2018) will replace MFRS 139 "Financial Instruments: Recognition and Measurement". 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 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. 14

16 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES A BASIS OF PREPARATION OF THE FINANCIAL STATEMENTS (CONTINUED) (b) The new standard and amendments to the published standard that is applicable to the Fund but not yet effective and has not been early adopted is as follows: (continued) (i) Financial year beginning on/after 1 March 2019 (continued) For liabilities, the standard retains most of the MFRS 139 requirements. These include amortised cost accounting for most financial liabilities, with bifurcation of embedded derivatives. The main change is that, in cases where the fair value option is taken for financial liabilities, the part of a fair value change due to an entity s own credit risk is recorded in other comprehensive income rather than the income statement, unless this creates an accounting mismatch. MFRS 9 introduces an expected credit loss model on impairment that replaces the incurred loss impairment model used in MFRS 139. The expected credit loss model is forward-looking and eliminates the need for a trigger event to have occurred before credit losses are recognised. The Fund has reviewed its financial assets and liabilities and does not expect any impact from the adoption of the new standard on 1 March There will be no impact on the Fund s accounting for financial assets as the Fund s investments currently measured at fair value through profit or loss will continue to be measured on the same basis under MFRS 9. There will be no impact on the Fund s accounting for financial liabilities as the new requirements only affect the accounting for financial liabilities that are designated at fair value through profit or loss and the Fund not have any such liabilities. The new impairment model requires the recognition of impairment provisions based on expected credit losses (ECL) rather than only incurred credit losses as is the case under MFRS 139. It applies to financial assets classified at amortised cost. Based on the assessments undertake to date, the Fund does not expect any loss allowance to be recognised upon adoption of MFRS 9. 15

17 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES B INCOME RECOGNITION Dividend income is recognised on the ex-dividend date, when the right to receive the dividend has been established. Interest income from short term deposits with licensed financial institutions is recognised based on effective interest rate method on an accrual basis. For quoted equities, realised gains and losses on sale of investments are accounted for as the difference between the net disposal proceeds and the carrying amount of investments, determined on a weighted average cost basis. For unquoted fixed income securities, realised gains and losses on sale of investments are accounted for as the difference between the net disposal proceeds and the carrying amount of investments, determined on cost adjusted for accretion of discount or amortisation of premium on investments. C TRANSACTION COSTS Transaction costs are costs incurred to acquire financial assets or liabilities at fair value through profit or loss. They include the bid-ask spread, fees and commissions paid to agents, advisors and brokers. Transaction costs, when incurred, are immediately recognised in the statement of comprehensive income as expenses. D DISTRIBUTION A distribution to the Fund s unitholders is accounted for as a deduction from realised reserve. A proposed distribution is recognised as a liability in the period in which it is approved by the Trustee of the Fund. E TAXATION Current tax expense is determined according to the Malaysian tax laws at the current rate based upon the taxable profits earned during the financial period. F FUNCTIONAL AND PRESENTATION CURRENCY Items included in the financial statements of the Fund are measured using the currency of the primary economic environment in which the Fund operates (the functional currency ). The financial statements are presented in Ringgit Malaysia, which is the Fund s functional and presentation currency. 16

18 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES G FINANCIAL ASSETS AND FINANCIAL LIABILITIES (i) Classification The Fund designates its investment in quoted equities and unquoted fixed income securities as financial assets at fair value through profit or loss at inception. Financial assets are designated at fair value through profit or loss when they are managed and their performance evaluated on a fair value basis. Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market and have been included in current assets. The Fund s loans and receivables comprise cash and cash equivalents, dividend receivables and amount due from brokers. Financial liabilities are classified according to the substance of the contractual arrangements entered into and the definitions of a financial liability. The Fund classifies amount due to Manager, amount due to Trustee, amount due to brokers, auditors remuneration, tax agent s fee and other payables and accruals as other financial liabilities. (ii) Recognition and measurement Regular purchases and sales of financial assets are recognised on the trade-date the date on which the Fund commits to purchase or sell the asset. Investments are initially recognised at fair value. Transaction costs are expensed in the statement of comprehensive income. Financial liabilities, within the scope of MFRS 139, are recognised in the statement of financial position when, and only when, the Fund becomes a party to the contractual provisions of the financial instrument. Financial assets are derecognised when the rights to receive cash flows from the investments have expired or have been transferred and the Fund has transferred substantially all risks and rewards of ownership. Financial liabilities are derecognised when it is extinguished, i.e. when the obligation specified in the contract is discharged or cancelled or expired. 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 or loss in the financial year which they arise. Dividend income from financial assets at fair value through profit or loss is recognised in the statement of comprehensive income as part of gross dividend income when the Fund s right to receive payments is established. If a valuation based on the market price does not represent the fair value of the securities, for example during abnormal market conditions or when no market price is available, including in the event of a suspension in the quotation of the securities for a period exceeding 14 days, or such shorter period as agreed by the Trustee, then the securities are valued as determined in good faith by the Manager, based on the methods or basis approved by the Trustee after appropriate technical consultation. 17

19 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES G FINANCIAL ASSETS AND FINANCIAL LIABILITIES (CONTINUED) (ii) Recognition and measurement (continued) Unquoted fixed income securities denominated in Ringgit Malaysia are revalued on a daily basis based on fair value prices quoted by a bond pricing agency ( BPA ) registered with the SC as per the SC Guidelines on Unit Trust Funds. Where such quotation are not available or where the Manager is of the view that the price quoted by the BPA for a specific unquoted fixed income securities differs from the market price by more than 20 basis points, the Manager may use the market price, provided that the Manager: (i) (ii) (iii) records its basis for using non-bpa price; obtains necessary internal approvals to use the non-bpa price; and keeps an audit trail of all decisions and basis for adopting the market yield. Prior to 1 June 2018, the valuation of money market instruments are based on the amortisation cost. Effective 1 June 2018, the valuation of Ringgit denominated money market instruments will be done using the price quoted by a BPA registered with the SC. 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 deposits. Loans and receivables and other financial liabilities are subsequently carried at amortised cost using the effective interest method. (iii) Impairment For assets carried at amortised cost, the Fund assesses at the end of the reporting year whether there is objective evidence that a financial asset or group of financial assets is impaired. A financial asset or a group of financial assets is impaired and impairment losses are incurred only if there is objective evidence of impairment as a result of one or more events that occurred after the initial recognition of the asset (a loss event ) and that loss event (or events) has an impact on the estimated future cash flows of the financial asset or group of financial assets that can be reliably estimated. The amount of the loss is measured as the difference between the asset s carrying amount and the present value of estimated future cash flows (excluding future credit losses that have not been incurred) discounted at the financial asset s original effective interest rate. The asset s carrying amount of the asset is reduced and the amount of the loss is recognised in profit or loss. If loans and receivables or a held-to-maturity investment has a variable interest rate, the discount rate for measuring any impairment loss is the current effective interest rate determined under the contract. As a practical expedient, the Fund may measure impairment on the basis of an instrument s fair value using an observable market price. If, in a subsequent financial year, the amount of the impairment loss decreases and the decrease can be related objectively to an event occurring after the impairment was recognised (such as an improvement in the debtor s credit rating), the reversal of the previously recognised impairment loss is recognised in statement of comprehensive income. When an asset is uncollectible, it is written off against the related allowance account. Such assets are written off after all the necessary procedures have been completed and the amount of the loss has been determined. 18

20 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES H CASH AND CASH EQUIVALENTS For the purpose of statement of cash flows, cash and cash equivalents comprise cash and bank balances and deposits held in highly liquid investments that are readily convertible to known amounts of cash and which are subject to an insignificant risk of change in value. I AMOUNT DUE FROM/(TO) BROKERS Amounts due from and to brokers represent receivables for securities sold and payables for securities purchased that have been contracted for but not yet settled or delivered on the statement of financial position date respectively. These amounts are recognised initially at fair value and subsequently measured at amortised cost using the effective interest method, less provision for impairment for amounts due from brokers. A provision for impairment of amount due from brokers is established when there is objective evidence that the Fund will not be able to collect all amounts due from the relevant broker. Significant financial difficulties of the broker, probability that the broker will enter bankruptcy or financial reorganisation, and default in payments are considered indicators that the amount due from brokers 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 loans expense over the relevant period. The effective interest rate is the rate that exactly discounts estimated future cash payments or receipts throughout the expected life of the financial instrument, or, when appropriate, a shorter period, to the net carrying amount of the financial asset or financial liability. When calculating the effective interest rate, the Fund estimates cash flows considering all contractual terms of the financial instrument but does not consider future credit losses. The calculation includes all fees and points paid or received between parties to the contract that are an integral part of the effective interest rate, transaction costs and all other premiums or discounts. J UNITHOLDERS CAPITAL The unitholders contributions to the Fund meet the criteria to be classified as equity instruments under MFRS 132 Financial Instruments: Presentation. Those criteria include: the units entitle the holder to a proportionate share of the Fund s net assets value; the units are the most subordinated class and class features are identical; there is no contractual obligations to deliver cash or another financial asset other than the obligation on the Fund to repurchase; and the total expected cash flows from the units over its life are based substantially on the profit or loss of the Fund. The outstanding units are carried at the redemption amount that is payable at each financial year if the unitholder exercises the right to put the unit back to the Fund. Units are created and cancelled at prices based on the Fund s net asset value per unit at the time of creation or cancellation. The Fund s net asset value per unit is calculated by dividing the net assets attributable to unitholders with the total number of outstanding units. 19

21 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES K SEGMENT REPORTING Operating segments are reported in a manner consistent with the internal reporting used by the chief operating decision-maker. The chief operating decision-maker, who is responsible for allocating resources and assessing performance of the operating segments, has been identified as the strategic asset allocation committee of the Manager that makes strategic decisions. 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 contents on the estimates, certain key variables that are anticipated to have material impacts to the Fund s results and financial position are tested for sensitivity to changes in the underlying parameters. Estimates and judgements are continually evaluated by the Manager and are based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances. In undertaking any of the Fund s investment, the Manager will ensure that all assets of the Fund under management will be valued appropriately, that is, at fair value and in compliance with the SC Guidelines on Unit Trust Funds. 20

22 FOR THE 6 MONTHS FINANCIAL PERIOD ENDED 31 AUGUST INFOATION ON THE FUND The Unit Trust Fund was constituted under the name Affin Tactical Fund ( the Fund ) pursuant to the execution of a Deed dated 8 April 2010 and Second Supplemental Deed dated 6 August The Fund has changed its name from Affin Tactical Fund to Affin Hwang Tactical Fund as amended by the Supplemental Deed (the Deeds ) dated 22 July 2014 between Affin Hwang Asset Management Berhad ( the Manager ), AmanahRaya Trustees Berhad ( the Trustee ) and the registered unitholders of the Fund. The Fund commenced operations on 8 April 2010 and will continue its operations until terminated by the Trustee as provided by Clause 12.3 of the Deed. The Fund may invest in the following assets, subject to the Deed, the Fund s objective, the Guidelines, the requirements of the SC and any other regulatory body and all relevant laws: (i) (ii) (iii) (iv) (v) (vi) (vii) (viii) (ix) Listed securities; Unlisted securities including, without limitation, securities that have been approved by relevant authorities for the listing of and quotation for such securities; Fixed deposits with financial institutions; Money market instruments; Government bonds, treasury bills and other Government approved or guaranteed bonds; Debentures including private debt securities and bonds; Units/shares in collective investment schemes, both local and foreign which are in line with the objective of the Fund; Equity linked instruments such as warrants and rights; and Any other form of investments as may be permitted by the Securities Commission from time to time that is in line with the Fund s objectives. The objective of the Fund is to seek a stable return and generate capital growth over the medium to long term period in diversified mix of assets. The Manager is a company incorporated in Malaysia. The principal activities of the Manager are establishment and management of unit trust funds and private retirement schemes as well as providing fund management services to private clients. The financial statements were authorised for issue by the Manager on 12 October

23 2 FINANCIAL INSTRUMENTS, RISK MANAGEMENT OBJECTIVES AND POLICIES Financial instruments are as follows: 2018 Financial assets at fair Loans and value through Note receivables profit or loss Total Quoted equities 9-38,062,559 38,062,559 Unquoted fixed income securities 9-5,691,257 5,691,257 Cash and cash equivalent 10 6,454,783-6,454,783 Dividend receivables 55,205-55,205 Amount due from brokers 2,112,847-2,112,847 Total 8,622,836 43,753,816 52,376, Quoted equities 9-39,927,711 39,927,711 Unquoted fixed income securities 9-16,369,803 16,369,803 Cash and cash equivalent 10 4,428,786-4,428,786 Dividend receivables 48,816-48,816 Total 4,477,602 56,297,514 60,775,116 All current liabilities are financial liabilities which are carried at amortised cost. The Fund is exposed to a variety of risks which include market risk (including price risk and interest rate risk), liquidity risk, credit risk, and capital risk. Financial risk management is carried out through internal control processes adopted by the Manager and adherence to the investment restrictions as stipulated by the SC s Guidelines on Unit Trust Funds. 22

24 2 FINANCIAL INSTRUMENTS, RISK MANAGEMENT OBJECTIVES AND POLICIES (CONTINUED) Market risk (a) Price risk Price risk arises mainly from the uncertainty about future prices of investments. It represents the potential loss the Fund might suffer through holding market positions in the face of price movements. The Manager manages the risk of unfavourable changes in prices by continuous monitoring of the performance and risk profile of the investment portfolio. The Fund s overall exposure to price risk was as follows: Quoted investment Quoted equities designated at fair value through profit or loss 38,062,559 39,927,711 Unquoted investment Unquoted fixed income securities designated at fair value through profit or loss * 5,691,257 16,369,803 * Include interest receivable 66,626 (2017:209,638) The following table summarises the sensitivity of the Fund s profit after taxation and net asset value to price risk movement. The analysis is based on the assumptions that the market price increased by 5% and decreased by 5% with all other variables held constant. This represents management s best estimate of a reasonable possible shift in the quoted securities having regard to the historical volatility of the prices. Impact on profit % Change in price Market value after taxation/nav % 41,502,831 (2,184,359) 0% 43,687, % 45,871,549 2,184, % 53,283,482 (2,804,394) 0% 56,087, % 58,892,270 2,804,394 23

25 2 FINANCIAL INSTRUMENTS, RISK MANAGEMENT OBJECTIVES AND POLICIES (CONTINUED) Market risk (continued) (b) Interest rate risk In general, when interest rates rise, unquoted fixed income securities prices will tend to fall and vice versa. Therefore, the NAV of the Fund may also tend to fall when interest rates rise or are expected to rise. However, investors should be aware that should the Fund hold an unquoted fixed income security till maturity, such price fluctuations would dissipate as it approaches maturity, and thus the growth of the NAV shall not be affected at maturity. In order to mitigate interest rates exposure of the Fund, the Manager will manage the duration of the portfolio via shorter or longer tenured assets depending on the view of the future interest rate trend of the Manager, which is based on its continuous fundamental research and analysis. This risk is crucial in an unquoted fixed income securities fund since unquoted fixed income securities portfolio management depends on forecasting interest rate movements. Prices of unquoted fixed income securities move inversely to interest rate movements, therefore as interest rates rise, the prices of unquoted fixed income securities decrease and vice versa. Furthermore, unquoted fixed income securities with longer maturity and lower yield coupon rates are more susceptible to interest rate movements. Investors should note that unquoted fixed income securities and money market instruments are subject to interest rate fluctuations. Such investments may be subject to unanticipated rise in interest rates which may impair the ability of the issuers to make payments of interest income and principal, especially if the issuers are highly leveraged. An increase in interest rates may therefore increase the potential for default by an issuer.. The table below summarises the sensitivity of the Fund s net asset value and profit after tax to movements in prices of unquoted fixed income securities held by the Fund as a result of movement in interest rate. The analysis is based on the assumptions that the interest rate increased and decreased by 1% (100 basis points) with all other variables held constant. % Change in profit rate Impact on profit after tax/ NAV % (15,777) (44,067) - 1% 15,838 44,271 The Fund s exposure to interest rate risk associated with deposits with licensed financial institutions is not material as the deposits are held on a short term basis. 24

26 2 FINANCIAL INSTRUMENTS, RISK MANAGEMENT OBJECTIVES AND POLICIES (CONTINUED) Liquidity risk Liquidity risk is the risk that the Fund will encounter difficulty in meeting its financial obligations. The Manager manages this risk by maintaining sufficient level of liquid assets to meet anticipated payments and cancellation of units by unitholders. Liquid assets comprise cash, deposits with licensed financial institutions and other instruments, which are capable of being converted into cash within 7 days. The table below analyses the Fund s financial liabilities into relevant maturity groupings based on the remaining period at the statement of financial position date to the contractual maturity date. The amounts in the table below are the contractual undiscounted cash flows: 2018 Between one Within month to one month one year Total Amount due to Manager - management fee 66,486-66,486 - cancellation of units 32,074-32,074 Amount due to Trustee 3,535-3,535 Amount due to brokers 184, ,224 Auditor s remuneration - 4,557 4,557 Tax agent s fee - 10,262 10,262 Other payables and accruals - 9,896 9, ,319 24, , Amount due to Manager - management fee 76,678-76,678 - cancellation of units 54,435-54,435 Amount due to Trustee 4,079-4,079 Amount due to brokers 869, ,250 Auditor s remuneration - 3,630 3,630 Tax agent s fee - 8,625 8,625 Other payables and accruals 4,846 6,859 11,705 1,009,288 19,114 1,028,402 25

27 2 FINANCIAL INSTRUMENTS, RISK MANAGEMENT OBJECTIVES AND POLICIES (CONTINUED) Credit risk Credit risk refers to the ability of an issuer or counterparty to make timely payments of interest, principals and proceeds from realisation of investment. The Manager manages the credit risk by undertaking credit evaluation to minimise such risk. 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. The settlement terms proceeds from the creation of units receivable from the Manager are governed by the SC Guidelines on Unit Trust Funds. For unquoted fixed income securities, the manager regularly reviews the rating assigned to the issuer so that necessary steps can be taken if the rating falls below those described by the Deeds and SC s Guidelines on Unit Trust Funds. The following table sets out the credit risk concentration of the Fund: 2018 Unquoted Cash fixed income and cash Other securities equivalents assets* Total Finance - AAA 1,527,058 6,418,503-7,945,561 - AA2 - AA3-34,730-34,730 - NR 986,188-1,541,613 2,527,801 Industrials products - AA- 497, ,721 - AA1 2,680, ,680,263 - NR ,616 42,616 REITS - NR - - 6,125 6,125 Properties - NR , ,830 Technology - NR - - 6,465 6,465 Trading/ Services - NR , ,404 5,691,230 6,453,233 2,168,053 14,312,516 26

28 2 FINANCIAL INSTRUMENTS, RISK MANAGEMENT OBJECTIVES AND POLICIES (CONTINUED) Credit risk (continued) The following table sets out the credit risk concentration of the Fund (continued): 2017 Unquoted Cash fixed income and cash Other securities equivalents assets* Total Consumer Products - AA2 502, ,155 Finance - AAA 1,525,245 4,353,930-5,879,175 - AA2 2,683, ,683,005 - AA3 3,542,460 74,856-3,617,316 - NR 2,046, ,046,758 Government - SOV 4,566, ,566,804 Health Care - AA 511, ,964 Industrials products - AA- 991, ,412 - NR ,816 48,816 16,369,803 4,428,786 48,816 20,847,405 * Other asset consist of dividend receivable and amount due from brokers. The financial assets of the Fund are neither past due nor impaired. Capital risk The capital of the Fund is represented by equity consisting of unitholders 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 unitholders. 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 unitholders and benefits for other stakeholders and to maintain a strong capital base to support the development of the investment activities of the Fund. 27