KENANGA DIVERSIFIED FUND INTERIM REPORT

Transcription

1 KENANGA DIVERSIFIED FUND INTERIM REPORT For the Financial Period from 1 December 2015 to 31 May 2016

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3 KENANGA DIVERSIFIED FUND Contents Page Corporate Directory ii Directory of Manager s Offices iii Fund Information 1 Manager s Report 2-7 Fund Performance 8-10 Trustee s Report 11 Statement by the Manager 12 Financial Statement 13-43

4 CORPORATE DIRECTORY MANAGER: KENANGA INVESTORS BERHAD (Company No P) REGISTERED OFFICE BUSINESS OFFICE Kenanga Investors Berhad (KIB) Suite 12.02, 12 th Floor, Kenanga International, 8 th Floor, Kenanga International, Jalan Sultan Ismail, Jalan Sultan Ismail, Kuala Lumpur, Malaysia Kuala Lumpur, Malaysia. Tel: Tel: Fax: Fax: InvestorServices@kenanga.com.my Website: BOARD OF DIRECTORS Datuk Syed Ahmad Alwee Alsree (Chairman) Syed Zafi len Syed Alwee (Independent Director) Peter John Rayner (Independent Director) Imran Devindran bin Abdullah (Independent Director) Dato Bruce Kho Yaw Huat Ismitz Matthew De Alwis INVESTMENT COMMITTEE Dato Bruce Kho Yaw Huat (Chairman) Syed Zafi len Syed Alwee (Independent Member) Peter John Rayner (Independent Member) Imran Devindran bin Abdullah (Independent Member) Ismitz Matthew De Alwis COMPANY SECRETARY: NORLIZA ABD SAMAD (MAICSA ) 9 th Floor, Kenanga International, Jalan Sultan Ismail, Kuala Lumpur, Malaysia. Tel: Fax: TRUSTEE: CIMB COMMERCE TRUSTEE BERHAD (Company No A) REGISTERED OFFICE BUSINESS OFFICE Level 13, Menara CIMB Level 21, Menara CIMB Jalan Stesen Sentral 2 Jalan Stesen Sentral 2 Kuala Lumpur Sentral Kuala Lumpur Sentral Kuala Lumpur Kuala Lumpur. Tel: Tel: Fax: Fax: Website: AUDITOR: ERNST & YOUNG (AF: 0039) Level 23A, Menara Milenium, Jalan Damanlela, Pusat Bandar Damansara, Kuala Lumpur. Tel: Fax: TAX ADVISER: ERNST & YOUNG TAX CONSULTANTS SDN BHD (Company No K) Level 23A, Menara Milenium, Jalan Damanlela, Pusat Bandar Damansara, Kuala Lumpur. Tel: Fax: MEMBERSHIP: FEDERATION OF INVESTMENT MANAGERS MALAYSIA (FIMM) , 6 th Floor, Wisma Tune, 19, Lorong Dungun, Damansara Heights, Kuala Lumpur, Malaysia. Tel: Fax: Website: ii Kenanga Diversifi ed Fund Interim Report

5 DIRECTORY OF MANAGER S OFFICES REGIONAL BRANCH OFFICES: Kuala Lumpur Suite 12.02, 12 th Floor Kenanga International Jalan Sultan Ismail Kuala Lumpur, Malaysia Tel : Fax : Melaka No. 25-1, Jalan Kota Laksamana 2/17 Taman Kota Laksamana, Seksyen Melaka Tel : Fax : Klang No. 12, Jalan Batai Laut 3, Taman Intan Klang, Selangor Darul Ehsan Tel : / Fax : Penang 5.04, 5 th Floor, Menara Boustead Penang 39, Jalan Sultan Ahmad Shah Penang. Tel : / Fax : Seremban 2 nd Floor, No. 1D-2, Jalan Tuanku Munawir Seremban, Negeri Sembilan Tel : Fax : Johor Bahru Lot 11.03, 11 th Floor Menara MSC Cyberport No. 5, Jalan Bukit Meldrum Johor Bahru, Johor Tel : / 4798 Fax : Kuching 1st Floor, No 71, Lot 7 Lot 10900, Jalan Tun Jugah Kuching, Sarawak Tel : Fax : Kota Kinabalu A-03-11, 3 rd Floor Block A, Warisan Square Jalan Tun Fuad Stephens Kota Kinabalu, Sabah Tel : / Fax : Ipoh Suite 1, 2 nd Floor 63, Persiaran Greenhill Ipoh, Perak, Malaysia Tel : / 7570 Fax : Miri 2 nd Floor, Lot 1264, Centre Point Commercial Centre Jalan Melayu Miri, Sarawak Tel : Fax : Kenanga Diversifi ed Fund Interim Report iii

6 1. FUND INFORMATION 1.1 Fund Name Kenanga Diversified Fund (KDF or the Fund) 1.2 Fund Category / Type Mixed Asset / Income & Growth 1.3 Investment Objective The Fund aims to provide investors with capital appreciation with stability of income over a medium to long-term investment horizon from a diversifi ed investment portfolio. 1.4 Investment Strategy The Fund s asset allocation includes a mixture of equity securities, fi xed income securities and money market instruments. The maximum equity weighting is limited to 70% of the Fund s NAV. In times of actual or anticipated adverse market conditions, the equity exposure may be reduced. The Fund engages active tactical asset allocation between the asset classes which is determined by analysing the economy, which infl uences the business cycle, and market factors. 1.5 Duration The Fund was launched on 23 April 2004 and it shall exist as long as it appears to the Manager and the Trustee that it is in the interests of the unitholders for it to continue. 1.6 Performance Benchmark A composite of the FTSE Bursa Malaysia Top 100 Index (FBM 100) (60%) and the All Malaysian Government Securities (MGS) Index (40%) obtainable from bursamalaysia.com and Distribution Policy Income (if any) will be distributed annually on a best effort basis. 1.8 Breakdown of unit holdings of KDF as at 31 May 2016 Size of holdings No. of unitholders No. of units held 5,000 and below 3,482 2,742,058 5,001-10, ,700 10,001-50, ,284 50, , , ,001 and above 1 862,739 Total 3,644 5,647,900 1 Kenanga Diversifi ed Fund Interim Report

7 2. MANAGER S REPORT 2.1 Explanation on whether the Fund has achieved its investment objective. The Fund had fulfi lled its investment objective, by investing in a mixture of equity securities, fi xed income securities and money market instruments. 2.2 Comparison between the Fund s performance during financial period under review and performance of the benchmark. Performance Chart Since Launch (23/4/ /5/2016) Kenanga Diversified Fund vs Benchmark * * Benchmark: FTSE Bursa Malaysia Top 100 Index (FBM 100) (60%) and the All Malaysian Government Securities (MGS) Index (40%) Source: Novagni Analytics and Advisory Sdn Bhd 2.3 Investment strategies and policies employed during the financial period under review. For the fi nancial period under review, the Fund invested primarily in a mixture of equity securities, fi xed income securities and money market instruments in order to achieve diversifi cation in the portfolio. The strategy employed for equity was in line with that disclosed in the Master Prospectus. For Fixed Income, the focus was on corporate bonds with target exposure at circa 30% - 40% over the fi nancial period under review. Kenanga Diversifi ed Fund Interim Report 2

8 2.4 The Fund s asset allocation as at 31 May 2016 and comparison with the previous financial period. Asset 31 May May 2015 Quoted investment securities 47.9% 56.5% Unquoted bonds 24.8% 30.4% Short term deposits and cash 27.3% 13.1% Reason for the differences in asset allocation As at 31 May 2016, the Fund was 47.9% invested in equities, 24.8% in bonds and 27.3% in short term deposits and cash. The exposure in equities and bonds were lower compared to the previous fi nancial year as cash level was raised in anticipation of the heightened market volatility and an upcoming higher-yielding primary issuance which will provide yield enhancement to the portfolio. 2.5 Fund performance analysis based on NAV per unit (adjusted for income distribution; if any) since last review period. Period under review Kenanga Diversified Fund 0.82% FTSE Bursa Malaysia Top 100 Index (60%) and All Malaysian Government Securities Index (40%) 1.55% Source: Lipper The Fund underperformed the benchmark by 0.73% with a return of 0.82% for the financial period under review. The underperformance was mainly due to stock selection. 2.6 Review of the market Equity Market Review Following months of uncertainty, the Fed finally took action to raise interest rates by 25 bps for the first time since 2006 in December. The US market, however, closed the month marginally lower as commodities continued to come under pressure. The European markets were also traded lower post ECB decision not to increase its monthly asset purchases on December 3, For 1Q16, global equities endure one of sharpest sell down during the first trading day and week of the year. The MSCI Asia Ex-Japan index tumbled as much as 13% in January at its trough. The trigger was the sudden devaluation the Renminbi after the PBOC devalued the Renminbi by 2% in just weeks. China s newly implemented circuit breaker which triggers a suspension of the stock exchange was triggered twice, before it was scrapped as it created more fear and volatility in the market. The sell-off was global, in tandem with global markets, the KLCI fell as much as 5.4% in January at its lowest point. March was a turnaround month for global equities after dovish comments from central banks and the G20 meeting in Shanghai appeared to have calmed the market down. The following risk on mode was spurred on by the Fed s admission that a strong US$ is disrupting 3 Kenanga Diversifi ed Fund Interim Report

9 2.6 Review of the market (Contd.) Equity Market Review (Contd.) global growth, and hence the pace of interest rate hike will be slowed down. Currency markets were just as volatile as equities, after the Fed s postponement of rate hike, the US$ depreciated significantly and thereby lifting commodity prices higher. As such, the Brent crude oil surge off its low promptly from US$30/barrel to US$40/barrel. By end of March, the KLCI index ended 1Q16 marginally higher by 1.5%, whilst the FBM Small Cap index and the FBM Emas Shariah loss by 2.1% and 2.4% respectively. After a strong rally in March, global equities posted a mixed bag of returns in April. Most markets hit the high of the year by mid-april before pulling back by month end. The Federal Reserve offered little clues in the end April FOMC meeting with mixed US economy data. The labour market conditions improved but economy growth was slower-than-expected. Meanwhile, the Bank of Japan (BOJ) also left its monetary policy unchanged in the month end meeting which disappointed most investors betting for additional BOJ easing to weaken the Yen. Finance chiefs from the world s biggest developed economies (G7) meeting in Japan last month underscored concerns about flagging global growth and reaffirmed a pledge not to deliberately weaken their currencies even as Japan again warned on the Yen s surge. Meanwhile, Federal Reserve Chairwoman Janet Yellen signalled that the US central bank will likely raise its interest rates on a gradual basis in the next meetings if the US economy continues to gain strength. On the domestic front, Malaysian economy slowed in 1Q16 to 4.2% YoY growth from 4.5% in 4Q15. This was the slowest growth since 3Q09. The key drags were total investments and net exports on GDP by expenditure and agriculture sector on GDP by activity. The FBM KLCI was down by 2.8% in May amid heavy foreign sell down following MSCI rebalancing. The small-cap stocks were mildly lower with the FBMSC and FBM EMAS slumped 1% and 2.1% respectively. Year-to-date, the FBM KLCI, FBMSC and FBM EMAS retreated by 3.9%, 4.2% and 3.4% respectively. Equity Market Outlook We expect financial markets to face more macroeconomic and geopolitical uncertainties post Brexit. While the UK share of global GDP is less than 4%, the rest of the EU s share is 18%. As the EU has huge exposure to the UK through financial and investment linkages, a slowdown in the EU ex-uk could pose more downside risk to global growth and trade. With the lingering uncertainties, a Fed rate hike is likely to be off for the year while major central banks will likely maintain accommodative policies. Short-term volatility warrants a defensive strategy. We have been defensive both in terms of cash holdings and stock selections ahead of this unexpected event. Subsequently, the third quarter is seasonally a lull quarter for equity markets. We therefore advocate buying on dips as our earlier cash raising has enabled us to bottom fish on weakness. Stock picking remains the key with a focus on sectors with earnings visibility and dividend support. We continue to favor sectors like consumer, construction, and infrastructure while remaining selective on oil and plantation stocks. Kenanga Diversifi ed Fund Interim Report 4

10 2.6 Review of the market (Contd.) Fixed Income Market Review Significant increase in risk aversion in 1Q2016 was the major force pushing global rates lower with about 70% of sovereign bond yields at 2.0% or less. Negative interest rate policies (NRP) along with wavering US Dollar strength bode well for emerging market Asia fixed income. Many Asian central banks also took the opportunity to ease policies in turn providing additional support to sovereign bonds. Malaysia bonds stood out to benefit most from currency stability, prospects of further monetary easing and bounce in commodity prices. As Malaysia s 5-year credit default swap (CDS) eased further, yields came-off from very elevated levels by around 8 to 41 basis points since December Most buying activities were slanted towards the longend and bellies of the curve. April saw major government bond markets retreating on the reversal of haven flows as global equities and junk bonds rebounded. Some positive economic data out of China, coupled with a rally in commodity prices, helped ease concerns about slowing global growth, thus improving investors risk appetite. The direction of yield movement was also dominated by central bank meetings as investors looked for clues on the path of monetary policies around the world. Local government bonds ended April on a weaker note, with the benchmark yields rising between 7 to 10 bps for maturities ranging from 3 to 10 years, as investors took profit following previous month s gains. Meanwhile in the primary market, all three government offerings garnered reasonably strong demand with bid-to-cover ratios exceeding 2.0x, helped by a low yield environment and the oversubscription to USD 1.5 billion of Malaysian sukuk by global investors. Fixed Income Market Review In May, the US Treasury (UST) market reversed earlier gains after the April FOMC meeting minutes unexpectedly sent a strong signal that a rate hike in June remained on the table. In addition, recent remarks from Fed officials leaned towards a more hawkish stance, with Fed Chairwoman Janet Yellen commenting that an interest rate hike is probably appropriate in the coming months if the economic data improve. Similar to other emerging market assets, local government bonds were not spared from the selling triggered by the revival of US interest rate hike expectations. Benchmark MGS yields rose 4 to 10 bps for maturities ranging from 5to 10-years as the sentiment turned bearish in line with the weaker Ringgit and gloomy stock markets towards the end of the month. 5 Kenanga Diversifi ed Fund Interim Report

11 2.6 Review of the market (Contd.) Fixed Income Market Outlook The global trade momentum remained anaemic in 1H2016, although the rebound in commodity prices, particularly crude oil prices, has sparked hopes of some light at the end of the tunnel in 2H2016. Going forward, while we are less pessimistic about the crude oil market amid slower global production that will lead to more favourable demand-supply dynamics by the end of the year, uncertainties about the repercussions of the Brexit will likely continue to cause global trade to remain sluggish. We are also of the view that domestic demand will not likely pick up significantly in 2H2016, although the recent uptick in consumer spending growth provides some comfort. Going forward, however, consumer sentiment will likely continue to be downbeat, and consumers will remain cautious about their discretionary spending habits and rising prices and more stringent lending practices by financial institutions. In view of the about market outlook, we foresee increasing pressure on Bank Negara Malaysia (BNM) to trim the OPR in the months ahead as the domestic economic momentum is expected to moderate further, while the global economic outlook is anticipated to turn more negative after the UK s Brexit vote. We now believe that there is greater justification for BNM to loosen its stance before the year is out, especially after the Ringgit starts to stabilize following the Brexit. 2.7 Distribution For the financial period under review, the Fund has declared the following distribution: Gross/Net Cum-NAV Ex-NAV distribution per unit per unit per unit Distribution Date (sen) (RM) (RM) 16 May Kenanga Diversifi ed Fund Interim Report 6

12 2.8 Details of any unit split exercise The Fund did not carry out any unit split exercise during the financial period under review. 2.9 Significant changes in the state of affair of the Fund during the financial period There were no significant changes in the state of affair of the Fund during the financial period and up until the date of the manager s report, not otherwise disclosed in the financial statements Circumstances that materially affect any interests of the unitholders During the financial period under review, there are no circumstances that materially affect any interests of the unitholders Rebates & Soft commissions Any rebates received are channeled back to the Fund. On the other hand, soft commissions received from the stockbrokers for goods and services such as technical analysis software, fundamental database, financial wire services, stock quotation system and portfolio management software incidental to investment management of the Fund shall be retained by the Manager. For the financial period under review, the Manager has received soft commissions from stockbrokers. 7 Kenanga Diversifi ed Fund Interim Report

13 3. FUND PERFORMANCE 3.1 Details of portfolio composition of Kenanga Diversified Fund ( the Fund ) for the financial period as at 31 May 2016 against last 3 financial years as at 30 November are as follows: a. Distribution among industry sectors and category of investments: As at FY FY FY % % % % Trading/Services Consumer products Industrial products Constructions Properties Finance Technology Plantations Special Purpose Acquisition Company Real Estate Investments Trusts Infrastructure Warrants Unquoted corporate bonds Unquoted government guaranteed bonds Short term deposits and cash Note: The above mentioned percentages are based on total investment market value plus cash. b. Distribution among markets The Fund invests in local quoted investment securities, unquoted bonds and cash instruments only. Kenanga Diversifi ed Fund Interim Report 8

14 3.2 Performance details of the Fund for the financial period ended 31 May 2016 against last 3 financial years ended 30 November are as follows:: Period from to FY FY FY Net asset value ( NAV ) (RM Million) 4.47* Units in circulation (Million) NAV per unit (RM) * Highest NAV per unit (RM) Lowest NAV per unit (RM) Total return (%) Capital growth (%) Income growth (%) Gross distribution per unit (sen) Net distribution per unit (sen) Management expense ratio ( MER ) (%) Portfolio turnover ratio ( PTR ) (times) Note: Total return is the actual return of the Fund for the respective fi nancial period/years, computed based on NAV per unit and net of all fees. MER is computed based on the total fees and expenses incurred by the Fund divided by the average fund size calculated on a daily basis. PTR is computed based on the average of the total acquisitions and total disposals of investment securities of the Fund divided by the average fund size calculated on a daily basis. 1 MER is lower against previous fi nancial year mainly due to lower recovered expenses incurred during the financial period under review. 2 PTR is higher against previous year mainly due to higher trading activities as we have adopted a more trading orientated stance to capitalise on heightened market volatility. * Based on bid price fair valuation method on all investments held by the Fund as at 31 May 2016, the NAV and NAV per unit would be RM4.46 million and RM respectively. (As disclosed under Note 13 of the fi nancial statements) # Date of distribution is shown in part Distribution 9 Kenanga Diversifi ed Fund Interim Report

15 3.3 Average total return of the Fund 1 Year 3 Years 5 Years 31 May May May May May May 16 Kenanga Diversified Fund 0.44% 1.23% 8.372% Benchmark * -0.37% 0.09% 2.68% * FTSE Bursa Malaysia Top 100 Index (FBM 100) (60%) and the All Malaysian Government Securities (MGS) Index (40%) Source: Lipper 3.4 Annual total return of the Fund Period under review 1 Year 1 Year 1 Year 1 Year 1 Year 30 Nov Nov Nov Nov Nov Nov May Nov Nov Nov Nov Nov 11 Kenanga Diversified Fund 0.82% 1.04% 0.71% 12.73% 18.44% 8.02% Benchmark * 1.55% -3.16% 1.46% 8.57% 7.59% 2.11% * FTSE Bursa Malaysia Top 100 Index (FBM 100) (60%) and the All Malaysian Government Securities (MGS) Index (40%) Source: Lipper Investors are reminded that past performance is not necessarily indicative of future performance. Unit prices and investment returns may fluctuate. Kenanga Diversifi ed Fund Interim Report 10

16 4 TRUSTEE S REPORT TO THE UNITHOLDERS OF KENANGA DIVERSIFIED FUND We, CIMB COMMERCE TRUSTEE BERHAD ( the Trustee ), being the Trustee of KENANGA DIVERSIFIEDFUND ( the Fund ) are of the opinion that KENANGA INVESTORS BERHAD ( the Manager ), acting in the capacity of Manager of the Fund, has fulfi lled their duties in the following manner for the fi nancial period ended 31 May a) The Fund has been managed in accordance with the limitations imposed on the investment powers of the Manager and the Trustee under the Deed, the Securities Commission Malaysia s Guidelines on Unit Trust Funds, the Capital Markets and Services Act 2007 (as amended from time to time) and other applicable laws; b) Valuation/pricing of units of the Fund has been carried out in accordance with the Deed and relevant regulatory requirements; c) Creation and cancellation of units have been carried out in accordance with the Deed and relevant regulatory requirements; and d) The distribution of returns by the Fund is relevant to and refl ects the investment objective of the Fund. For and on behalf of CIMB COMMERCE TRUSTEE BERHAD LEE KOOI YOKE Chief Operating Offi cer Kuala Lumpur, Malaysia 27 July Kenanga Diversifi ed Fund Interim Report

17 5. STATEMENT BY THE MANAGER I, Ismitz Matthew De Alwis, being a director of Kenanga Investors Berhad, do hereby state that, in the opinion of the Manager, the accompanying statement of fi nancial position as at 31 May 2016 and the related statement of comprehensive income, statement of changes in net asset value and statement of cash fl ows for the fi nancial period from 1 December 2015 to 31 May 2016 together with notes thereto, are drawn up in accordance with Malaysian Financial Reporting Standards and International Financial Reporting Standards so as to give a true and fair view of the fi nancial position of Kenanga Diversifi ed Fund as at 31 May 2016 and of its fi nancial performance and cash fl ows for the fi nancial period from 1 December 2015 to 31 May 2016 and comply with the requirements of the Deed. For and on behalf of the Manager Kenanga Investors Berhad Ismitz Matthew De Alwis Executive Director/Chief Executive Offi cer Kuala Lumpur, Malaysia 27 July 2016 Kenanga Diversifi ed Fund Interim Report 12

18 6. FINANCIAL STATEMENT 6.1 STATEMENT OF COMPREHENSIVE INCOME FOR THE FINANCIAL PERIOD FROM 1 DECEMBER 2015 TO 31 MAY 2016 (unaudited) INVESTMENT INCOME to to Note RM RM Dividend income 38,280 40,881 Interest income 41,782 51,650 Net gain from investments: - Financial assets at fair value through profi t or loss ( FVTPL ) 4 16,417 50,858 96, ,389 EXPENSES Manager s fee 5 33,896 39,395 Trustee s fee 6 4,502 4,488 Auditors remuneration 3,000 2,992 Tax agent s fee 1,990 2,393 Administration expenses 15,423 16,057 58,811 65,325 NET INCOME BEFORE TAX 37,668 78,064 Income tax NET INCOME AFTER TAX, REPRESENTING TOTAL COMPREHENSIVE INCOME FOR THE FINANCIAL PERIOD 37,668 78,064 Net income after tax is made up as follows: Realised gain/(loss) 116,454 (129,280) Unrealised (loss)/gain 4 (78,786) 207,344 37,668 78,064 Distribution for the fi nancial period: Gross/Net distribution (RM) 8 396,522 - Gross/Net distribution per unit (sen) The accompanying notes form an integral part of the financial statements. 13 Kenanga Diversifi ed Fund Interim Report

19 6.2 STATEMENT OF FINANCIAL POSITION AS AT 31 MAY 2016 (unaudited) Note RM RM INVESTMENTS Financial assets at FVTPL 4 3,210,395 4,323,904 Short term deposits 9 1,106, ,912 4,316,395 4,953,816 OTHER ASSETS Amount due from Manager 1,194 - Other receivables ,485 5,338 Tax recoverable 14,737 14,685 Cash at bank 97,617 20, ,033 40,882 TOTAL ASSETS 4,539,428 4,994,698 LIABILITIES Amount due to Manager - 6,298 Amount due to Trustee Other payables 11 78,264 15,792 TOTAL LIABILITIES 79,051 22,805 EQUITY Unitholders contribution 2,981, ,577 Retained earnings 1,478,943 4,373,316 NET ASSET VALUE ( NAV ) ATTRIBUTABLE TO UNITHOLDERS 12 4,460,377 4,971,893 TOTAL EQUITY AND LIABILITIES 4,539,428 4,994,698 NUMBER OF UNITS IN CIRCULATION 12(a) 5,647,900 5,748,954 NET ASSET VALUE PER UNIT (RM) The accompanying notes form an integral part of the financial statements. Kenanga Diversifi ed Fund Interim Report 14

20 6.3 STATEMENT OF CHANGES IN NET ASSET VALUE FOR THE FINANCIAL PERIOD FROM 1 DECEMBER 2015 TO 31 MAY 2016 (unaudited) Unitholders Retained Total Note contribution earnings NAV RM RM RM to At beginning of the fi nancial period 2,480,487 1,837,983 4,318,470 Total comprehensive income - 37,668 37,668 Creation of units 12(a) 227, ,396 Cancellation of units 12(a) (122,971) - (122,971) Distribution equalisation 12(a) (186) - (186) Distribution (396,708) (396,522) Reinvestment of income distributed 12(a) 396, ,522 At end of the fi nancial period 2,931,434 1,478,943 4,460, to At beginning of the fi nancial period 802,361 4,295,252 5,097,613 Total comprehensive income - 78,064 78,064 Creation of units 12(a) 395, ,282 Cancellation of units 12(a) (571,833) - (571,833) Distribution equalisation 12(a) (27,233) - (27,233) At end of the fi nancial period 598,577 4,373,316 4,971,893 The accompanying notes form an integral part of the financial statements. 15 Kenanga Diversifi ed Fund Interim Report

21 6.4 STATEMENT OF CASH FLOWS FOR THE FINANCIAL PERIOD FROM 1 DECEMBER 2015 TO 31 MAY 2016 (unaudited) CASH FLOWS FROM OPERATING AND INVESTING ACTIVITIES to to RM RM Proceeds from sale of fi nancial assets at FVTPL 3,824,586 1,647,693 Interest received 46,528 47,112 Dividends received 38,005 41,271 Auditors remuneration paid - (6,000) Trustee s fee paid (4,455) (4,463) Payments for other fees and expenses (13,086) (11,115) Manager s fee paid (33,622) (39,193) Purchase of fi nancial assets at FVTPL (3,249,107) (1,751,266) Net cash generated from/(used in) operating and investing activities 608,849 (75,961) CASH FLOWS FROM FINANCING ACTIVITIES Cash received from units created 221, ,928 Cash paid on units cancelled (133,896) (595,241) Net cash generated from/(used in) fi nancing activities 87,351 (204,313) NET INCREASE/(DECREASE) IN CASH AND CASH EQUIVALENTS 696,200 (280,274) CASH AND CASH EQUIVALENTS AT BEGINNING OF THE FINANCIAL PERIOD 507, ,045 CASH AND CASH EQUIVALENTS AT END OF THE FINANCIAL PERIOD 1,203, ,771 Cash and cash equivalents comprise: Cash at bank 97,617 20,859 Short term deposits 1,106, ,912 1,203, ,771 The accompanying notes form an integral part of the financial statements. Kenanga Diversifi ed Fund Interim Report 16

22 6.5 NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL PERIOD FROM 1 DECEMBER 2015 TO 31 MAY 2016 (unaudited) 1. THE FUND, THE MANAGER AND THEIR PRINCIPAL ACTIVITIES Kenanga Diversifi ed Fund ( the Fund ) was constituted pursuant to the executed Deed dated 16 April 2004 (collectively, together with deeds supplemental thereto, referred to as the Deed ) between the Manager, Kenanga Funds Berhad, and CIMB Commerce Trustee Berhad ( the Trustee ). The Fund commenced operations on 23 April 2004 and will continue to be in operation until terminated by the Trustee as provided under Clause 38 of the Deed. Pursuant to the executed Seventh Supplemental Deed dated 15 May 2013 between Kenanga Investors Berhad and CIMB Commerce Trustee Berhad, Kenanga Investors Berhad was appointed as the Manager of the Fund with effect from 8 June Kenanga Investors Berhad is a wholly-owned subsidiary of Kenanga Investment Bank Berhad, which in turn is a wholly-owned subsidiary of K & N Kenanga Holdings Berhad that is listed on the Main Market of Bursa Malaysia Securities Berhad. All of these companies are incorporated in Malaysia. The principal place of business of the Manager is Suite 12.02, 12th Floor, Kenanga International, Jalan Sultan Ismail, Kuala Lumpur. The Fund seeks to provide investors capital appreciation with stability of income over a medium to long term investment horizon from a diversifi ed investment portfolio. The investments include a mixture of equity securities, fi xed income securities and money market instruments. 2. FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES The Fund is exposed to a variety of risks including market risk (which includes interest rate risk and price risk), credit risk and liquidity risk. Whilst these are the most important types of fi nancial risks inherent in each type of fi nancial instruments, the Manager and the Trustee would like to highlight that this list does not purport to constitute an exhaustive list of all the risks inherent in an investment in the Fund. The Fund has an approved set of investment guidelines and policies as well as internal controls which sets out its overall business strategies to manage these risks to optimise returns and preserve capital for the unitholders, consistent with the long term objectives of the Fund. 17 Kenanga Diversifi ed Fund Interim Report

23 2. FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES (CONTD.) a. Market Risk Market risk is the risk that the fair value or future cash fl ows of a fi nancial instrument will fl uctuate because of changes in market prices. Market risk includes interest rate risk and price risk. Market risk arises when the value of the investments fl uctuates in response to the activities of individual companies, general market or economic conditions. It stems from the fact that there are economy-wide perils, which threaten all businesses. Hence, investors are exposed to market uncertainties. Fluctuation in the investment s price caused by uncertainties in the economic, political and social environment will affect the NAV of the Fund. The Manager manages the risk of unfavourable changes in prices by cautious review of the investments and continuous monitoring of their performance and risk profi les. i. Interest rate risk Interest rate risk refers to how the changes in the interest rate environment would affect the valuation of the Fund s investments. Rates offered by the fi nancial institutions will fl uctuate according to the Overnight Policy Rate determined by Bank Negara Malaysia and this has direct correlation with the Fund s investments in unquoted corporate bonds, unquoted government guaranteed bonds and deposits. The Fund s exposure to the interest rate risk is mainly confi ned to unquoted corporate bonds and unquoted government guaranteed bonds. Interest rate risk sensitivity The following table demonstrates the sensitivity of the Fund s profi t for the fi nancial period to a reasonably possible change in rate of return, with all other variables held constant: Changes in rate Increase/(decrease) Basis points Effects on profit for the financial period Increase/(decrease) RM Financial assets at FVTPL 5/(5) (2,075)/2, Financial assets at FVTPL 5/(5) (3,024)/3,032 In practice, the actual trading results may differ from the sensitivity analysis above and the difference could be material. Kenanga Diversifi ed Fund Interim Report 18

24 2. FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES (CONTD.) a. Market Risk (Contd.) i. Interest rate risk (Contd.) Interest rate risk exposure The following table analyses the Fund s interest rate risk exposure. The Fund s assets and liabilities are disclosed at fair value and categorised by the earlier of contractual re-pricing or maturity dates. Non- Weighted exposure average Above Above interest effective Up to 1 year 5 years rate interest 1 year -5 years -15 years movement Total rate* RM RM RM RM RM % Assets Financial assets at FVTPL - 623, ,018 2,126,786 3,210, Short term deposits 1,106, ,106, Other assets , ,296 1,106, , ,018 2,335,082 4,524,691 Liabilities Other liabilities ,582 47,582 Total interest rate sensitivity gap 1,106, , ,018 2,287,500 4,477, Kenanga Diversifi ed Fund Interim Report

25 2. FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES (CONTD.) a. Market Risk (Contd.) i. Interest rate risk (Contd.) Interest rate risk exposure (Contd.) Non- Weighted exposure average Above Above interest effective Up to 1 year 5 years rate interest 1 year -5 years -15 years movement Total rate* RM RM RM RM RM % Assets Financial assets at FVTPL - 928, ,873 2,823,628 4,323, Short term deposits 629, , Other assets ,197 26, , , ,873 2,849,825 4,980,013 Liabilities Other liabilities ,013 7,013 Total interest rate sensitivity gap 629, , ,873 2,842,812 4,973,000 * Computed based on interest-bearing assets only. ii. Price risk Price risk is the risk of unfavorable changes in the fair values of quoted equity securities, quoted collective investment schemes and quoted warrant. The Fund invests in quoted equity securities, quoted collective investment schemes and quoted warrant which are exposed to price fl uctuations. This may then affect the NAV per unit of the Fund. Kenanga Diversifi ed Fund Interim Report 20

26 2. FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES (CONTD.) a. Market Risk (Contd.) ii. Price risk (Contd.) Price risk sensitivity The Manager s best estimate of the effect on the profi t for the fi nancial period due to a reasonably possible change in investments in quoted equity securities, quoted collective investment schemes and quoted warrant with all other variables held constant is indicated in the table below: Changes in price Increase/(decrease) Basis points Effects on profit for the financial period Increase/(decrease) RM Financial assets at FVTPL 5/(5) 1,058/(1,058) Financial assets at FVTPL 5/(5) 1,405/(1,405) In practice, the actual trading results may differ from the sensitivity analysis above and the difference could be material. Price risk concentration The following table sets out the Fund s exposure and concentration to price risk based on its portfolio of fi nancial instruments as at the reporting date. Fair value Percentage of NAV RM RM % % Financial assets at FVTPL 2,116,763 2,809, Kenanga Diversifi ed Fund Interim Report

27 2. FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES (CONTD.) a. Market Risk (Contd.) ii. Price risk (Contd.) Price risk concentration (Contd.) The Fund s concentration of price risk from the Fund s quoted equity securities, quoted collective investment schemes and quoted warrant analysed by sector is as follows. Fair value Percentage of NAV RM RM % % Trading/Services 500, , Consumer products 371, , Industrial products 351, , Constructions 285, , Properties 223, , Finance 177, , Technology 143, , Plantations 57,960 64, Special Purpose Acquisition Company 4, Infrastructure - 124, Real Estate Investments Trusts - 292, Warrant 1, ,116,763 2,809, b. Credit Risk Credit risk is the risk that the counterparty to a fi nancial instrument will cause a fi nancial loss to the Fund by failing to discharge an obligation. The Manager manages the credit risk by undertaking credit evaluation to minimise such risk. i. Credit risk exposure As at the reporting date, the Fund s maximum exposure to credit risk is represented by the carrying amount of each class of fi nancial asset recognised in the statement of fi nancial position. ii. Financial assets that are either past due or impaired As at the reporting date, there are no fi nancial assets that are either past due or impaired. Kenanga Diversifi ed Fund Interim Report 22

28 2. FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES (CONTD.) b. Credit Risk (Contd.) iii. Credit quality of financial assets The Fund invests only in unquoted corporate bonds and unquoted government guaranteed bonds with at least investment grade credit rating by a credit rating agency. The following table analyses the Fund s portfolio of unquoted corporate bonds and unquoted government guaranteed bonds by rating category: Unquoted bonds Percentage of total unquoted bonds Percentage of NAV % % % % Rating AA A AA AAA AA AA AA AA Government guaranteed The Fund invests in deposits with fi nancial institutions licensed under the Financial Services Act 2013 and Islamic Financial Services Act The following table analyses the licensed fi nancial institutions by rating category: Short term deposits Percentage of total short term deposits Percentage of NAV % % % % Rating P Kenanga Diversifi ed Fund Interim Report

29 2. FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES (CONTD.) b. Credit Risk (Contd.) iv. Credit risk concentration Concentration risk is monitored and managed based on sectoral distribution. The table below analyses the Fund s portfolio of unquoted corporate bonds and unquoted government guaranteed bonds by sectoral distribution: Percentage of total unquoted bonds Percentage of NAV % % % % Utilities Industrial products Plantations Properties Construction Transportation Finance c. Liquidity Risk Liquidity risk is defi ned as the risk that the Fund will encounter diffi culty in meeting obligations associated with fi nancial liabilities that are to be settled by delivering cash or another fi nancial asset. Exposure to liquidity risk arises because of the possibility that the Fund could be required to pay its liabilities or cancel its units earlier than expected. The Fund is exposed to cancellation of its units on a regular basis. Units sold to unitholders by the Manager are cancellable at the unitholders option based on the Fund s NAV per unit at the time of cancellation calculated in accordance with the Deed. The liquid assets comprise cash, deposits with licensed fi nancial institutions and other instruments, which are capable of being converted into cash within 7 days. The following table analyses the maturity profi le of the Fund s fi nancial assets and fi nancial liabilities in order to provide a complete view of the Fund s contractual commitments and liquidity. Kenanga Diversifi ed Fund Interim Report 24

30 2. FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES (CONTD.) c. Liquidity Risk (Contd.) Above Above Up to 1 year 5 years Note 1 year -5 years -15 years Total RM RM RM RM Assets Financial assets at FVTPL 2,126, , ,018 3,210,395 Short term deposits 1,106, ,106,000 Other assets 208, ,296 (i) 3,441, , ,018 4,524,691 Liabilities Other liabilities (ii) 47, ,582 Equity (iii) 4,460, ,460,377 Liquidity gap (1,066,877) 623, ,018 (16,732) Assets Financial assets at FVTPL 2,823, , ,873 4,323,904 Short term deposits 629, ,912 Other assets 26, ,197 (i) 3,479, , ,873 4,980,013 Liabilities Other liabilities (ii) 7, ,013 Equity (iii) 4,971, ,971,893 Liquidity gap (1,499,169) 928, ,873 (1,107) 25 Kenanga Diversifi ed Fund Interim Report

31 2. FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES (CONTD.) c. Liquidity Risk (Contd.) i) Financial assets Analysis of fi nancial assets at FVTPL into maturity groupings is based on the expected date on which these assets will be realised. The Fund s investments in quoted equity securities, quoted collective investment schemes and quoted warrant have been included in the up to 1 year category on the assumption that these are highly liquid investments which can be realised should all of the Fund s unitholders equity be required to be redeemed. For other assets, the analysis into maturity groupings is based on the remaining period from the end of the reporting period to the contractual maturity date or if earlier, the expected date on which the assets will be realised. ii) Financial liabilities The maturity grouping is based on the remaining period from the end of the reporting period to the contractual maturity date or if earlier, the date on which liabilities will be settled. When the counterparty has a choice of when the amount is paid, the liability is allocated to the earliest period in which the Fund can be required to pay. iii) Equity As the unitholders can request for redemption of their units, they have been categorised as having a maturity of up to 1 year. As a result, it appears that the Fund has a liquidity gap within up to 1 year. However, the Fund believes that it would be able to liquidate its investments should the need arises to satisfy all the redemption requirements. 3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES a. Basis of Accounting The fi nancial statements of the Fund have been prepared in accordance with Malaysian Financial Reporting Standards ( MFRS ) as issued by the Malaysian Accounting Standards Board ( MASB ) and International Financial Reporting Standards ( IFRS ) issued by the International Accounting Standards Board ( IASB ). The accounting policies adopted are consistent with those of the previous fi nancial period except for the adoption of the new and amended MFRS which became effective for the Fund on 1 December The adoption of the new and amended MFRS did not have any signifi cant impact on the fi nancial position or performance of the Fund. The fi nancial statements have been prepared on the historical cost basis except as disclosed in the accounting policies below. Kenanga Diversifi ed Fund Interim Report 26

32 3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTD.) b. Standards and Amendments Issued But Not Yet Effective As at the reporting date, the following Standards and Amendments that have been issued by MASB will be effective for the Fund in future fi nancial periods. The Fund intends to adopt the relevant standards when they become effective. Description Effective for financial period beginning on or after Amendments to MFRS contained in the documents entitled Annual Improvements to MFRSs Cycle 1 January 2016 MFRS 14: Regulatory Deferral Accounts 1 January 2016 Amendments to MFRS 10, MFRS 12 and MFRS 128: Investment Entities: Applying the Consolidation Exception 1 January 2016 Amendments to MFRS 11: Accounting for Acquisitions of Interests in Joint Operations 1 January 2016 Amendments to MFRS 101: Disclosure Initiative 1 January 2016 Amendments to MFRS 116 and MFRS 138: Clarifi cation of Acceptable Methods of Depreciation and Amortisation 1 January 2016 Amendments to MFRS 116 and MFRS 141: Agriculture: Bearer Plants 1 January 2016 Amendments to MFRS 127: Equity Method in Separate Financial Statements 1 January 2016 Amendments to MFRS 107: Disclosure Initiative 1 January 2017 Amendments to MFRS 112: Recognition of Deferred Tax Assets for Unrealised Losses 1 January 2017 MFRS 9: Financial Instruments 1 January 2018 MFRS 15: Revenue from Contracts with Customers 1 January 2018 MFRS 16: Leases 1 January 2019 Amendments to MFRS 10 and MFRS 128: Sale or Contribution of Assets between an Investor To be announced and its Associate or Joint Venture by MASB The Fund will adopt the above pronouncements when they become effective in the respective fi nancial periods. These pronouncements are not expected to have any signifi cant impact to the fi nancial statements of the Fund upon their initial application, other than MFRS 9. MFRS 9 replaces MFRS 139 on the following requirements: classifi cation and measurement of fi nancial assets and fi nancial liabilities as defi ned in MFRS 139, impairment methodology and hedge accounting. The Fund is in the process of making an assessment of the impact of this Standard. 27 Kenanga Diversifi ed Fund Interim Report

33 3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTD.) c. Financial Assets Financial assets are recognised in the statement of fi nancial position when, and only when, the Fund becomes a party to the contractual provisions of the fi nancial instruments. When fi nancial assets are recognised initially, they are measured at fair value, plus, in the case of fi nancial assets not at FVTPL, directly attributable transaction costs. The Fund determines the classifi cation of its fi nancial assets at initial recognition. i. Financial assets at FVTPL Financial assets are classifi ed as fi nancial assets at FVTPL if they are held for trading or are designated as such upon initial recognition. Financial assets held for trading include quoted equity securities, quoted collective investment schemes, quoted warrant, unquoted corporate bonds and unquoted government guaranteed bonds acquired principally for the purpose of selling in the near term. Subsequent to initial recognition, fi nancial assets at FVTPL are measured at fair value. Changes in the fair value of those fi nancial instruments are recorded in profi t or loss. Interest earned and dividend revenue elements of such instruments are recorded separately in interest income and dividend income, respectively. ii. Receivables Financial assets with fi xed or determinable payments that are not quoted in an active market are classifi ed as receivables. Subsequent to initial recognition, receivables are measured at amortised cost using the effective interest method. Gain or loss is recognised in profi t or loss when the receivable is derecognised or impaired, and through the amortisation process. A fi nancial asset is derecognised when the contractual right to receive cash fl ows from the asset has expired. On derecognition of a fi nancial asset, the difference between the carrying amount and the sum of the consideration received is recognised in profit or loss. Kenanga Diversifi ed Fund Interim Report 28

34 3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTD.) d. Impairment of Financial Assets The Fund assesses at each reporting date whether there is any objective evidence that a fi nancial asset is impaired. To determine whether there is objective evidence that an impairment loss on fi nancial assets has been incurred, the Fund considers factors such as the probability of insolvency or signifi cant fi nancial diffi culties of the debtor and default or signifi cant delay in payments. If any such evidence exists, the amount of impairment loss is measured as the difference between the asset s carrying amount and the present value of estimated future cash fl ows discounted at the fi nancial asset s original effective interest rate. The impairment loss is recognised in profi t or loss. The carrying amount of the fi nancial asset is reduced by the impairment loss directly for all fi nancial assets, with the exception of receivables, where the carrying amount is reduced through the use of an allowance account. When a receivable becomes uncollectible, it is written off against the allowance account. 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, the previously recognised impairment loss is reversed to the extent that the carrying amount of the assets does not exceed its amortised cost at the reversal date. The amount of reversal is recognised in profi t or loss. e. Income Income is recognised to the extent that it is probable that the economic benefi ts will fl ow to the Fund and the income can be reliably measured. Income is measured at the fair value of consideration received or receivable. Interest income which includes the accretion of discount and amortisation of premium on fi xed income securities is recognised using the effective interest method. Dividend income is recognised on declared basis, when the right to receive the dividend is established. The realised gain or loss on sale of investments is measured as the difference between the net disposal proceeds and the carrying amount of the investment. f. Cash and Cash Equivalents For the purposes of the statement of cash fl ows, cash and cash equivalents include cash at bank and short term deposits with licensed fi nancial institutions. 29 Kenanga Diversifi ed Fund Interim Report