fund For the Financial Period from 1 June 2017 to 30 November 2017

Transcription

1 KENANGA syariah growth fund interim REPORT For the Financial Period from 1 June 2017 to 30 November 2017

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3 KENANGA SYARIAH GROWTH FUND Contents Page Corporate Directory ii - iii Directory of Manager s Offices iv Fund Information 1 Manager s Report 2-4 Fund Performance 5-7 Trustee s Report 8 Shariah Adviser s Report 9 Statement by the Manager 10 Financial Statements 11-42

4 CORPORATE DIRECTORY Manager: Kenanga Investors Berhad (Company No P) Registered Office Level 17, Kenanga Tower, 237, Jalan Tun Razak, Kuala Lumpur, Malaysia. Tel: Fax: Board Of Directors Datuk Syed Ahmad Alwee Alsree (Chairman) Syed Zafilen Syed Alwee (Independent Director) Peter John Rayner (Independent Director) Imran Devindran bin Abdullah (Independent Director) Dato Bruce Kho Yaw Huat Ismitz Matthew De Alwis Business Office Level 14, Kenanga Tower, 237, Jalan Tun Razak, Kuala Lumpur, Malaysia. Tel: Fax: Website: Investment Committee Dato Bruce Kho Yaw Huat (Chairman) Syed Zafilen 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 ) Level 17, Kenanga Tower, 237, Jalan Tun Razak, Kuala Lumpur, Malaysia External Fund Manager: Kenanga Islamic Investors Berhad (Company No D) Registered Office Kenanga Islamic Investors Berhad (KIIB) 17th Floor, Kenanga Tower, 237, Jalan Tun Razak, Kuala Lumpur, Malaysia. Tel: Fax: Business Office 13th Floor, Kenanga Tower, 237, Jalan Tun Razak, Kuala Lumpur, Malaysia. Tel: Fax: Trustee: CIMB Islamic Trustee Berhad (Company No M) Registered Office Level 13, Menara CIMB Jalan Stesen Sentral 2 Kuala Lumpur Sentral Kuala Lumpur. Tel: Fax: Website: Shariah Adviser: IBFIM (Company No W) Registered Office No. 149A, 149B, 151B Persiaran Raja Muda Musa Port Klang Selangor Darul Ehsan, Malaysia Business Office Level 21, Menara CIMB Jalan Stesen Sentral 2 Kuala Lumpur Sentral Kuala Lumpur. Tel: Fax: Business Office 3rd Floor, Menara Takaful Malaysia Jalan Sultan Sulaiman Kuala Lumpur, Malaysia. Tel: Fax: ii Kenanga Syariah Growth Fund Interim Report

5 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) , 6th Floor, Wisma Tune, 19, Lorong Dungun, Damansara Heights, Kuala Lumpur, Malaysia. Tel: Fax: Website: Kenanga Syariah Growth Fund Interim Report iii

6 DIRECTORY OF MANAGER S OFFICES Regional Branch Offices : Kuala Lumpur Level 13, Kenanga Tower, 237, Jalan Tun Razak, 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, 5th Floor, Menara Boustead Penang No. 39, Jalan Sultan Ahmad Shah Penang. Tel : Fax : Miri 2nd Floor, Lot 1264, Centre Point Commercial Centre, Jalan Melayu, Miri, Sarawak Tel: Fax: Seremban 2nd Floor, No. 1D-2, Jalan Tuanku Munawir Seremban, Negeri Sembilan Tel: Fax: Johor Bahru Lot 11.03, 11th Floor, Menara MSC Cyberport No. 5, Jalan Bukit Meldrum Johor Bahru, Johor Tel: / 4798 Fax: Kuching 1st Floor, No 71 Lot 10900, Jalan Tun Jugah Kuching, Sarawak Tel: Fax: Kuantan No. B8, Ground Floor, Jalan Tun Ismail Kuantan Pahang. Tel : Fax : Ipoh Suite 1, 2nd Floor, No. 63, Persiaran Greenhill, Ipoh, Perak, Malaysia Tel: / 7570 / 7575 Fax: Kota Kinabalu A-03-11, 3rd Floor Block A, Warisan Square Jalan Tun Fuad Stephens Kota Kinabalu, Sabah Tel: / Fax: Petaling Jaya 44B, Jalan SS21/35 Damansara Utama Petaling Jaya, Selangor Tel: Fax: iv Kenanga Syariah Growth Fund Interim Report

7 1. FUND INFORMATION 1.1 Fund Name Kenanga Syariah Growth Fund (KSGF or the Fund) 1.2 Fund Category / Type Equity (Islamic) / Growth 1.3 Investment Objective The Fund aims to provide unit holders with long term capital growth by investing principally in equities that comply with Shariah requirements. 1.4 Investment Strategy The Fund will invest principally in a diversified portfolio of Malaysian Shariah-compliant equity and equity related securities of companies with sustainable business model and trading at a discount to its intrinsic value. 1.5 Duration The Fund was launched on 29 January 2002 and 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 FTSE-Bursa Malaysia Emas Shariah Index (FBMS). 1.7 Distribution Policy Income distribution is incidental, if any. 1.8 External Fund Manager Kenanga Islamic Investors Berhad 1.9 Breakdown of unit holdings of KSGF as at 30 November 2017 Size of holdings No. of unitholders No. of units held 5,000 and below 4,268 11,130,899 5,001-10,000 2,947 21,953,821 10,001-50,000 5, ,178,579 50, ,000 1, ,503, ,001 and above 28 61,145,098 Total 14, ,911,626 Kenanga Syariah Growth Fund Interim Report 1

8 2. MANAGER S REPORT 2.1 Explanation on whether the Fund has achieved its investment objective. The Fund achieved its investment objective of achieving consistent capital appreciation over the long term by primarily investing in Shariah-compliant securities with good growth prospects. 2.2 Comparison between the Fund s performance and performance of the benchmark Performance Chart Since Launch (29/01/ /11/2017) Kenanga Syariah Growth Fund vs FTSE-Bursa Malaysia Emas Shariah Index Source: Lipper 2.3 Investment strategies and policies employed during the financial period under review For the financial year under review, the Fund continued with its strategy of investing in Shariah compliant securities of companies with sustainable business models and competent management, whilst trading at a discount to their intrinsic / fair value. The Fund focused on companies whose top line / revenue should prove to be relatively more resilient to a global economic slowdown and have the ability to maintain their profit margins. We maintained a defensive portfolio strategy and preferred companies driven by resilient earnings with exposure to selective themes like USD beneficiaries (exporters), beneficiaries of rising foreign direct investment, GLC reform/restructuring plays, domestic consumption and infrastructure. 2.4 The Fund s asset allocation as at 30 November 2017 and comparison with the previous financial period Asset 30 Nov Nov 2016 Listed Shariah-compliant equity securities 86.0% 75.8% Short term Islamic deposits and cash 14.0% 24.2% Reason for the differences in asset allocation The fund invested level increased to 86.0% due to the fund manager taking advantage of market weaknesses. 2 Kenanga Syariah Growth Fund Interim Report

9 2.5 Fund performance analysis based on NAV per unit (adjusted for income distribution; if any) since last review period Period under review Kenanga Syariah Growth Fund 4.06% FTSE-Bursa Malaysia Emas Shariah Index (FBMS) 0.91% Source: Lipper For the financial year under review, the fund outperformed the FBMS benchmark by 3.15% mainly due to Shariah compliant stock selection. 2.6 Review of the market Market Review Asian markets performed well in June with key indices reaching all-time high. As a widely expected move, US Fed raised interest rates for the second time in 2017 by 25bps after upgrading GDP growth forecast to 2.2% and unemployment rate to 4.3% for Sector wise, Technology suffered a minor sell down in June as investors rotate into financial and energy stocks for value. The International Monetary Fund (IMF) remained confident that the global economic recovery is on a firmer footing this year on expectations of accelerating growth in the Euro-zone, Japan and China. In the July 2017 update of its World Economic Outlook (WEO), the IMF kept its global GDP forecast at 3.5% for 2017 and 3.6% for 2018 unchanged from its April 2017 outlook. Major European and Asian Indexes fell early August with concerns over North Korea, Hurricane Harvey, Spain terror attacks and the US political environment. Stronger economic data and positive corporate earnings propped up August numbers. The Jackson Hole Economic Policy Symposium accentuates the challenges faced by central bankers to spur wage inflation despite falling global unemployment, as speeches from Janet Yellen and Mario Draghi avoided monetary policy, focusing on regulatory reforms and market risks. The third round of negotiations between UK and EU has begun, with a multi-year transitional agreement likely to arrive after March The regional markets were jittery in September as sabre rattling by North Korea sent investors into selling mode while heightened expectations of another US interest rate hike and balance sheet contraction this year following comments from Federal Reserve officials also added to the downbeat sentiment. Meanwhile, the Asian Development Bank came out a report and remained confident that the global economic recovery is on a firmer footing this year as controlled growth moderation in China is balanced by expected healthy growth elsewhere. Regional markets fared better in October compared to previous month driven by a recovery in tech stocks and easing geopolitical tension between China and Korea following the year-long standoff over deployment of anti-missile systems. Following this, both economies agreed to a currency swap agreement, which was key rerating catalyst for China-centric Korean equities. The month of November started off with the Bank of England raising UK interest rates for first time since The Bank of England raised rates by 25bps but the Pound still fell as gloomy forecasts for growth appeared to rule out the prospect of steep increases in the cost of credit before As largely expected, President Donald Trump has named Jerome Powell as the next Federal Reserve Chairman. Kenanga Syariah Growth Fund Interim Report 3

10 2.6 Review of the market (contd.) Market Outlook Economic growth in Malaysia is forecasted to run at a decent pace of about 5.3%, albeit lower than the 5.8% expected for Drivers of growth should broaden into domestic demand, as strong exports, higher commodity prices and stronger Ringgit feed into the other sectors of the economy. Besides, the undemanding valuations of the Malaysian market against regional peers are likely to sustain foreign interest on top of stronger MYR and crude oil prices. The ongoing economic momentum, coupled with positive seasonality (January effect and pre-cny rally) will likely result in a strong start in Expectations of GE14 should spur additional trading interest. We are positive and hence will maintain a relative high investment levels in the 1Q, but tactically scale back upon dissolution of parliament. Strategy We remain constructively positive on the market and maintain that Shariah-compliant stock picking is key for outperformance. We favour construction, exporters which provide more value added or are naturally hedged by having USD raw material cost, consumer staples like F&B, and utilities. We remain selective on oil & gas and property. 2.7 Income Distribution For the financial period under review, the Fund did not declare any income distribution 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 unit holders During the financial period under review, there were no circumstances that materially affected any interests of the unit holders Rebates & Soft commissions Any rebates received are channelled 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. 4 Kenanga Syariah Growth Fund Interim Report

11 3. FUND PERFORMANCE 3.1 Details of portfolio composition of the Fund for the financial period as at 30 November 2017 against last 3 financial years as at 31 May are as follows: a. Distribution among industry sectors and category of Shariah-compliant investments: As at FY FY FY % % % % Trading/Services Constructions Industrial products Consumer products Properties Plantations Finance Technology Infrastructure Islamic Real Estate Investments Trusts Shariah-compliant warrants Short term Islamic deposits and cash Note: The above mentioned percentages are based on total Shariah-compliant investments market value plus cash. b. Distribution among markets The Fund invests in local Shariah-compliant investment securities and cash instruments only. Kenanga Syariah Growth Fund Interim Report 5

12 3.2 Performance details of the Fund for the financial period ended 30 November 2017 against last 3 financial years ended 31 May are as follows: Period from to FY 2017 FY 2016 FY 2015 Net asset value ( NAV ) (RM Million) * 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 financial 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 Shariah-compliant investment securities of the Fund divided by the average fund size calculated on a daily basis. 1 MER is lower against previous financial year mainly due to lower recovered expenses incurred during the financial period under review. 2 PTR for the financial period under review is higher due to increased trading activities by the fund manager. * Based on bid price fair valuation method on all investments held by the Fund as at 30 November 2017, the NAV and NAV per unit would be RM million and RM respectively. (As disclosed under Note 12 of the financial statements) 6 Kenanga Syariah Growth Fund Interim Report

13 3.3 Average total return of the Fund 1 Year 30 Nov Nov 17 3 Years 30 Nov Nov 17 5 Years 30 Nov Nov 17 Kenanga Syariah Growth Fund 11.58% 4.53% 7.68% FTSE-Bursa Malaysia Emas Shariah Index (FBMS) 8.56% 0.08% 3.68% Source: Lipper 3.4 Annual total return of the Fund Period under review 31 May Nov 17 1 Year 31 May Nov 17 1 Year 31 May May 16 1 Year 31 May May 15 1 Year 31 Dec May 14 1 Year 31 Dec Dec 13 Kenanga Syariah Growth Fund 4.06% 6.95% -0.47% -1.30% 28.72% 20.51% FTSE-Bursa Malaysia Emas Shariah Index (FBMS) 0.91% 7.39% -5.20% -4.26% 14.02% 13.29% Source: Lipper Investors are reminded that past performance is not necessarily indicative of future performance. Unit prices and investment returns may fluctuate. Kenanga Syariah Growth Fund Interim Report 7

14 4 TRUSTEE S REPORT TO THE UNIT HOLDERS OF KENANGA SYARIAH GROWTH FUND We, CIMB Islamic Trustee Berhad being the Trustee of Kenanga Syariah Growth Fund ( the Fund ) are of the opinion that Kenanga Investors Berhad ( the Manager ), acting in the capacity as Manager of the Fund, has fulfilled its duties in the following manner for the financial period from 1 June 2017 to 30 November a) The Fund has been managed in accordance with the limitations imposed on the investment powers of the Manager 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 and pricing for the Fund has been carried out in accordance with the Deed and relevant regulatory requirements; and c) Creation and cancellation of units have been carried out in accordance with the Deed and relevant regulatory requirements. For and on behalf of CIMB Islamic Trustee Berhad Lee Kooi Yoke Chief Operating Officer Kuala Lumpur, Malaysia 26 January Kenanga Syariah Growth Fund Interim Report

15 5. SHARIAH ADVISER S REPORT TO THE UNIT HOLDERS OF KENANGA SYARIAH GROWTH FUND We have acted as the Shariah Adviser of Kenanga Syariah Growth Fund. Our responsibility is to ensure that the procedures and processes employed by Kenanga Investors Berhad are in accordance with Shariah principles. In our opinion, Kenanga Investors Berhad has managed and administered Kenanga Syariah Growth Fund in accordance with Shariah principles and complied with applicable guidelines, rulings and decisions issued by the Securities Commission Malaysia pertaining to Shariah matters for the financial period form 1 June 2017 to 30 November In addition, we also confirm that the investment portfolio of Kenanga Syariah Growth Fund comprises securities which have been classified as Shariah-compliant by the Shariah Advisory Council of the Securities Commission Malaysia. As for the securities which are not certified by the Shariah Advisory Council of the Securities Commission Malaysia, we have reviewed the said securities and opine that these securities are designated as Shariahcompliant. For and on behalf of the Shariah Adviser IBFIM Muhammad Khairulnizam Bin Alias Consultant (Shariah)/ Designated Person Responsible for Shariah Advisory Kuala Lumpur, Malaysia 26 January 2018 Kenanga Syariah Growth Fund Interim Report 9

16 6. 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 financial position as at 30 November 2017 and the related statement of comprehensive income, statement of changes in net asset value and statement of cash flows for the financial period from 1 June 2017 to 30 November 2017 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 financial position of Kenanga Syariah Growth Fund as at 30 November 2017 and of its financial performance and cash flows for the financial period from 1 June 2017 to 30 November 2017 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 Officer Kuala Lumpur, Malaysia 26 January Kenanga Syariah Growth Fund Interim Report

17 7. FINANCIAL STATEMENTS 7.1 STATEMENT OF COMPREHENSIVE INCOME FOR THE FINANCIAL PERIOD FROM 1 JUNE 2017 TO 30 NOVEMBER 2017 (unaudited) Note to RM to RM INVESTMENT INCOME Dividend income 4,319,892 2,691,410 Profit income 829, ,330 Net gain/(loss) from Shariah-compliant investments: - Financial assets at fair value through profit or loss ( FVTPL ) 4 14,319,983 (1,922,208) 19,469,228 1,768,532 EXPENSES Manager s fee 5 2,810,427 1,941,524 Trustee s fee 6 93,681 64,718 Auditors remuneration 6,710 5,014 Tax agent s fee 2,005 2,005 Administration expenses 275, ,026 Brokerage and other transaction costs 1,645, ,312 4,834,121 2,965,599 NET INCOME/(LOSS) BEFORE TAX 14,635,107 (1,197,067) Income tax NET INCOME/(LOSS) AFTER TAX, REPRESENTING TOTAL COMPREHENSIVE INCOME/(LOSS) FOR THE FINANCIAL PERIOD 14,635,107 (1,197,067) Net income/(loss) after tax is made up as follows: Realised gain/(loss) 418,712 (300,386) Unrealised gain/(loss) 4 14,216,395 (896,681) 14,635,107 (1,197,067) The accompanying notes form an integral part of the financial statements. Kenanga Syariah Growth Fund Interim Report 11

18 7.2 STATEMENT OF FINANCIAL POSITION AS AT 30 NOVEMBER 2017 (unaudited) Note RM RM ASSETS INVESTMENTS Financial assets at FVTPL 4 344,612, ,868,359 Short term Islamic deposits 8 53,535,513 65,005, ,148, ,874,276 OTHER ASSETS Amount due from Manager - 614,871 Other receivables 9 5,169, ,590 Tax recoverable 9,092 9,092 Cash at bank 2,551, ,629 7,730,852 1,682,182 TOTAL ASSETS 405,879, ,556,458 LIABILITIES Amount due to Manager 258,734 - Amount due to Trustee 16,284 11,001 Other payables 10 7,919,833 2,356,046 TOTAL LIABILITIES 8,194,851 2,367,047 EQUITY Unit holders contribution 364,464, ,675,948 Retained earning/accumulated loss 33,220,461 (1,486,537) NET ASSET VALUE ( NAV ) ATTRIBUTABLE TO UNIT HOLDERS ,684, ,189,411 TOTAL LIABILITIES AND EQUITY 405,879, ,556,458 NUMBER OF UNITS IN CIRCULATION 11(a) 361,911, ,702,336 NET ASSET VALUE PER UNIT (RM) The accompanying notes form an integral part of the financial statements. 12 Kenanga Syariah Growth Fund Interim Report

19 7.3 STATEMENT OF CHANGES IN NET ASSET VALUE FOR THE FINANCIAL PERIOD FROM 1 JUNE 2017 TO 30 NOVEMBER 2017 (unaudited) Note Unit holders contribution Retained earning/ (Accumulated loss) Total NAV RM RM RM to At beginning of the financial period 341,577,232 18,585, ,162,586 Total comprehensive income - 14,635,107 14,635,107 Creation of units 11(a) 47,181,797-47,181,797 Cancellation of units 11(a) (24,346,083) - (24,346,083) Distribution equalisation 11(a) 51,078-51,078 At end of the financial period 364,464,024 33,220, ,684, to At beginning of the financial period 240,725,559 (289,470) 240,436,089 Total comprehensive loss - (1,197,067) (1,197,067) Creation of units 11(a) 41,439,087-41,439,087 Cancellation of units 11(a) (12,558,397) - (12,558,397) Distribution equalisation 11(a) 69,699-69,699 At end of the financial period 269,675,948 (1,486,537) 268,189,411 The accompanying notes form an integral part of the financial statements. Kenanga Syariah Growth Fund Interim Report 13

20 7.4 STATEMENT OF CASH FLOWS FOR THE FINANCIAL PERIOD FROM 1 JUNE 2017 TO 30 NOVEMBER 2017 (unaudited) to RM to RM CASH FLOWS FROM OPERATING AND INVESTING ACTIVITIES Proceeds from sale of financial assets at FVTPL 171,676,844 49,509,540 Dividends received 4,508,067 2,850,357 Profit received from Islamic deposits 869, ,900 Auditors remuneration paid (12,000) (10,900) Trustee s fee paid (92,249) (63,805) Payments for other fees and expenses (225,991) (150,084) Manager s fee paid (2,767,458) (1,904,994) Purchase of financial assets at FVTPL (230,310,886) (77,320,891) Net cash used in operating and investing activities (56,353,674) (26,097,877) CASH FLOWS FROM FINANCING ACTIVITIES Cash received from units created 47,689,261 42,693,991 Cash paid on units cancelled (24,309,269) (12,576,211) Net cash generated from financing activities 23,379,992 30,117,780 NET (DECREASE)/INCREASE IN CASH AND CASH EQUIVALENTS (32,973,682) 4,019,903 CASH AND CASH EQUIVALENTS AT BEGINNING OF THE FINANCIAL PERIOD 89,060,981 61,133,643 CASH AND CASH EQUIVALENTS AT END OF THE FINANCIAL PERIOD 56,087,299 65,153,546 Cash and cash equivalents comprise: Cash at bank 2,551, ,629 Short term Islamic deposits 53,535,513 65,005,917 56,087,299 65,153,546 The accompanying notes form an integral part of the financial statements. 14 Kenanga Syariah Growth Fund Interim Report

21 7.5 NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL PERIOD FROM 1 JUNE 2017 TO 30 NOVEMBER 2017 (unaudited) 1. THE FUND, THE MANAGER AND THEIR PRINCIPAL ACTIVITIES Kenanga Syariah Growth Fund ( the Fund ) was constituted pursuant to the executed Master Deed dated 8 January 2002 (collectively, together with deeds supplemental thereto, referred to as the Deed ) between the Manager, Kenanga Investors Berhad, and HSBC (Malaysia) Trustee Berhad ( the Trustee prior to 3 December 2013). The Fund has changed its trustee to CIMB Islamic Trustee Berhad ( the Trustee with effect from 3 December 2013). The aforesaid change was effected on 3 December 2013 via a Second Master Supplemental Deed dated 19 November The Fund commenced operations on 29 January 2002 and will continue to be in operation until terminated by the Trustee, as provided under Part 12 of the Deed. Kenanga Investors Berhad is a wholly-owned subsidiary of Kenanga Investment Bank Berhad. Prior to 1 November 2016, Kenanga Investment Bank Berhad was a wholly-owned subsidiary of K & N Kenanga Holdings Berhad that was listed on the Main Market of Bursa Malaysia Securities Berhad. Pursuant to an internal reorganisation exercise completed on 1 November 2016, Kenanga Investment Bank Berhad has become the holding company of K & N Kenanga Holdings Berhad. On 2 November 2016, Kenanga Investment Bank Berhad has assumed the listing status of K & N Kenanga Holdings Berhad. All of these companies are incorporated in Malaysia. The principal place of business of the Manager is Level 14, Kenanga Tower, 237, Jalan Tun Razak, Kuala Lumpur. The Fund seeks to provide unit holders with long term capital growth by investing principally in equities that comply with Shariah requirements. 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, liquidity risk and reclassification of Shariah status risk. Whilst these are the most important types of financial risks inherent in each type of financial 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 a Shariah-compliant 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 unit holders, consistent with the long term objectives of the Fund. a. Market risk Market risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market prices. Market risk includes interest rate risk and price risk. Kenanga Syariah Growth Fund Interim Report 15

22 2. FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES (CONTD.) a. Market risk (contd.) Market risk arises when the value of the Shariah-compliant investments fluctuates 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 Shariah-compliant investments prices 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 Shariah-compliant investments and continuous monitoring of their performance and risk profiles. i. Interest rate risk Interest rate risk refers to how the changes in the interest rate environment would affect the valuation of Shariah-compliant instruments. In the event of a rising interest rate environment, the performance of Shariah-compliant instruments may decrease, and vice versa. Interest rate, such as the Overnight Policy Rate set by Bank Negara Malaysia, will have an impact on the investment decisions of the Fund regardless of whether it is a Shariah-compliant fund or otherwise. It does not in any way suggest that the Fund will invest in conventional financial instruments. The Fund is not exposed to significant interest rate risk as its Islamic deposits are short term in nature and have fixed profit rates. Interest rate risk exposure The following table analyses the Fund s interest rate risk exposure. The Fund s financial assets and financial liabilities are disclosed at fair value and categorised by the earlier of contractual re-pricing or maturity dates. Up to 1 year Nonexposure to interest rate movement Total Weighted average effective rate of return* RM RM RM % Assets Financial assets at FVTPL - 344,612, ,612,971 Short term Islamic deposits 53,535,513-53,535, Other assets - 7,721,760 7,721,760 53,535, ,334, ,870, Kenanga Syariah Growth Fund Interim Report

23 2. FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES (CONTD.) a. Market risk (contd.) i. Interest rate risk (contd.) Interest rate risk exposure (contd.) Up to 1 year Nonexposure to interest rate movement Total Weighted average effective rate of return* RM RM RM % (contd.) Liabilities Other liabilities - 8,121,101 8,121,101 Total interest rate sensitivity gap 53,535, ,213, ,749, Assets Financial assets at FVTPL - 203,868, ,868,359 Short term Islamic deposits 65,005,917-65,005, Other assets - 1,673,090 1,673,090 65,005, ,541, ,547,366 Liabilities Other liabilities - 2,300,327 2,300,327 Total interest rate sensitivity gap 65,005, ,241, ,247,039 * Computed based on Shariah-compliant assets with exposure to interest rate movement only. Kenanga Syariah Growth Fund Interim Report 17

24 2. FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES (CONTD.) a. Market risk (contd.) ii. Price risk Price risk is the risk of unfavorable changes in the fair values of listed Shariahcompliant equity securities, listed Shariah-compliant collective investment schemes, listed Shariah-compliant warrants and unlisted Shariah-compliant equity securities. The Fund invests in of listed Shariah-compliant equity securities, listed Shariah-compliant collective investment schemes, listed Shariah-compliant warrants and unlisted Shariah-compliant equity securities which are exposed to price fluctuations. This may then affect the NAV of the Fund. Price risk sensitivity The Manager s best estimate of the effect on the profit for the financial period due to a reasonably possible change in investments in listed Shariah-compliant equity securities, listed Shariah-compliant collective investment schemes, listed Shariah-compliant warrants and unlisted Shariah-compliant collective investment schemes, 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) 172,306/(172,306) Financial assets at FVTPL 5/(5) 101,934/(101,934) 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 Shariah-compliant financial instruments as at the reporting date. 18 Kenanga Syariah Growth Fund Interim Report

25 2. FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES (CONTD.) a. Market risk (contd.) ii. Price risk (contd.) Price risk concentration (contd.) Fair value Percentage of NAV RM RM % % Financial assets at FVTPL 344,612, ,868, The Fund s concentration of Shariah-compliant investment security price risk from the Fund s listed Shariah-compliant equity securities, listed Shariahcompliant collective investment schemes, listed Shariah-compliant warrants and unlisted Shariah-compliant equity securities analysed by sector is as follows: Fair value Percentage of NAV RM RM % % Trading/Services 93,488,741 61,456, Constructions 57,424,540 31,328, Industrial products 57,184,982 35,536, Consumer products 36,912,659 16,431, Properties 34,221,899 17,021, Plantations 23,661,690 10,000, Finance 17,623,484 8,879, Technology 17,400,144 6,116, Infrastructure - 6,826, Islamic Real Estate Investments Trusts 6,156,465 10,143, Shariah-compliant warrants 538, , ,612, ,868, Kenanga Syariah Growth Fund Interim Report 19

26 2. FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES (CONTD.) b. Credit risk Credit risk is the risk that the counterparty to a financial instrument will cause a financial 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 financial asset recognised in the statement of financial position. ii. Financial assets that are either past due or impaired As at the reporting date, there are no financial assets that are either past due or impaired. iii. Credit quality of financial assets The Fund invests in Islamic deposits with financial institutions licensed under the Islamic Financial Services Act The following table analyses the licensed financial institutions by rating category: Short term Islamic deposits c. Liquidity risk Percentage of total short term Islamic deposits Percentage of NAV % % % % Rating WR P Liquidity risk is defined as the risk that the Fund will encounter difficulty in meeting obligations associated with financial liabilities that are to be settled by delivering cash or another financial 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 unit holders by the Manager are cancellable at the unit holders option based on the Fund s NAV per unit at the time of cancellation calculated in accordance with the Deed. The Islamic liquid assets comprise cash, short-term Islamic deposits with licensed financial institutions and other Shariah-compliant instruments, which are capable of being converted into cash within 7 days. 20 Kenanga Syariah Growth Fund Interim Report

27 2. FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES (CONTD.) c. Liquidity risk (contd.) The following table analyses the maturity profile of the Fund s financial assets and financial liabilities in order to provide a complete view of the Fund s contractual commitments and liquidity. Up to 1 year Note RM RM Assets Financial assets at FVTPL 344,612, ,868,359 Short term Islamic deposits 53,535,513 65,005,917 Other assets 7,721,760 1,673,090 i. 405,870, ,547,366 Liabilities Other liabilities ii. 8,121,101 2,300,327 Equity iii. 397,684, ,189,411 Liquidity gap 64,658 57,628 i. Financial assets Analysis of financial assets at FVTPL into maturity groupings is based on the expected date on which these assets will be realised. The Fund s investments in of listed Shariah-compliant equity securities, listed Shariah-compliant collective investment schemes, listed Shariah-compliant warrants and unlisted Shariahcompliant equity securities have been included in the up to 1 year category on the assumption that these are highly liquid Shariah-compliant investments which can be realised should all of the Fund s unit holders 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 unit holders can request for redemption of their units, they have been categorised as having a maturity of up to 1 year. Kenanga Syariah Growth Fund Interim Report 21

28 2. FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES (CONTD.) d. Reclassification of Shariah status risk The risk that the currently held Shariah-compliant securities in the portfolio of Shariahcompliant fund may be reclassified to be Shariah non-compliant upon review of the securities by the Shariah Advisory Council of the Securities Commission Malaysia ( SACSC ) performed twice yearly. If this occurs, the Manager will take the necessary steps to dispose of such securities. There may be opportunity loss to the Fund due to the Fund not being allowed to retain the excess capital gains derived from the disposal of the Shariah non-compliant equities. The value of the Fund may also be adversely affected in the event of a disposal of Shariah non-compliant equities at a price lower than the investment cost. e. Regulatory reportings It is the Manager s responsibility to ensure full compliance of all requirements under the Guidelines on Unit Trust Funds issued by Securities Commission Malaysia. Any breach of any such requirement will be reported in the mandatory reporting to Securities Commission Malaysia on a monthly basis. 3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES a. Basis of accounting The financial 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 ) as issued by the International Accounting Standards Board ( IASB ). The accounting policies adopted are consistent with those of the previous financial period except for the adoption of the new and amended MFRS which became effective for the Fund on 1 June The adoption of the new and amended MFRS did not have any significant impact on the financial position or performance of the Fund. The financial statements have been prepared on the historical cost basis except as disclosed in the accounting policies below. b. Standards, amendments and interpretation issued but not yet effective As at the reporting date, the following Standards, Amendments and Interpretation Committee s ( IC ) Interpretation that have been issued by MASB will be effective for the Fund in future 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 MFRS Standards Cycle 1 January 2017 Amendments to MFRS 107: Disclosure Initiative 1 January Kenanga Syariah Growth Fund Interim Report

29 3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES b. Standards, amendments and interpretation issued but not yet effective (contd.) Description Effective for financial period beginning on or after Amendments to MFRS 112: Recognition of Deferred Tax Assets for Unrealised Losses 1 January 2017 Amendments to MFRS contained in the documents entitled Annual improvements to MFRS Standards Cycle 1 January 2018 MFRS 9: Financial Instruments 1 January 2018 MFRS 15: Revenue from Contracts with Customers 1 January 2018 Clarifications to MFRS 15: Revenue from Contracts with Customers 1 January 2018 Amendments to MFRS 1: First-time Adoption of Malaysian Financial Reporting Standards contained in the documents entitled Annual Improvements to MFRS Standards Cycle 1 January 2018 Amendments to MFRS 2: Classification and Measurement of Shared-based Payment Transactions 1 January 2018 Amendments to MFRS 128: Investment in Associates and Joint Ventures contained in the documents entitled Annual improvements to MFRS Standards Cycle 1 January 2018 Temporary exemption from MFRS 9 subject to certain criteria being met for annual periods Amendments to MFRS 4: Applying MFRS 9 Financial beginning on or after Instruments with MFRS 4 Insurance Contracts 1 January 2018 Amendment to MFRS 140: Transfer of Property 1 January 2018 Amendments to MFRS 140: Transfers of Investment Property 1 January 2018 IC Interpretation 22: Foreign Currency Transactions and Advance Consideration 1 January 2018 Amendments to MFRS contained in the documents entitled Annual improvements to MFRS Standards Cycle 1 January 2019 Amendments to MFRS 3: Business Combinations contained in the documents entitled Annual improvements to MFRS Standards Cycle 1 January 2019 Amendments to MFRS 11: Joint Arrangements contained in the documents entitled Annual improvements to MFRS Standards Cycle 1 January 2019 Amendments to MFRS 112: Income Tax Consequences of Payments on Financial Instruments Classified as Equity contained in the documents entitled Annual improvements to MFRS Standards Cycle 1 January 2019 Kenanga Syariah Growth Fund Interim Report 23

30 3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES b. Standards, amendments and interpretation issued but not yet effective (contd.) Description Effective for financial period beginning on or after Amendments to MFRS 123: Borrowing Costs Eligible for Capitalisation contained in the documents entitled Annual improvements to MFRS Standards Cycle 1 January 2019 MFRS 16: Leases 1 January 2019 Amendments to MFRS 9: Prepayment Features with Negative Compensation 1 January 2019 Amendment to MFRS 128: Long-term interests in Associates and Joint Ventures 1 January 2019 IC Interpretation 23: Uncertainty Over Income Tax Treatments 1 January 2019 MFRS 17: Insurance Contracts 1 January 2021 Amendments to MFRS 10 and MFRS 128: Sale or Contribution of Assets between an Investor and its Associate or Joint Venture To be announced by MASB The Fund will adopt the above pronouncements when they become effective in the respective financial periods. These pronouncements are not expected to have any significant impact to the financial statements of the Fund upon their initial application, other than MFRS 9. MFRS 9 replaces MFRS 139 on the following requirements: classification and measurement of financial assets and financial liabilities as defined in MFRS 139, impairment methodology and hedge accounting. The Fund is in the process of making an assessment of the impact of this Standard. c. Financial assets Shariah-compliant financial assets are recognised in the statement of financial position when, and only when, the Fund becomes a party to the contractual provisions of the financial instruments. When financial assets are recognised initially, they are measured at fair value, plus, in the case of financial assets not at FVTPL, directly attributable transaction costs. The Fund determines the classification of its financial assets at initial recognition. 24 Kenanga Syariah Growth Fund Interim Report

31 3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTD.) c. Financial assets (contd.) i. Financial assets at FVTPL Shariah-compliant financial assets are classified as financial assets at FVTPL if they are held for trading or are designated as such upon initial recognition. Shariah-compliant financial assets held for trading of listed Shariah-compliant equity securities, listed Shariah-compliant collective investment schemes, listed Shariah-compliant warrants and unlisted Shariah-compliant equity securities acquired principally for the purpose of selling in the near term. Shariah-compliant financial assets held for trading of listed Shariah-compliant equity securities, listed Shariah-compliant collective investment schemes, listed Shariah-compliant warrants and unlisted Shariah-compliant equity securities acquired principally for the purpose of selling in the near term. Subsequent to initial recognition, financial assets at FVTPL are measured at fair value. Changes in the fair value of those Shariah-compliant financial instruments are recorded in profit or loss. Profit earned and dividend revenue elements of such instruments are recorded separately in profit income and dividend income, respectively. ii. Receivables Financial assets with fixed or determinable payments that are not quoted in an active market are classified as receivables. Subsequent to initial recognition, receivables are measured at amortised cost using the effective yield method. Gain or loss is recognised in profit or loss when the receivable is derecognised or impaired, and through the amortisation process. A financial asset is derecognised when the contractual right to receive cash flows from the asset has expired. On derecognition of a financial asset, the difference between the carrying amount and the sum of the consideration received is recognised in profit or loss. d. Impairment of financial assets The Fund assesses at each reporting date whether there is any objective evidence that a financial asset is impaired. To determine whether there is objective evidence that an impairment loss on financial assets has been incurred, the Fund considers factors such as the probability of insolvency or significant financial difficulties of the debtor and default or significant 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 flows discounted at the financial asset s original effective rate of return. The impairment loss is recognised in profit or loss. Kenanga Syariah Growth Fund Interim Report 25

32 3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTD.) d. Impairment of financial assets (contd.) The carrying amount of the financial asset is reduced by the impairment loss directly for all financial 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 financial 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 profit or loss. e. Income Income is recognised to the extent that it is probable that the economic benefits will flow to the Fund and the income can be reliably measured. Income is measured at the fair value of consideration received or receivable. Profit income is recognised using the effective yield 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 Shariah-compliant investments is measured as the difference between the net disposal proceeds and the carrying amount of the Shariahcompliant investment. f. Cash and cash equivalents For the purposes of the statement of cash flows, cash and cash equivalents include cash at bank and short term Islamic deposits with licensed financial institutions with insignificant risk of changes in value. g. Income tax Income tax on the profit or loss for the financial period comprises current tax. Current tax is the expected amount of income taxes payable in respect of the taxable profit for the financial period. As no temporary differences have been identified, no deferred tax has been recognised. h. Unrealised reserves Unrealised reserves represent the net gain or loss arising from carrying Shariahcompliant investments at their fair values at reporting date. This reserve is not distributable. 26 Kenanga Syariah Growth Fund Interim Report

33 3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTD.) i. Financial liabilities Financial liabilities are classified according to the substance of the contractual arrangements entered into and the definitions of a financial liability. Financial liabilities 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. The Fund s financial liabilities are classified as other financial liabilities. The Fund s financial liabilities are recognised initially at fair value and subsequently measured at amortised cost using the effective yield method. A financial liability is derecognised when the obligation under the liability is extinguished. Gains and losses are recognised in profit or loss when the liabilities are derecognised, and through the amortisation process. j. Unit holders contribution NAV attributable to unit holders The unit holders contribution to the Fund is classified as equity instruments. Distribution equalisation represents the average amount of undistributed net income included in the creation or cancellation price of units. This amount is either refunded to unit holders by way of distribution and/or adjusted accordingly when units are released back to the Trustee. k. Functional and presentation currency 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 ( RM ), which is also the Fund s functional currency. l. Distribution Distributions are at the discretion of the Manager. A distribution to the Fund s unit holders is accounted for as a deduction from retained earnings. m. Significant accounting judgments and estimates The preparation of financial statements requires the use of certain accounting estimates and exercise of judgment. Estimates and judgments are continually evaluated and are based on past experience, reasonable expectations of future events and other factors. i. Critical judgments made in applying accounting policies There are no major judgments made by the Manager in applying the Fund s accounting policies. ii. Key sources of estimation uncertainty There are no key assumptions concerning the future and other key sources of estimation uncertainty at the reporting date, that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial period. Kenanga Syariah Growth Fund Interim Report 27