KENANGA ASEAN TACTICAL TOTAL RETURN FUND INTERIM REPORT

Transcription

1 KENANGA ASEAN TACTICAL TOTAL RETURN FUND INTERIM REPORT For the Financial Period From 1 September 2017 to 28 February 2018

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3 KENANGA ASEAN TACTICAL TOTAL RETURN FUND Contents Page Corporate Directory ii Directory of Manager s Offices iii Fund Information 1 Manager s Report 2-5 Fund Performance 6-8 Trustee s Report 9 Statement by the Manager 10 Financial Statements 11-47

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 Trustee: CIMB Commerce Trustee Berhad (Company No A) Registered Office Level 13, Menara CIMB Jalan Stesen Sentral 2 Kuala Lumpur Sentral Kuala Lumpur. Tel: Fax: Website: Business Office Level 21, Menara CIMB Jalan Stesen Sentral 2 Kuala Lumpur Sentral Kuala Lumpur. Tel: Fax: 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: ii Kenanga ASEAN Tactical Total Return Fund Interim Report

5 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: Kenanga ASEAN Tactical Total Return Fund Interim Report iii

6 1. FUND INFORMATION 1.1 Fund Name Kenanga ASEAN Tactical Total Return Fund (KATTRF or the Fund) 1.2 Fund Category / Type Equity / Growth 1.3 Investment Objective The Fund aims to provide capital appreciation over the long term (over 5 years) by investing in equities and equity related securities of companies in the ASEAN region. 1.4 Investment Strategy The Fund seeks to achieve its investment objective by tactically allocating the portfolio during favourable market conditions in a diversified portfolio of equities and equity related securities* whilst in adverse market conditions to reallocate between 1% - 30% of the Fund s NAV in deposits or money market instruments with the objective of achieving sustainable long-term positive returns. * Equity related securities refers to warrants, convertible loan stocks, transferable subscription rights and depository receipts. 1.5 Duration The Fund was launched on 1 July 2015 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 8% growth in NAV per annum (compounded) over 5 years. 1.7 Distribution Policy As the objective of the Fund is to provide capital appreciation, distribution of income, if any, will be incidental. 1.8 Breakdown of unit holdings of KATTRF as at 28 February 2018 Size of holdings No. of unitholders No. of units held 5,000 and below ,974 5,001-10, ,309 10,001-50, ,940,635 50, , ,530, ,001 and above 11 20,182,110 Total ,550,193 1 Kenanga ASEAN Tactical Total Return Fund Interim Report

7 2. MANAGER S REPORT 2.1 Explanation on whether the Fund has achieved its investment objective. For the financial period under review, the Fund increased 3.80% in net asset value (NAV) terms, below its performance benchmark of 4.05% growth in NAV. Since inception, the fund has achieved 18.04% as such achieving its objective. 2.2 Comparison between the Fund s performance and performance of the benchmark Performance Chart Since Launch (01/07/ /02/2018) Kenanga ASEAN Tactical Total Return Fund vs Benchmark Source: Novagni Analytics and Advisory Sdn Bhd 2.3 Investment strategies and policies employed during the financial period under review For the financial period under review, the Fund aimed to achieve its investment objective by investing in a diversified portfolio of equities and equity related securities of companies in the ASEAN region. The Fund adopted a bottom-up stock picking strategy notwithstanding where those companies were listed or whether those companies were represented in any market indices. 2.4 The Fund s asset allocation as at 28 February 2018 and comparison with the previous financial period Asset 28 February February 2017 Listed investment securities 89.6% 85.5% Short term deposits and cash 10.4% 14.5% Reason for the differences in asset allocation The fund increased allocation to quoted investment securities and decreased allocation to cash in order to take advantage of opportunities in the market. Nevertheless, the fund continues to place emphasis on stock selection. Kenanga ASEAN Tactical Total Return Fund Interim Report 2

8 2.5 Fund performance analysis based on NAV per unit (adjusted for income distribution; if any) since last review period Period under Asset review Kenanga ASEAN Tactical Total Return Fund 3.80% 8% growth in NAV per annum (compounded) over 5 years. 4.05% Source: Lipper For the financial period under review, the Fund increased 3.80% but yet underperforming its performance benchmark which increased 4.05%. 2.6 Review of the market Market Review *All returns are in local currency unless mentioned otherwise For the period under review (1 Sept Feb 2018), the MSCI ASEAN index was up 13.0% in USD but only up 3.8% in RM. In local currency, outperformers were Thailand (+13.1%), Indonesia (+12.5%), Singapore (+7.3%), Philippines (+6.49%) and Malaysia (4.68%). 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. Key markets saw 2017 ended with mixed performance amid thin trading volume towards the end of the year. All three major US indices ended 2017 with the best annual gains since Nasdaq recorded the biggest yearly gain of 28.2% followed by Dow Jones and S&P500 which advanced by 25.1% and 19.4% each respectively Fed then started to double the pace of its balance sheet reduction from USD10b to USD20b and will increase it by USD10b every three months. Meanwhile, ECB s plan is to reduce asset purchases from EUR60b to EUR30b until at least September. Bank of Japan reduced purchase of 10 to 25-year bonds and 25 to 40-year bonds by JPY10b each. China s December data were broadly within expectations but 4Q17 GDP growth was higher than expected and brought 2017 GDP growth to 6.9%, the first pick-up since After the US Government shutdown ended, President Trump slapped steep tariffs of 20-50% on imported washing machines and solar panels. Korea stock exchange announced KRX300 Index to be launched on Feb 5, another bright spot for small-mid caps. 3 Kenanga ASEAN Tactical Total Return Fund Interim Report

9 2.6 Review of the market (Contd.) Market Review (Contd.) The month of February began with three days of intense sell-offs. Fears of rising interest rates in the US, due to measures aimed at controlling inflation, resulted in heightened volatility. Regional stock markets tumbled after Wall Street plummeted, as investors fled to safe havens in a highly volatile global market. Although the market did stage a mild rebound thereafter, it weakened again on news that the US would impose import tariffs on steel and aluminum, raising concern of higher prices and trade war. Asian stocks also fell after China PMI numbers showed manufacturing slowed more than expected and on hawkish comments from Fed Chairman, Jerome Powell on interest rates and inflation. Growth in China s manufacturing cooled to the weakest in 1.5 years as the CNY holidays disrupted business activities and tougher pollution rules curtailed factory output. Outlook & Strategy As US-China trade war looms ahead, expect investors to focus on Trump s tariff tantrums, of which we believe is likely to achieve some sort of compromise. Fortunately, Trump s tax cuts may trigger some optimism in the next reporting season. Given the unprecedented surge in volatility for the first quarter, the expected strong earnings may provide a much needed catalyst to restore investor confidence. Stock picking remains key for outperformance. We are cautiously optimistic and continue to be selective towards stocks with stable earnings, growing momentum, as well as quality high yielders 2.7 Distribution For the financial period under review, the Fund did not declare any 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 Cross trade During the financial period under review, no cross-trade transaction was undertaken by investment manager for the fund. Kenanga ASEAN Tactical Total Return Fund Interim Report 4

10 2.12 Rebates & Soft commissions It is the policy of the Manager to credit any rebates received into the account of the Fund. Any soft commissions received by investment manager on behalf of the fund are in the form of research and advisory services that assist in the decision making process relating to the investment of the Fund which are of demonstrable benefit to Unit holders of the fund. For the financial period under review, the Manager has received soft commissions from the stockbrokers. 5 Kenanga ASEAN Tactical Total Return Fund Interim Report

11 3. FUND PERFORMANCE 3.1 Details of portfolio composition of the Fund for the financial period as at 28 February 2018 against last 2 financial year/period as at 31 August are as follows: a. Distribution among industry sectors and category of investments: As at FY As at % % % Finance Trading/Services Consumer products Properties Industrial products Constructions Technology Infrastructure Real Estate Investments Trusts Exchange traded funds Mutual fund Short term deposits and cash Note: The above mentioned percentages are based on total investment market value plus cash. b. Distribution among markets As at 28 February 2018, the Fund has invested in the following markets: THAILAND 15.6% SINGAPORE 25.5% PHILIPPINES 6.1% INDONESIA 20.0% MALAYSIA 32.8% Kenanga ASEAN Tactical Total Return Fund Interim Report 6

12 3.2 Performance details of the Fund for the financial period ended 28 February 2018 against last 2 financial year/period ended 31 August are as follows: Period from Period from to FY to Net asset value ( NAV ) (RM Million) 34.88* Units in circulation (Million) NAV per unit (RM) * Highest NAV per unit (RM/unit) Lowest NAV per unit (RM/unit) Total return (%) Capital growth (%) Income distribution (%) 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 periods/year, 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 financial year mainly due to lower recovered expenses incurred during the financial period under review. 2. PTR is lower against previous financial period due to a shorter period under review. * Based on bid price fair valuation method on all investments held by the Fund as at 28 February 2018, the NAV and NAV per unit would be RM34.80 million and RM respectively. (As disclosed under Note 13 of the financial statements) 7 Kenanga ASEAN Tactical Total Return Fund Interim Report

13 3.3 Average total return of the Fund 1 Year 28 Feb Feb 2018 Kenanga ASEAN Tactical Total Return Fund 5.09% Compounded Return of 8% p.a. 8.03% Source: Lipper 3.4 Annual total return of the Fund Period under review 31 Aug Feb Year 31 Aug Aug 2017 Since Inception 1 Jul Aug 2016 Kenanga ASEAN Tactical Total Return Fund 3.80% 6.26% 7.02% Compounded Return of 8% p.a. 4.05% 8.33% 9.79% Source: Lipper Investors are reminded that past performance is not necessarily indicative of future performance. Unit prices and investment returns may fluctuate. Kenanga ASEAN Tactical Total Return Fund Interim Report 8

14 4. TRUSTEE S REPORT TO THE UNITHOLDERS OF KENANGA ASEAN TACTICAL TOTAL RETURN FUND We, CIMB Commerce Trustee Berhad being the trustee of Kenanga Asean Tactical Total Return 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 September 2017 to 28 February 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 units of 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 Commerce Trustee Berhad Lee Kooi Yoke Chief Operating Officer Kuala Lumpur, Malaysia 26 April Kenanga ASEAN Tactical Total Return Fund Interim Report

15 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 financial position as at 28 February 2018 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 September 2017 to 28 February 2018 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 ASEAN Tactical Total Return Fund as at 28 February 2018 and of its financial performance and cash flows for the financial period from 1 September 2017 to 28 February 2018 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 April 2018 Kenanga ASEAN Tactical Total Return Fund Interim Report 10

16 6. FINANCIAL STATEMENTS 6.1 STATEMENT OF COMPREHENSIVE INCOME FOR THE FINANCIAL PERIOD FROM 1 SEPTEMBER 2017 TO 28 FEBRUARY 2018 (unaudited) Note to RM to RM INVESTMENT INCOME Dividend income 363, ,884 Interest income 17,584 46,334 Net gain from investments: - Financial assets at fair value through profit or loss ( FVTPL ) 4 1,791,205 1,431,084 Net loss on foreign currency exchange (262,797) (5,082) 1,909,757 1,705,220 EXPENSES Manager s fee 5 298, ,305 Trustee s fee 6 8,766 7,479 Auditors remuneration 4,488 4,986 Tax agent s fee 1,994 1,995 Administration expenses 72,170 61, , ,736 NET INCOME BEFORE TAX 1,524,288 1,374,484 Income tax NET INCOME AFTER TAX, REPRESENTING TOTAL COMPREHENSIVE INCOME FOR THE FINANCIAL PERIOD 1,524,288 1,374,484 Net income after tax is made up as follows: Realised(loss)/gain (97,520) 1,075,540 Unrealised gain 1,621, ,944 1,524,288 1,374,484 The accompanying notes form an integral part of the financial statements. 11 Kenanga ASEAN Tactical Total Return Fund Interim Report

17 6.2 STATEMENT OF FINANCIAL POSITION AS AT 28 FEBRUARY 2018 (unaudited) Note RM RM ASSETS INVESTMENTS Financial assets at FVTPL 4 30,755,010 28,095,822 Short term deposits 8-1,035,000 30,755,010 29,130,822 OTHER ASSETS Amount due from Manager 1,065,619 6,357 Other receivables 9 37,563 96,316 Cash at bank 3,551,601 3,740,222 4,654,783 3,842,895 TOTAL ASSETS 35,409,793 32,973,717 LIABILITIES Amount due to Trustee 1,285 1,260 Amount due to licensed financial institutions , ,994 Other payables 11 36,245 26,733 TOTAL LIABILITIES 607, ,987 EQUITY Unit holders contribution 30,215,291 29,938,268 Retained earnings 4,587,250 2,765,462 NET ASSET VALUE ( NAV ) ATTRIBUTABLE TO UNIT HOLDERS 12 34,802,541 32,703,730 TOTAL LIABILITIES AND EQUITY 35,409,793 32,973,717 NUMBER OF UNITS IN CIRCULATION 12(a) 29,550,193 29,264,807 NET ASSET VALUE PER UNIT (RM) The accompanying notes form an integral part of the financial statements. Kenanga ASEAN Tactical Total Return Fund Interim Report 12

18 6.3 STATEMENT OF CHANGES IN NET ASSET VALUE FOR THE FINANCIAL PERIOD FROM 1 SEPTEMBER 2017 TO 28 FEBRUARY 2018 (unaudited) Note Unit holders contribution Retained earnings Total NAV RM RM RM to At beginning of the financial period 32,834,168 3,062,962 35,897,130 Total comprehensive income - 1,524,288 1,524,288 Creation of units 12(a) 9,018,032-9,018,032 Cancellation of units 12(a) (11,637,489) - (11,637,489) Distribution equalisation 12(a) At end of the financial period 30,215,291 4,587,250 34,802, to At beginning of the financial period 20,671,443 1,390,978 22,062,421 Total comprehensive income - 1,374,484 1,374,484 Creation of units 12(a) 11,049,125-11,049,125 Cancellation of units 12(a) (1,861,154) - (1,861,154) Distribution equalisation 12(a) 78,854-78,854 At end of the financial period 29,938,268 2,765,462 32,703,730 The accompanying notes form an integral part of the financial statements. 13 Kenanga ASEAN Tactical Total Return Fund Interim Report

19 6.4 STATEMENT OF CASH FLOWS FOR THE FINANCIAL PERIOD FROM 1 SEPTEMBER 2017 TO 28 FEBRUARY 2018 (unaudited) to RM to RM CASH FLOWS FROM OPERATING AND INVESTING ACTIVITIES Proceeds from sale of financial assets at FVTPL 25,572,301 21,609,074 Dividends received 374, ,948 Interest from deposits received 17,772 46,303 Trustee s fee paid (8,939) (7,186) Auditors remuneration paid (9,000) (10,000) Payment for other fees and expenses (53,298) (36,591) Manager s fee paid (303,947) (244,324) Purchase of financial assets at FVTPL (22,719,830) (28,832,001) Net cash generated from/(used in) operating and investing activities 2,869,720 (7,307,777) CASH FLOWS FROM FINANCING ACTIVITIES Cash received from units created 7,915,237 11,082,605 Cash paid on units cancelled (11,769,606) (1,863,481) Net cash (used in)/generated from financing activities (3,854,369) 9,219,124 NET (DECREASE)/INCREASE IN CASH AND CASH EQUIVALENTS (984,649) 1,911,347 EFFECT OF FOREIGN EXCHANGE RATE CHANGES (262,797) (5,082) CASH AND CASH EQUIVALENTS AT BEGINNING OF THE FINANCIAL PERIOD 4,799,047 2,868,957 CASH AND CASH EQUIVALENTS AT END OF THE FINANCIAL PERIOD 3,551,601 4,775,222 Cash and cash equivalents comprise: Cash at bank 3,551,601 3,740,222 Short term deposits - 1,035,000 3,551,601 4,775,222 The accompanying notes form an integral part of the financial statements. Kenanga ASEAN Tactical Total Return Fund Interim Report 14

20 6.5 NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL PERIOD FROM 1 SEPTEMBER 2017 TO 28 FEBRUARY 2018 (unaudited) 1. THE FUND, THE MANAGER AND THEIR PRINCIPAL ACTIVITIES Kenanga ASEAN Tactical Total Return Fund ( the Fund ) was constituted pursuant to the executed Deed dated 9 December 2013 and First Supplemental Deed dated 29 May 2015 (collectively, referred to as the Deed ) between the Manager, Kenanga Investors Berhad, and CIMB Commerce Trustee Berhad ( the Trustee ). The Fund commenced operations on 1 July 2015 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 capital appreciation over the long-term (over 5 years) by investing in equities and equity related securities of companies in the ASEAN region. The ASEAN countries that the Fund may invest in will include, but are not limited to, Malaysia, Singapore, Indonesia, Thailand, Philippines and Vietnam. 2. FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES The Fund is exposed to a variety of risks including market risk (which includes interest rate risk, price risk and currency risk), credit risk and liquidity 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 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 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, price risk and currency risk. Market risk arises when the value of the 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 investments prices caused by uncertainties in the economic, political and social environment will affect the NAV of the Fund. 15 Kenanga ASEAN Tactical Total Return Fund Interim Report

21 2. FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES a. Market risk (contd.) The Manager manages the risk of unfavourable changes in prices by cautious review of the 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 performance of Fund s investments. Rate offered by the financial institutions will fluctuate according to the Overnight Policy Rate determined by Bank Negara Malaysia and this has direct correlation with the Fund s investments in deposits. The Fund is not exposed to significant interest rate risk as its deposits are short term in nature and have fixed interest 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 RM Nonexposure to interest rate movement RM Total RM Weighted average effective interest rate* % Assets Financial assets at FVTPL - 30,755,010 30,755,010 Other assets - 4,654,783 4,654,783-35,409,793 35,409,793 Liabilities Other liabilities - 571, ,007 Total interest rate sensitivity gap - 34,838,786 34,838,786 Kenanga ASEAN Tactical Total Return Fund Interim Report 16

22 2. FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES (CONTD.) a. Market risk (contd.) i. Interest rate risk (contd.) Interest rate risk exposure (contd.) Weighted Up to 1 year Nonexposure to interest rate movement Total average effective interest rate* RM RM RM % Assets Financial assets at FVTPL - 28,095,822 28,095,822 Short term deposits 1,035,000-1,035, Other assets - 3,842,895 3,842,895 1,035,000 31,938,717 32,973,717 Liabilities Other liabilities - 243, ,254 Total interest rate sensitivity gap 1,035,000 31,695,463 32,730,463 * Computed based on assets with exposure to interest rate movement only. ii. Price risk Price risk is the risk of unfavourable changes in the fair values of listed equity securities, listed collective investment schemes and listed warrants. The Fund invests in listed equity securities, listed collective investment schemes and listed warrants which are exposed to price fluctuations. This may then affect the NAV per unit 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 equity securities, listed collective investment schemes and listed warrants with all other variables held constant is indicated in the table below: 17 Kenanga ASEAN Tactical Total Return Fund Interim Report

23 2. FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES (CONTD.) a. Market risk (contd.) ii. Price risk (contd.) Price risk sensitivity (contd.) Changes in price Increase/ (Decrease) Basis points Effects on profit for the financial period Increase/ (Decrease) RM Financial assets at FVTPL 5/(5) 15,378/(15,378) Financial assets at FVTPL 5/(5) 14,048/(14,048) 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 financial instruments as at the reporting date. Fair value Percentage of NAV RM RM % % Financial assets at FVTPL 30,755,010 28,095, Kenanga ASEAN Tactical Total Return Fund Interim Report 18

24 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 listed equity securities, listed collective investment schemes and listed warrants analysed by sector is as follows: Fair value Percentage of NAV RM RM % % Finance 6,903,943 6,511, Trading/Services 6,097,960 3,575, Consumer products 5,457,360 6,429, Properties 4,573,179 3,485, Industrial products 3,723,250 4,017, Constructions 2,607,389 3,613, Technology 663, Infrastructure 410, Exchange traded funds 310, Mutual fund - 462, Warrants 7, ,755,010 28,095, iii. Currency risk Currency risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in foreign exchange rates. When the foreign currencies fluctuate in an unfavourable movement against Ringgit Malaysia, the investment face currency loss in addition to capital gain/ (loss). This will lead to lower NAV of the Fund. The Manager may consider managing the currency risk using currency hedging. However, this would be subject to the current market outlook on the currency exposure risk as well. 19 Kenanga ASEAN Tactical Total Return Fund Interim Report

25 2. FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES (CONTD.) a. Market risk (contd.) iii. Currency risk (contd.) Currency risk sensitivity The following table indicates the currencies to which the Fund had significant exposure at the reporting date on its financial assets and financial liabilities. The analysis calculates the effect of a reasonably possible movement of the currency rate against Ringgit Malaysia on profit with all other variables held constant. Changes in currency rate Increase/ (Decrease) Basis points Effects on profit for the financial period Increase/ (Decrease) RM IDR/MYR 5/(5) 3,074/(3,074) PHP/MYR 5/(5) 935/(935) SGD/MYR 5/(5) 4,259/(4,259) THB/MYR 5/(5) 2,672/(2,672) USD/MYR 5/(5) 155/(155) IDR/MYR 5/(5) 3,854/(3,854) PHP/MYR 5/(5) 1,836/(1,836) SGD/MYR 5/(5) 3,027/(3,027) THB/MYR 5/(5) 2,836/(2,836) USD/MYR 5/(5) 657/(657) In practice, the actual trading results may differ from the sensitivity analysis above and the difference could be material. Kenanga ASEAN Tactical Total Return Fund Interim Report 20

26 2. FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES (CONTD.) a. Market risk (contd.) iii. Currency risk (contd.) Currency risk concentration The following table sets out the Fund s exposure to foreign currency exchange rates on its financial assets and financial liabilities as at reporting date. b. Credit risk Fair value Percentage of NAV RM RM % % IDR 6,147,184 7,707, PHP 1,870,064 3,672, SGD 8,518,980 6,054, THB 5,344,909 5,671, USD 310,167 1,313, 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 deposits with financial institutions licensed under the Financial Services Act 2013 and Islamic Financial Services Act The following table analyses the licensed financial institutions by rating category: Short term deposits Percentage of total short term deposits Percentage of NAV % % % % Rating P Kenanga ASEAN Tactical Total Return Fund Interim Report

27 2. FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES (CONTD.) c. Liquidity risk 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 liquid assets comprise cash, short term deposits with licensed financial institutions and other instruments, which are capable of being converted into cash within 7 days. 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 30,755,010 28,095,822 Short term deposits - 1,035,000 Other assets 4,654,783 3,842,895 i. 35,409,793 32,973,717 Liabilities Other liabilities ii. 571, ,254 Equity iii. 34,802,541 32,703,730 Liquidity gap 36,245 26,733 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 listed equity securities, listed collective investment schemes and listed warrants 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 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. Kenanga ASEAN Tactical Total Return Fund Interim Report 22

28 2. FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES (CONTD.) c. Liquidity risk (contd.) 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. d. 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 September 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 interpretations issued but not yet effective As at the reporting date, the following Standards, Amendments and Interpretation Committee s ( IC ) Interpretations 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. 23 Kenanga ASEAN Tactical Total Return Fund Interim Report

29 3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES b. Standards, amendments and interpretations issued but not yet effective (contd.) 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 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 128: Investment in Associates and Joint Ventures 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 2: Classification and Measurement of Shared-based Payment Transactions 1 January 2018 Amendments to MFRS 4: Applying MFRS 9 Financial Instruments with MFRS 4 Insurance Contracts Temporary exemption from MFRS 9 subject to certain criteria being met for annual periods beginning on or after 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 ASEAN Tactical Total Return Fund Interim Report 24

30 3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTD.) b. Standards, amendments and interpretations 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 Amendments 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 does not expect any change in classification and any potential financial material impact arising from the adoption of this standard. c. Financial assets 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. i. Financial assets at FVTPL Financial assets are classified as financial assets at FVTPL if they are held for trading or are designated as such upon initial recognition. Financial assets held for trading include listed equity securities, listed collective investment schemes and listed warrants acquired principally for the purpose of selling in the near term. 25 Kenanga ASEAN Tactical Total Return Fund Interim Report

31 3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTD.) c. Financial assets (contd.) i. Financial assets at FVTPL (contd.) Subsequent to initial recognition, financial assets at FVTPL are measured at fair value. Changes in the fair value of those financial instruments are recorded in profit 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 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 interest 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 interest rate. The impairment loss is recognised in profit or loss. 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 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. Kenanga ASEAN Tactical Total Return Fund Interim Report 26

32 3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTD.) 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. Interest income which includes the accretion of discount and amortisation of premium on fixed 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 flows, cash and cash equivalents include cash at bank and short term 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 investments at their fair values and unrealised gain or loss from translating foreign currency monetary items at the exchange rate prevailing at reporting date. This reserve is not distributable. 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 interest 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. 27 Kenanga ASEAN Tactical Total Return Fund Interim Report

33 3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTD.) 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. Foreign currency i. 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. ii. Foreign currency transaction l. Distribution In preparing the financial statements of the Fund, transactions in currencies other than the Fund s functional currency (foreign currencies) are recorded in the functional currency using exchange rates prevailing at the dates of the transactions. At each reporting date, monetary items denominated in foreign currencies are translated at the rates prevailing on the reporting date. All exchange gain or loss is recognised in profit or loss. Exchange differences arising on the settlement of monetary items, and on the translation of monetary items, are included in profit or loss for the financial period. The principal exchange rate for each respective units of foreign currency ruling at reporting date is as follows: RM RM 1,000 IDR PHP SGD THB USD 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. Kenanga ASEAN Tactical Total Return Fund Interim Report 28