United Global Financials Fund Semi Annual Report for the half year ended 31 st December
MANAGER UOB Asset Management Ltd Registered Address: 80 Raffles Place UOB Plaza Singapore 048624 Company Registration No. : 198600120Z Tel: 1800 22 22 228 DIRECTORS OF UOB ASSET MANAGEMENT Lee Wai Fai Eric Tham Kah Jin Peh Kian Heng Thio Boon Kiat TRUSTEE State Street Trust (SG) Limited 168 Robinson Road #33-01, Capital Tower Singapore 068912 CUSTODIAN / ADMINISTRATOR / REGISTRAR State Street Bank and Trust Company, acting through its Singapore Branch 168 Robinson Road #33-01, Capital Tower Singapore 068912 AUDITOR PricewaterhouseCoopers LLP 7 Straits View, Marina One East Tower, Level 12 Singapore 018936-1-
A) Fund Performance 3 mth % Growth 6 mth % Growth 1 yr % Growth 3 yr Ann Comp Ret 5 yr Ann Comp Ret 10 yr Ann Comp Ret Since Inception 12 July 1996 Ann Comp Ret Fund Performance/ Benchmark Returns United Global Financials Fund 3.82 8.41 17.46 7.87 10.89 1.23 5.33 Benchmark 4.02 8.08 13.54 10.40 13.91 0.78 4.73 Source: Note: Lipper, a Thomson Reuters Company. The performance returns of the Fund are in Singapore dollar based on a NAV-to-NAV basis, with dividends and distributions reinvested, if any. The benchmark of the Fund: Jul 96 Present: MSCI World Finance. For the six months to December, the Fund rose by 8.41%, slightly ahead of the MSCI World Financials Index, which advanced 8.08% in Singapore dollar terms. The Fund was flat vs the benchmark in the second half of the year, after outperforming in the first half of the year. For the calendar year, the Fund was up by 17.46% compared to the benchmark, which gained 13.54%. A strong Singapore dollar detracted in part from returns. During the period the Singapore dollar appreciated by 8.3% against the US dollar. The Fund s overweight on emerging market financials and underweight position in developed market was a key detractor. Japanese, European, Canadian and Australian financials rallied strongly in the final quarter, while emerging market financials did not. Financial sector performance by sub-sector In total return (net) terms, the MSCI World Financials Index rose 8% in the six months to December. By sub-sector, Banks advanced by 8%, Diversified Financials rallied by 10%, Insurance rose by 6%. Financial sector performance by region During the six months to December, US financials registered gains of 11%, Japanese financials rose 5%, European financials advanced 5%, Australian financials climbed 3%, and Canadian financials by 10%. Meanwhile, emerging market financials outperformed developed markets financials, advancing 12% in the period. EMEA financials surged 17%, EM Asia financials rose 11%, while Latin America financials rose 9%. Securities Level Contribution Top Contributors to the Fund include: Mastercard (US), Visa (US), T Rowe Price Group (US), Bank Negara (Indonesia) and Discover Financial (US). Main Detractors from performance include: Grupo Financiero Banorte (Mexico), Bancolombia (Colombia), Magellan Financials (Australia), Metlife (US), and Franklin Resources (US). -2-
A) Fund Performance (continued) Asset Allocation As at 31 December, the sub-sector exposure of the Fund was as follows: Bank (59.5%), Diversified Financials (22.9%), Insurance (6.4%), Software & Services 1 (9.9%), and Cash (1.3%). Portfolio (%) Benchmark (%) Active Weight (Pct Pts) Banks 59.5 52.9 +6.6 Diversified Financials 22.9 24.8-1.9 Insurance 6.4 22.3-15.9 Software & Services 9.9 - +9.9 Net Liquidity 1.3 - +1.3 Total 100.0 100.0 1 Software & Services mainly reflects holdings in financial processing companies (eg. Visa & MasterCard) The geographic exposure of the Fund was as follows: US (48.2%), Canada (2.4%), Europe (25.1%), Japan (0.4%), Asia Pacific ex-japan (14.4%), Latin America (7.2%) and EMEA 2 (1.0%) and Net Liquidity (1.3%). Portfolio (%) Benchmark (%) Active Weight (Pct Pts) US 48.2 48.1 +0.1 Canada 2.4 8.3-5.9 Europe 25.1 27.7-2.6 Japan 0.4 6.3-5.9 Australia & NZ 1.5 5.8-4.3 Asia (ex. Japan) Developed - 3.8-3.8 Asia (ex. Japan) Emerging 12.9 - +12.9 Latin America 7.2 - +7.2 EMEA 1.0 - +1.0 Net Liquidity 1.3 - +1.3 Total 100.0 100.0 2 EMEA represents Eastern Europe, Middle East and Africa Invested levels averaged 98% during the reporting period. The Fund ended the period with a net liquidity position of 1.3%. -3-
A) Fund Performance (continued) Outlook and Fund Strategy Global economic performance improved in, alongside growth figures which rose to 3.6% from 3.2% in 2016. The pickup was driven by improved performance in all key advanced economies as growth increased from 1.7% in 2016 to 2.4% in. Developing country growth also scaled up to 4.6% from 4.4% in 2016, the first broad based acceleration in growth since the global financial crisis in 2008. The acceleration in growth and the narrowing of the output gap in the US is prompting the US Federal Reserve to remove monetary accommodation. Current projections forecast steady interest rate increases in. This normalisation of interest rates will be positive for the majority of companies in the financials sector as it will underpin a widening of net interest margins against a backdrop of improved loan demand and generally benign credit. Meanwhile tax and regulatory changes are becoming a tailwind for the sector, supporting further profitability gains over the next few years. Against a backdrop of solid capital positions, the sector should continue to progress with higher dividend distribution rates, which should underpin valuations. The Fund currently has about half of its capital allocated to companies in US financial services. Aggressive monetary accommodation has had the positive effect of jump starting European growth. Eurozone growth is forecast to accelerate to 2.4% in, and unemployment is projected to fall to 9.1% in from 10% at the start of the year. While monetary accommodation has been a positive for the economy, it has been a negative for financial services companies. We are encouraged by the fact that the European Central Bank has suggested that it is likely to scale back its bond purchases and begin a normalisation process for interest rates later this year. European banks witnessed a slower recovery compared to their US peers, due in part to the lacklustre growth backdrop, lingering asset quality challenges, and low asset yields that had compressed profitability and limited dividend payout. Finally there is evidence that capital levels have been restored. A projected pick up in profitability will enable European banks to re-incept cash dividends and slowly progress them higher. We have been selectively adding to our positions in Europe banks. Currently the Fund has about a quarter of its capital deployed in Europe. The broad based pick up in the growth of developing countries gives us comfort in the Fund s emerging market positioning. Most countries are expected to experience a modest acceleration in growth over the next couple of years. This should drive a pickup in credit growth and drive revenue gains. The Fund is specifically targeting banks from regions with low credit penetration, attractive lending spreads and stable, or improving credit quality trends. The Fund has slightly more than 20% of its investments in emerging markets. A relaxation of regulatory headwinds, a recovery in growth, and normalisation of interest rates are all positive trends that should drive sector profitability higher. This should enable banks to further step up their capital return policies and help to underpin sector performance. US tax rate reductions implemented in 2018 should lift profitability and provide a one-off boost to profits of 10 to 12 percent. Investors should expect further slow and steady gains from the sector in the period ahead. -4-
B) Investments at fair value and as a percentage of net asset value ( NAV ) as at 31 December under review classified by i) Country Fair Value (S$) % of NAV Australia 443,297 1.51 Canada 690,442 2.35 Colombia 874,527 2.98 Czech Republic 143,792 0.49 India 1,498,109 5.10 Indonesia 1,471,247 5.01 Ireland 1,468,755 5.00 Japan 106,391 0.36 Mexico 607,630 2.07 Peru 623,721 2.13 Poland 153,374 0.52 Spain 2,822,842 9.62 Switzerland 2,338,192 7.97 Thailand 828,002 2.82 United Kingdom 754,877 2.57 United States 14,150,710 48.20 Portfolio of investments 28,975,908 98.70 Other net assets/(liabilities) 381,961 1.30 Total 29,357,869 100.00 ii) Industry Fair Value (S$) % of NAV Financials 26,063,430 88.78 Information Technology 2,912,478 9.92 Portfolio of investments 28,975,908 98.70 Other net assets/(liabilities) 381,961 1.30 Total 29,357,869 100.00 iii) Asset Class Fair Value (S$) % of NAV Quoted equities 28,975,908 98.70 Other net assets/(liabilities) 381,961 1.30 Total 29,357,869 100.00-5-
B) Investments at fair value and as a percentage of net asset value ( NAV ) as at 31 December under review classified by (continued) iv) Credit rating of quoted bonds N/A C) Top Ten Holdings 10 largest holdings as at 31 December Fair Value (S$) Percentage of total net assets attributable to unitholders % BANK OF IRELAND GROUP PLC 1,468,755 5.00 BANCO BILBAO VIZCAYA ARGENTARIA SA 1,438,035 4.90 WELLS FARGO & CO 1,418,889 4.83 BANCO SANTANDER SA 1,384,807 4.72 UBS GROUP AG 1,377,733 4.69 VISA INC 1,371,387 4.67 MASTERCARD INC 1,314,804 4.48 US BANCORP 1,306,779 4.45 PNC FINANCIAL SERVICES GROUP INC 1,205,182 4.11 BANCOLOMBIA SA 874,527 2.98 10 largest holdings as at 31 December 2016 Percentage of total net assets attributable to Fair Value unitholders (S$) % VISA INC CLASS A SHARES 1,690,732 4.61 PNC FINANCIAL SERVICES GROUP INC 1,689,721 4.61 MASTERCARD INC CLASS A SHARES 1,670,651 4.56 WELLS FARGO & CO 1,592,348 4.35 US BANCORP 1,558,499 4.25 BANCO BILBAO VIZCAYA ARGENTARIA SA 1,514,914 4.13 BANK OF IRELAND GROUP PLC 1,468,179 4.01 NORTHERN TRUST CORP 1,222,180 3.34 DISCOVER FINANCIAL SERVICES INC 1,166,462 3.18 UBS GROUP AG 1,133,614 3.09-6-
D) Exposure to derivatives i) Fair value of derivative contracts and as a percentage of NAV as at 31 December Contract or underlying principal amount Positive fair value % of NAV Negative fair value $ $ $ % of NAV Foreign currency contracts 395,889 290 -* 438 -* * denotes amount less than 0.01% ii) iii) There was a net realised loss of SGD 28,644 on derivative contracts during the financial period from 01 July to 31 December. There was a net unrealised loss of SGD 148 on outstanding derivative contracts marked to market as at 31 December. E) Amount and percentage of NAV invested in other schemes as at 31 December N/A F) Amount and percentage of borrowings to NAV as at 31 December N/A G) Amount of redemptions and subscriptions for the financial period from 01 July to 31 December Total amount of redemptions SGD 22,238,538 Total amount of subscriptions SGD 16,944,482 H) The amount and terms of related-party transactions for the financial period from 01 July to 31 December i) As at 31 December, the Fund maintained current accounts with State Street Bank and Trust Company as follows: Bank balances SGD 441,375 ii) Investment in Initial Public Offerings managed by UOB Group N/A iii) As at 31 December, there was no brokerage income earned by UOB Kay Hian Pte Ltd. -7-
I) Expense ratios 2016 $ $ Total operating expenses 742,209 658,889 Average daily net asset value 34,022,501 33,302,268 Expense ratio 2.18% 1.98% Note: The expense ratio has been computed based on the guidelines laid down by the Investment Management Association of Singapore ( IMAS ).The calculation of the Fund s expense ratio at 31 December was based on total operating expenses divided by the average net asset value respectively for the financial period. The total operating expenses do not include (where applicable) brokerage and other transaction costs, performance fee, interest expense, distribution paid out to unitholders, foreign exchange gains/losses, front or back end loads arising from the purchase or sale of other funds and tax deducted at source or arising out of income received. The Fund does not pay any performance fee. The average net asset value is based on the daily balances. J) Turnover ratios 2016 $ $ Lower of total value of purchases or sales 15,673,611 16,102,185 Average daily net assets value 34,283,006 32,470,001 Turnover ratio 45.72% 49.59% Note: The portfolio turnover ratio is calculated in accordance with the formula stated in the Code on Collective Investment Schemes. The calculation of the portfolio turnover ratio was based on the lower of the total value of purchases or sales of the underlying investments divided by the average daily net asset value. K) Any material information that will adversely impact the valuation of the scheme such as contingent liabilities of open contracts N/A L) For schemes which invest more than 30% of their deposited property in another scheme, the following key information on the second-mentioned scheme ( the underlying scheme ) 1 should be disclosed as well i) Top 10 holdings at fair value and as percentage of NAV as at 31 December and 31 December 2016 N/A ii) Expense ratios for the financial period ended 31 December and 31 December 2016 N/A iii) Turnover ratios for the financial period ended 31 December and 31 December 2016 N/A 1 Where the underlying scheme is managed by a foreign manager which belongs to the same group of companies as, or has a formal arrangement or investment agreement with, the Singapore manager, the above information should be disclosed on the underlying scheme. In other cases, such information on the underlying scheme should be disclosed only if it is readily available to the Singapore manager. -8-
M) Soft dollar commissions/arrangements UOB Asset Management has entered into soft dollars arrangements with selected brokers from whom products and services are received from third parties. The products and services relate essentially to computer hardware and software to the extent that they are used to support the investment decision making process, research and advisory services, economic and political analyses, portfolio analyses including performance measurements, market analyses, data and quotation services, all of which are believed to be helpful in the overall discharge of UOB Asset Management s duties to clients. As such services generally benefit all of UOB Asset Management s clients in terms of input into the investment decision making process, the soft credits utilised are not allocated on a specific client basis. The Manager confirms that trades were executed on a best execution basis and there was no churning of trades. N) Where the scheme offers pre-determined payouts, an explanation on the calculation of the actual payouts received by participants and any significant deviation from the pre-determined payouts N/A -9-
STATEMENT OF TOTAL RETURN For the half year ended 31 December (Un-audited) 31 December 31 December 2016 $ $ Income Dividends 293,013 295,252 Interest 108 18 Total 293,121 295,270 Less: Expenses Management fee 258,716 245,498 Trustee fee 6,041 6,547 Audit fee 8,761 7,103 Registrar fee 7,582 7,541 Valuation fee 21,560 20,458 Custody fee 32,202 13,998 Transaction costs 79,849 88,595 Other expenses 59,379 33,721 Total 474,090 423,461 Net income/(losses) (180,969) (128,191) Net gains/(losses) on value of investments Net gains/(losses) on investments 2,849,372 7,132,917 Net gains/(losses) on financial derivatives (28,792) - Net foreign exchange gains/(losses) 27,775 301,779 2,848,355 7,434,696 Total return/(deficit) for the period before income tax 2,667,386 7,306,505 Less: Income tax (55,571) (57,925) Less: Capital gains tax (8,489) - Total return/(deficit) for the period 2,603,326 7,248,580-10-
STATEMENT OF FINANCIAL POSITION As at 31 December (Un-audited) 31 December 30 June $ $ Assets Portfolio of investments 28,975,908 30,678,488 Sales awaiting settlement 162,973 68,239 Receivables 426,685 1,327,601 Cash and bank balances 441,375 617,564 Financial derivatives at fair value 290 671 Total assets 30,007,231 32,692,563 Liabilities Payables 648,924 643,958 Financial derivatives at fair value 438 6 Total liabilities 649,362 643,964 Equity Net assets attributable to unitholders 29,357,869 32,048,599-11-
STATEMENT OF MOVEMENTS OF UNITHOLDERS FUNDS For the half year ended 31 December (Un-audited) 31 December 30 June $ $ Net assets attributable to unitholders at the beginning of the financial period/year 32,048,599 31,922,518 Operations Change in net assets attributable to unitholders resulting from operations 2,603,326 9,814,829 Unitholders contributions/(withdrawals) Creation of units 16,944,482 25,818,444 Cancellation of units (22,238,538) (35,507,192) Change in net assets attributable to unitholders resulting from net creation and cancellation of units (5,294,056) (9,688,748) Total increase/(decrease) in net assets attributable to unitholders (2,690,730) 126,081 Net assets attributable to unitholders at the end of the financial period/year 29,357,869 32,048,599-12-
STATEMENT OF PORTFOLIO As at 31 December (Un-audited) Holdings at 31 December Fair value at 31 December $ Percentage of total net assets attributable to unitholders at 31 December % By Geography - Primary Quoted Equities AUSTRALIA AUSTRALIA & NEW ZEALAND BANKING GROUP 4,500 135,184 0.46 MAGELLAN FINANCIAL GROUP LTD 5,500 154,992 0.53 PLATINUM ASSET MANAGEMENT LTD 19,000 153,121 0.52 TOTAL AUSTRALIA 443,297 1.51 CANADA ROYAL BANK OF CANADA 2,750 301,089 1.02 THE BANK OF NOVA SCOTIA 4,500 389,353 1.33 TOTAL CANADA 690,442 2.35 COLOMBIA BANCOLOMBIA SA 16,500 874,527 2.98 CZECH REPUBLIC KOMERCNI BANKA AS 2,500 143,792 0.49 INDIA AXIS BANK LTD 50,000 590,390 2.01 HDFC BANK LTD ADR 2,200 298,918 1.02 HOUSING DEVELOPMENT FINANCE CORP 17,000 608,801 2.07 TOTAL INDIA 1,498,109 5.10 INDONESIA BANK MANDIRI PERSERO TBK PT 190,000 149,720 0.51 PT BANK NEGARA INDONESIA (PERSERO) TBK. 675,000 658,227 2.24 PT BANK RAKYAT INDONESIA (PERSERO) TBK. 1,850,000 663,300 2.26 TOTAL INDONESIA 1,471,247 5.01 IRELAND BANK OF IRELAND GROUP PLC 129,000 1,468,755 5.00-13-
STATEMENT OF PORTFOLIO As at 31 December (Un-audited) Holdings at 31 December Fair value at 31 December $ Percentage of total net assets attributable to unitholders at 31 December % By Geography - Primary (continued) Quoted Equities JAPAN CREDIT SAISON CO LTD 2,000 48,640 0.16 SUMITOMO MITSUI FINANCIAL GROUP 1,000 57,751 0.20 TOTAL JAPAN 106,391 0.36 MEXICO GRUPO FINANCIERO BANORTE SAB DE CV 82,500 607,630 2.07 PERU CREDICORP LTD 2,250 623,721 2.13 POLAND POWSZECHNA KASA OSZCZEDNOSCI BANK POLSKI SA 9,000 153,374 0.52 SPAIN BANCO BILBAO VIZCAYA ARGENTARIA SA 126,000 1,438,035 4.90 BANCO SANTANDER SA 157,500 1,384,807 4.72 TOTAL SPAIN 2,822,842 9.62 SWITZERLAND CHUBB LTD 1,400 273,403 0.94 PARTNERS GROUP HOLDING AG 750 687,056 2.34 UBS GROUP AG 56,000 1,377,733 4.69 TOTAL SWITZERLAND 2,338,192 7.97 THAILAND KASIKORNBANK PCL - FOREIGN 28,000 274,415 0.93 THE SIAM COMMERCIAL BANK PCL 90,000 553,587 1.89 TOTAL THAILAND 828,002 2.82-14-
STATEMENT OF PORTFOLIO As at 31 December (Un-audited) Holdings at 31 December Fair value at 31 December $ Percentage of total net assets attributable to unitholders at 31 December % By Geography - Primary (continued) Quoted Equities UNITED KINGDOM ADMIRAL GROUP PLC 12,500 452,406 1.54 HSBC HOLDINGS PLC 11,000 152,505 0.52 STANDARD LIFE ABERDEEN PLC 19,000 149,966 0.51 TOTAL UNITED KINGDOM 754,877 2.57 UNITED STATES AMERICAN EXPRESS CO 5,500 729,948 2.49 BANK OF AMERICA CORP 4,000 157,802 0.54 BB&T CORP 4,500 299,006 1.02 DISCOVER FINANCIAL SERVICES INC 7,000 719,571 2.45 FRANKLIN RESOURCES INC 6,500 376,390 1.28 JPMORGAN CHASE & CO 5,000 714,573 2.43 MASTERCARD INC 6,500 1,314,804 4.48 METLIFE INC 2,000 135,137 0.46 NORTHERN TRUST CORP 6,250 834,331 2.84 PAYPAL HOLDINGS INC 2,300 226,287 0.77 PNC FINANCIAL SERVICES GROUP INC 6,250 1,205,182 4.11 STATE STREET CORP 5,700 743,542 2.53 SUNTRUST BANKS INC 9,750 841,601 2.87 T ROWE PRICE GROUP INC 5,250 736,199 2.51 THE ALLSTATE CORP 3,250 454,787 1.55 THE PROGRESSIVE CORP 7,500 564,495 1.92 US BANCORP 18,250 1,306,779 4.45 VISA INC 9,000 1,371,387 4.67 WELLS FARGO & CO 17,500 1,418,889 4.83 TOTAL UNITED STATES 14,150,710 48.20 Total Equities 28,975,908 98.70 Portfolio of investments 28,975,908 98.70 Other net assets/(liabilities) 381,961 1.30 Net assets attributable to unitholders 29,357,869 100.00-15-
STATEMENT OF PORTFOLIO As at 31 December (Un-audited) Percentage of total net assets attributable to unitholders at 31 December % Percentage of total net assets attributable to unitholders at 30 June % By Geography - Primary (Summary) Quoted Equities Australia 1.51 2.46 Canada 2.35 4.35 Colombia 2.98 1.91 Czech Republic 0.49 0.51 India 5.10 5.31 Indonesia 5.01 4.71 Ireland 5.00 4.06 Japan 0.36 0.42 Mexico 2.07 1.92 Peru 2.13 1.93 Poland 0.52 0.68 Spain 9.62 7.22 Switzerland 7.97 8.09 Thailand 2.82 1.99 United Kingdom 2.57 1.97 United States 48.20 48.19 Portfolio of investments 98.70 95.72 Other net assets/(liabilities) 1.30 4.28 Net assets attributable to unitholders 100.00 100.00-16-
STATEMENT OF PORTFOLIO As at 31 December (Un-audited) Fair value at 31 December $ Percentage of total net assets attributable to unitholders at 31 December % Percentage of total net assets attributable to unitholders at 30 June % By Industry - Secondary Quoted Equities Financials 26,063,430 88.78 85.80 Information Technology 2,912,478 9.92 9.92 Portfolio of investments 28,975,908 98.70 95.72 Other net assets/(liabilities) 381,961 1.30 4.28 Net assets attributable to unitholders 29,357,869 100.00 100.00-17-
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