AFFIN HWANG ABSOLUTE RETURN FUND II Quarterly Report and Financial Statements As at 31 August 2018 Contents Page QUARTERLY REPORT... 2 STATEMENT OF COMPREHENSIVE INCOME... 11 STATEMENT OF FINANCIAL POSITION... 12 STATEMENT OF CHANGES IN NET ASSETS ATTRIBUTABLE TO UNITHOLDERS... 14 1
QUARTERLY REPORT FUND INFORMATION Fund Name Fund Type Fund Category Investment Objective Benchmark Distribution Policy Affin Hwang Absolute Return Fund II Growth Mixed Assets The Fund is categorised as growth fund which seeks to achieve medium to long-term capital appreciation by investing primarily in securities of developed and emerging markets globally. Absolute return of 8% per annum The Fund is not expected to make distribution. However, incidental distribution may be declared whenever is appropriate. Performance Review MYR Class For the period from 1 June 2018 to 31 August 2018, the Fund MYR class recorded a loss of 8.56%. Compared to the Benchmark return of 1.96%, the Fund thus underperformed its Benchmark by 10.52%. The Net Asset Value (NAV) per Unit of the Fund as at 31 August 2018 was RM1.2058 while the NAV per Unit as at 31 May 2018 was RM1.3187. On total NAV basis, the Fund s NAV stood at RM316.289 million as at 31 August 2018. (See Table 1 for performance of the Fund and Figure 1 for movement of the Fund versus the Benchmark respectively). AUD Class For the period from 1 June 2018 to 31 August 2018, the Fund AUD class recorded a loss of 7.89%. Compared to the Benchmark return of 1.96%, the Fund thus underperformed its Benchmark by 9.85%. The Net Asset Value (NAV) per Unit of the Fund as at 31 August 2018 was AUD0.4786 while the NAV per Unit as at 31 May 2018 was AUD0.5196. On total NAV basis, the Fund s NAV stood at AUD2.257 million as at 31 August 2018. (See Table 1 for performance of the Fund and Figure 1 for movement of the Fund versus the Benchmark respectively). GBP Class For the period from 1 June 2018 to 31 August 2018, the Fund GBP class recorded a loss of 9.26%. Compared to the Benchmark return of 1.96%, the Fund thus underperformed its Benchmark by 11.22%. The Net Asset Value (NAV) per Unit of the Fund as at 31 August 2018 was GBP0.4947 while the NAV per Unit as at 31 May 2018 was GBP0.5452. On total NAV basis, the Fund s NAV stood at GBP0.001 million as at 31 August 2018. (See Table 1 for performance of the Fund and Figure 1 for movement of the Fund versus the Benchmark respectively). SGD Class For the period from 1 June 2018 to 31 August 2018, the Fund SGD class recorded a loss of 9.51%. Compared to the Benchmark return of 1.96%, the Fund thus underperformed its Benchmark by 11.47%. The Net Asset Value (NAV) per Unit of the Fund as at 31 August 2018 was SGD0.4755 while the NAV per Unit as at 31 May 2018 was SGD0.5255. On total NAV basis, the Fund s NAV stood at SGD5.568 million as at 31 August 2018. (See Table 1 for performance of the Fund and Figure 1 for movement of the Fund versus the Benchmark respectively). 2
USD Class For the period from 1 June 2018 to 31 August 2018, the Fund USD class recorded a loss of 11.42%. Compared to the Benchmark return of 1.96%, the Fund thus underperformed its Benchmark by 13.38%. The Net Asset Value (NAV) per Unit of the Fund as at 31 August 2018 was USD0.4559 while the NAV per Unit as at 31 May 2018 was USD0.5147. On total NAV basis, the Fund s NAV stood at USD8.576 million as at 31 August 2018. (See Table 1 for performance of the Fund and Figure 1 for movement of the Fund versus the Benchmark respectively). Table 1: Performance as at 31 August 2018 MYR Class 3 Months (1/6/18-31/8/18) 6 Months (1/3/18-31/8/18) 1 Year (1/9/17-31/8/18) 3 Years (1/9/15-31/8/18) 5 Years (1/9/13-31/8/18) Since Commencement (8/1/08-31/8/18) Fund (8.56%) (5.66%) (3.24%) 31.81% 72.33% 141.16% Benchmark 1.96% 3.96% 8.00% 26.00% 46.96% 127.05% Outperformance / (Underperformance) (10.52%) (9.62%) (11.24%) 5.81% 25.37% 14.11% AUD Class 3 Months (1/6/18-31/8/18) Since Commencement (30/3/18-31/8/18) Fund (7.89%) (4.28%) Benchmark 1.96% 3.32% Outperformance / (Underperformance) (9.85%) (7.60%) GBP Class 3 Months (1/6/18-31/8/18) Since Commencement (30/3/18-31/8/18) Fund (9.26%) (1.06%) Benchmark 1.96% 3.32% Outperformance / (Underperformance) (11.22%) (4.38%) SGD Class 3 Months (1/6/18-31/8/18) Since Commencement (30/3/18-31/8/18) Fund (9.51%) (4.90%) Benchmark 1.96% 3.32% Outperformance / (Underperformance) (11.47%) (8.22%) 3
USD Class 3 Months (1/6/18-31/8/18) Since Commencement (30/3/18-31/8/18) Fund (11.42%) (8.82%) Benchmark 1.96% 3.32% Outperformance / (Underperformance) (13.38%) (12.14%) Table 2: Volatility as at 31 August 2018 MYR Class 3 Year Fund 8.48 The 3-year annualised volatility as at 31 August 2018 stood at 8.48, reflecting the Fund s mixed asset exposure into fixed income, and equities globally. AUD Class Fund 3 Year N/A The data for 3-year annualized volatility as at 31 August 2018 is not available as the Fund has yet to record 3-years of performance data. 3-year annualized volatility is a global standard used to report on Fund volatility as shorter time period would not provide a stable representation as well as being too sensitive to additional data points. GBP Class Fund 3 Year N/A The data for 3-year annualized volatility as at 31 August 2018 is not available as the Fund has yet to record 3-years of performance data. 3-year annualized volatility is a global standard used to report on Fund volatility as shorter time period would not provide a stable representation as well as being too sensitive to additional data points. SGD Class Fund 3 Year N/A The data for 3-year annualized volatility as at 31 August 2018 is not available as the Fund has yet to record 3-years of performance data. 3-year annualized volatility is a global standard used to report on Fund volatility as shorter time period would not provide a stable representation as well as being too sensitive to additional data points. 4
USD Class Fund 3 Year N/A The data for 3-year annualized volatility as at 31 August 2018 is not available as the Fund has yet to record 3-years of performance data. 3-year annualized volatility is a global standard used to report on Fund volatility as shorter time period would not provide a stable representation as well as being too sensitive to additional data points. (Volatility is a number calculated on methodology endorsed and relating to the sensitivity of the portfolio return of a fund to changes in the market conditions and the general economy. It is also based on an evaluation of a specific set of quantitative involving the performance of the fund.) 5
Percentage Growth (%) Percentage Growth (%) Figure 1: Movement of the Fund versus the Benchmark 190 170 150 Affin Hwang Absolute Return Fund II - MYR 130 110 90 70 Benchmark 50 30 10-10 -30 Jan-08 Oct-09 Jul-11 Apr-13 Jan-15 Oct-16 Aug-18 7 6 5 Affin Hwang Absolute Return Fund II - AUD 4 3 2 1 0-1 Benchmark -2-3 -4-5 -6-7 29-Mar 8-Apr 18-Apr 28-Apr 8-May 18-May 28-May 7-Jun 17-Jun 27-Jun 7-Jul 17-Jul 27-Jul 6-Aug 16-Aug 26-Aug 6
Percentage Growth (%) Percentage Growth (%) 12 10 8 Affin Hwang Absolute Return Fund II - GBP 6 4 2 0 Benchmark -2 29-Mar 8-Apr 18-Apr 28-Apr 8-May 18-May 28-May 7-Jun 17-Jun 27-Jun 7-Jul 17-Jul 27-Jul 6-Aug 16-Aug 26-Aug 7 6 5 Affin Hwang Absolute Return Fund II - SGD 4 3 2 1 0-1 Benchmark -2-3 -4-5 -6-7 29-Mar 8-Apr 18-Apr 28-Apr 8-May 18-May 28-May 7-Jun 17-Jun 27-Jun 7-Jul 17-Jul 27-Jul 6-Aug 16-Aug 26-Aug 7
Percentage Growth (%) 7 5 3 Affin Hwang Absolute Return Fund II - USD 1-1 -3-5 Benchmark -7-9 -11-13 29-Mar 8-Apr 18-Apr 28-Apr 8-May 18-May 28-May 7-Jun 17-Jun 27-Jun 7-Jul 17-Jul 27-Jul 6-Aug 16-Aug 26-Aug This information is prepared by Affin Hwang Asset Management Berhad (AFFINHWANGAM) for information purposes only. Past earnings or the fund s distribution record is not a guarantee or reflection of the fund s future earnings/future distributions. Investors are advised that unit prices, distributions payable and investment returns may go down as well as up. Benchmark: Absolute return of 8% per annum 8
Asset Allocation For a snapshot of the Fund s asset mix during the period under review, kindly refer to Figure 2. Figure 2: Asset Allocation of the Fund 31 Aug 2018 31 May 2018 28 Feb 2018 (%) (%) (%) Equities 67.61 75.91 88.14 Collective investment scheme 6.62 8.22 6.06 Cash & cash equivalent 25.77 15.87 5.80 Total 100.00 100.00 100.00 Strategies Employed With the return of volatility in markets, we are gradually raising our cash holdings and will stay more defensive in our allocation with capital protection taking precedence. We are deploying into domestic-driven sectors that are less directly impacted from trade tariffs as well as defensive high yields sectors. Market Review Emerging markets (EMs) continue to be whipsawed by a combination of a strengthening US dollar, tightening rate hike cycle and deepening trade rifts. Regionally, the MSCI Asia ex-japan Index was weighed down by external risk dropping 6.07% in the period under review. Emerging markets are seeing a tantrumlike sell-off, where investors appetite for risk-assets have tapered off significantly on the back of fractious developments within Turkey and Argentina that have sent both their currencies into free fall. Investors have ploughed back money into the US on signs of quicker growth, rising interest rates and a stronger greenback that has undermined the attraction of riskier EM assets. A lacklustre earnings season for the 2Q 18 did little to provide an uplift for markets. Softer earnings beat overall prompted downward revision by analysts citing challenging market conditions with moderating economic growth amidst creeping trade tensions. The tech space fared less well with heavyweights like Tencent and Alibaba reporting mixed results dragging down the rest of the broader market. Rising trade tensions between the US and China which threatens to escalate further also sent jitters across markets. US President Donald Trump announced a slew of protectionist measures including steel and aluminium tariff imports before scoping its aim to target China directly by proposing tariff imports in key strategic sectors identified by Beijing in its Made in China 2025 plan. China sought to retaliate with its own tit-for-tat measure by imposing tariffs on US imports. A sharp depreciation of the Chinese yuan also dragged down the rest of EMs, as a high correlation between markets led to further pain within other Asian currencies. The yuan has shed over 5% of its value YTD, when trade tensions started to brew. Due to concerns over trade-frictions with the US and possible second-order impacts on the Chinese economy that could manifest into slower investment and softer consumption, Beijing has shifted slightly towards a more neutral tone that leaves more room for China to loosen its grip on deleveraging and policy easing. Mini-stimulus measures announced by China to prop-up growth and cushion the impact from its painful trade conflict with the US provided some reprieve for markets. Beijing has been gradually resorting to a more vigorous fiscal policy and also tax cuts to address slowing credit growth as it embarks on its deleveraging exercise. Further efforts by the People's Bank of China (PBOC) PBoC to bolster the yuan by tweaking its methodology for the daily pricing of the yuan which has lost close to 3.28% YTD. On the domestic-front, the local market bucked regional trend with the benchmark KLCI gaining 4.54% in the quarter. Post 14 th General Election (GE14), the local market has seen a jolt of volatility following a swathe of reforms and deleveraging efforts including spending cuts to pare down the country s debts which exceeded RM1 trillion according to the Finance Minister YB Lim Guan Eng. A massive clean-up that swept across various institutions in the country post GE-14 also saw numerous GLC & GLIC heads fall into the fray. These included Permodalan Nasional Bhd ( PNB ) that saw Tan Sri Dr Zeti Akhtar Aziz appointed as its new chairman. Datuk Nor Shamsiah Mohd Yunus was also made the new 9
Governor of Bank Negara Malaysia ( BNM ) taking over Tan Sri Muhammad Ibrahim who resigned on June 15. Her appointment signals policy continuity within BNM, where she previously served as deputy governor, as well as a member of the monetary policy committee. Results season ended on a soft note domestically with just less than 10% of firms reporting earnings that surprised on the upside for the 2Q 18. The banking sector was the only one that broadly met expectations, despite poor topline growth but still posted strong results due to lower provisions and cost-cutting measures. Investment Outlook The recent market correction will likely presage a new era of higher volatility in markets. We expect volatility to pick-up in the year, as markets adjust to a reversal of a rate-cut cycle, with global central banks expected to gradually lift interest rates and embark on their balance-sheet unwinding. The gradual withdrawal of monetary stimulus would be a key focal point in markets, as markets adjust to tighter liquidity conditions. Inflation data may be a key-data point to monitor in coming quarters, especially if inflation picks up more than market s expectation, which would lead to an acceleration in rate hikes. We expect a ramping-up of trade protectionist rhetoric and politicking in the lead up to the US midterm elections in November, as President Trump attempts to rile up support for his presidency and protectionist agenda. Nonetheless, our base case is that the outcome will be more modest than the intended threats or rhetoric used, as both parties will have to bring all their bargaining chips onto the negotiation table before eventually arriving at a middle ground. Having said that, we are not dismissing the risk especially due to the severity of the sell-down. Domestically, markets will look to further clarity from the new government on policy direction of its fiscal and debt management. This includes covering a revenue shortfall from GST collections that is slated to be zerorated effective June 2018. Nonetheless, proactive measures taken so far to cut operating expenditure including salary deduction of ministers, plugging of leakages and revamps across ministries could stem the bleeding. We expect reform policies to generate a return of monetary and human capital that would drive back capital flows. Whilst, markets could be volatile in the short-term as a result of regulatory uncertainty and kitchensinking exercises undertaken by the new government, we expect such concerns to ease as the government clarifies its position and sets policy direction. A robust governance framework will eventually lend to business stability that would attract more sustainable forms of FDIs. This, coupled with fresh pro-growth policies would provide the uplift of growth for the economy and increase wealth distribution. 10
STATEMENT OF COMPREHENSIVE INCOME FOR THE FINANCIAL PERIOD ENDED 31 AUGUST 2018 INVESTMENT (LOSS)/INCOME Financial Financial period ended period ended 31.8.2018 31.8.2017 RM RM Dividend income 2,664,349 1,413,990 Interest income 48,155 108,366 Net gain on foreign currency exchange 1,535,752 5,560 Net gain/(loss) on forward foreign currency contracts at fair value through profit or loss 144,394 (5,906) Net (loss)/gain on financial assets at fair value through profit or loss (38,335,212) 10,597,513 Rebate of management fee 87,636 54,332 (33,854,926) 12,173,855 EXPENSES Management fee (1,045,436) (630,251) Custodian fee (49,110) (19,199) Fund accounting Fee (9,000) (1,000) Performance Fee - (10,474) Auditors remuneration (2,269) (2,269) Tax agent s fee (958) (983) Transaction costs (2,089,677) (1,179,180) Other expenses (2,501) (90,991) (3,198,951) (1,934,347) NET (LOSS)/PROFIT BEFORE TAXATION (37,053,877) 10,239,508 TAXATION (172,654) (82,760) (DECREASE)/INCREASE IN NET ASSETS ATTRIBUTABLE TO UNITHOLDERS (37,226,531) 10,156,748 (Decrease)/increase of net asset attributable to unitholders is made up of the following: Realised amount (9,394,503) 5,537,204 Unrealised amount (27,832,028) 4,619,544 (37,226,531) 10,156,748 11
STATEMENT OF FINANCIAL POSITION AS AT 31 AUGUST 2018 ASSETS 2018 2017 RM RM Financial assets at financial assets at fair value through profit or loss 303,311,658 245,094,146 Cash and cash equivalents 109,626,904 32,476,760 Dividend receivables 370,967 262,116 Amount due from Manager - creation of units 575,509 3,108,995 Amount due from brokers 3,359,140 - Forward foreign contracts at financial assets at fair value through profit or loss - 89,550 Rebate management fee receivable 47,935 22,598 TOTAL ASSETS 417,292,113 281,054,165 LIABILITIES Amount due to Manager - management fee 346,689 225,796 - cancellation of units 100,588 - Amount due to brokers 8,190,287 - Fund accounting fee 3,000 1,000 Auditors remuneration 11,269 8,769 Tax agent s fee 2,572 4,383 Other payables and accruals 11,942 43,993 TOTAL LIABLITIES (EXCLUDING NET ASSET ATTRIBUTABLE TO UNITHOLDERS) 8,666,347 283,941 NET ASSET VALUE OF THE FUND 408,625,766 280,770,224 NET ASSETS ATTRIBUTABLE TO UNITHOLDERS 408,625,766 280,770,224 12
STATEMENT OF FINANCIAL POSITION AS AT 31 AUGUST 2018 (CONTINUED) 2018 2017 REPRESENTED BY: RM RM FAIR VALUE OF OUTSTANDING UNITS - AUD Class 3,235,530 - - GBP Class 2,644 - - MYR Class 381,365,878 280,770,224 - SGD Class 7,960,837 - - USD Class 16,060,877-408,625,766 280,770,224 NUMBER OF UNITS IN CIRCULATION - AUD Class 2,257,000 - - GBP Class 1,000 - - MYR Class 316,289,000 225,293,000 - SGD Class 5,568,000 - - USD Class 8,576,000-332,691,000 225,293,000 NET ASSET VALUE PER UNIT (RM) - AUD Class 1.4336 - - GBP Class 2.6438 - - MYR Class 1.2058 1.2462 - SGD Class 1.4297 - - USD Class 1.8728 - NET ASSET VALUE PER UNIT IN RESPECTIVE CURRENCIES - AUD Class AUD0.4786 - - GBP Class GBP0.4947 - - MYR Class RM1.2058 RM1.2462 - SGD Class SGD0.4755 - - USD Class USD0.4559-13
STATEMENT OF CHANGES IN NET ASSETS ATTRIBUTABLE TO UNITHOLDERS FOR THE FINANCIAL PERIOD ENDED 31 AUGUST 2018 Financial Financial period ended period ended 31.8.2018 31.8.2017 RM RM NET ASSETS ATTRIBUTABLE TO UNITHOLDERS AT THE BEGINNING OF THE FINANCIAL YEAR 420,078,717 230,020,618 Movement due to units created and cancelled during the financial year Creation of units arising from applications 32,688,035 41,610,556 - AUD Class 3,241,371 - - GBP Class - - - MYR Class 20,402,572 41,610,556 - SGD Class 7,924,696 - - USD Class 1,119,396 - Cancellation of units (6,914,455) (1,017,698) - AUD Class - - - GBP Class - - - MYR Class (6,543,126) (1,017,698) - SGD Class (371,329) - - USD Class - - Net (decrease)/increase in net assets attributable to unitholders during the financial year (37,226,531) 10,156,748 - AUD Class (247,219) - - GBP Class (248) - - MYR Class (35,164,199) 10,156,748 - SGD Class (332,119) - - USD Class (1,482,746) - NET ASSETS ATTRIBUTABLE TO UNITHOLDERS AT THE END OF THE FINANCIAL YEAR 408,625,766 280,770,224 14