AFFIN HWANG INCOME FOCUS FUND 3 Quarterly Report and Financial Statements As at 31 January 2019 Contents Page QUARTERLY REPORT... 2 STATEMENT OF COMPREHENSIVE INCOME... 6 STATEMENT OF FINANCIAL POSITION... 7 STATEMENT OF CHANGES IN EQUITY... 8 1
QUARTERLY REPORT FUND INFORMATION Fund Name Affin Hwang Income Focus Fund 3 Fund Type Fund Category Investment Objective Duration of the Fund Income Fixed Income (Wholesale) The Fund aims to provide income return whilst maintaining capital preservation Three (3) years close-ended Fund Termination Date 21 December 2020 Benchmark Distribution Policy 12-month Malayan Banking Berhad Fixed Deposit Rate Subject to the availability of income, the Fund will distribute income on an annual basis Performance Review For the period from 1 November 2018 to 31 January 2019, the Fund recorded a return of 1.08%. Compared to the Benchmark return of 0.83%, the Fund thus outperformed its Benchmark by 0.25%. The Net Asset Value (NAV) per Unit of the Fund as at 31 January 2019 was RM0.9695 while the NAV per Unit as at 31 October 2018 was RM0.9591. On total NAV basis, the Fund s NAV stood at RM124.831 million as at 31 January 2019. (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 January 2019 3 Months 6 Months 1 Year Since Commencement (1/11/18-31/1/19) (1/8/18-31/1/19) (1/2/18-31/1/19) (20/12/17-31/1/19) Fund 1.08% 1.47% (1.40%) (3.05%) Benchmark 0.83% 1.67% 3.35% 3.72% Outperformance / (Underperformance) 0.25% (0.20%) (4.75%) (6.77%) Table 2: Volatility as at 31 January 2019 3 Year Fund N/A The data for a 3-year annualized volatility as at 31 January 2019 is not available as the Fund has yet to record 3 years of performance data. A 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. 2
Figure 1: Movement of the Fund versus the Benchmark 5.0 4.0 3.0 2.0 Benchmark 1.0 0.0-1.0-2.0-3.0 Affin Hwang Income Focus Fund 3-4.0-5.0-6.0 Dec-17 Jan-18 Feb-18 Mar-18 Mar-18 Apr-18 May-18 Jun-18 Jun-18 Jul-18 Aug-18 Sep-18 Oct-18 Oct-18 Nov-18 Dec-18 Jan-19 Jan-19 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. Source of Benchmark: Bloomberg. Benchmark: 12-month Malayan Banking Berhad Fixed Deposit Rate 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 Jan 2019 31 Oct 2018 31 Jul 2018 (%) (%) (%) Deposits with financial institutions - 95.92 - Derivatives - 0.58 - Cash & money market 100.00 3.50 100.00 Total 100.00 100.00 100.00 Strategies Employed The Manager maintained a high level of investment in domestic fixed deposits. To date, the Manager is comfortable with the deposits that have been placed by the Fund in respect of the bank s credit and fundamentals. Market Review In what has been a rather uninspiring year, global financial markets continued to endure the bumpy path laid out over the final months of 2018. Geopolitical tensions including the ongoing US-China trade duel, as well as uncertainties revolving Brexit remained a bane for the most part before sentiment were eventually renewed in January 2019. To recap, the US-China trade dispute has seen tariffs implemented on US$250 billion worth of Chinese goods and US$110 billion worth of US goods. The back-and-forth retaliation between both powerhouses felt unending, at least up till end-november 2018. In a surprising turn of events, US President Donald Trump and 3
China President Xi JinPing agreed to a temporary trade truce at the side-lines of the G20 summit in Buenos Aires. The truce will halt any further implementation of new tariffs for 90 days, and will see both parties attempt to broker a lasting trade agreement during this ceasefire period. Despite warming signs between Trump and Xi, market cheers were quickly subdued following the partial inversion of the US Treasury yield curve; which happened for the first time in more than a decade. Yield for the 5-year Treasury note fell slightly below than that of the 2-year in December 2018, while the more closely studied spread between the 2- and 10-year Treasury continued to trend within a tight range. Historically, a full inversion of the Treasury yield curve has preceded a US recession. Amid market concerns on a potential recession, the US Federal Reserve delivered another 25bps hike in its December meeting, but also revised its 2019 projection down to 2 hikes from 3 previously. This, however, wasn t enough to quell market jitters thus prompting a broad sell-off in the final weeks of December 2018. Sentiment however was quickly reignited in January 2019, following assurances from Fed Chair Jerome Powell that the central bank would be more accommodating in steering the course of interest rates and its balance sheet normalisation. Powell also emphasised that the Federal Reserve is sensitive to risks that worry investors and is open to adjust its policy outlook if needed. Nevertheless, safe haven assets still saw notable inflows during the same time, as the 10-year Treasury benchmark yield retreated down markedly to 2.63% as of end January 2019. On Asia credits, the said space also saw investors appetite renewed along with the new year albeit the softer patch endured in 2018. With some of the headwinds appearing to be easing up (in terms of trade as well as US monetary policy), regional bonds enjoyed a positive stretch of rally in January 2019 where performances were mainly driven by strong support toward new issuances, including those from the HY and AT1 segments. Back home, the Malaysia Budget 2019 revealed in November was a mildly expansionary one; which stuck to fiscal consolidation whilst providing a social safety net to the B40 group. However, the recent slide in oil prices have raised concerns over the government s ability to meet its fiscal targets; especially due to its reliance on oil-related revenues which accounted for 31.0% of the total government revenue. The domestic bond scene endured a softer showing for the most part, as the MGS + GII space saw outflows throughout the period under review losing a collective MYR8.8 billion in the 3-month period. Foreign share of MGS+GII declined to 23.1% as of end-january. Nevertheless, healthy domestic liquidity has provided much support for the local bond scene. Yields for the 10-year MGS benchmark held steady at around the 4.07% range as of end-january 2019. On the other hand, the corporate segment has remained quite strong as well; buoyed by the lack of supply as well as domestic pick-up. The Ringgit remained as one of the better performers amongst its regional peers closing the period under review at MYR4.09 against the greenback. Investment Outlook The global economy is poised to continue to grow at an even keel albeit at a slower pace. We do not see major economic imbalances that would lead to a recession in the immediate term. With that said, caution remains a key theme still in this late cycle, and we remain mindful that uncertainty is likely to remain high in terms of economics, politics, and policies. While the temporary trade truce between US and China could provide some comfort to markets for the nearterm, there are still plenty of items to discuss and negotiate on before both powerhouses can engage in a healthier trade relationship. Nevertheless, resumption of dialogue between the two is an encouraging sign. In addition, some of the headwinds from 2018 appears to be receding with a more dovish US Federal Reserve, as well as the USD strength that is starting to top-out. According to Fed Fund Futures as of end January 2019, investors are pricing-in for a pause in interest rate hikes this year, with a chance of a rate cut in 2020. 4
Back home, the Malaysian market is likely to remain challenged amid the broader slow-down in growth, as well as the lack of expansionary stimulus. Understandably, clean-up efforts appear to be the main focus of the Pakatan Harapan government; where proactive measures have been taken to reduce operating expenditure including salary deduction for ministers, plugging of leakages and revamps across ministries could stem the bleeding. While change appears to be painful for the short-term, we are optimistic that a solid framework of governance coupled with expansionary policies that would eventually fall in place should lend to business stability that would attract more sustainable forms of FDIs into Malaysia. Treading ahead, we expect the market drivers from 2018 i.e. strong domestic liquidity and lack of supply to be carried forward into this New Year. Nevertheless, the portfolio will continue its focus on consistent income returns and capital preservation by maintaining a high level of investment in domestic fixed deposits that we are comfortable with in respect of the underlying bank s credit and fundamentals. 5
STATEMENT OF COMPREHENSIVE INCOME FOR THE FINANCIAL PERIOD ENDED 31 JANUARY 2019 INVESTMENT INCOME/(LOSS) Financial Financial period ended period ended 31.1.2019 31.1.2018 RM RM Interest income 1,267,367 698,080 Net gain on foreign currency exchange - 34,672 Net gain/(loss) on financial assets at fair value through profit 79,241 (2,872,451) Exit fee income 470-1,347,078 (2,139,699) EXPENSES Trustee fee (9,386) (5,553) Auditors' remuneration (2,017) (1,297) Tax agent's fee (882) (669) Other expenses (487) (3,386) (12,772) (10,905) NET INCOME/(LOSS) BEFORE TAXATION 1,334,306 (2,150,604) TAXATION - - NET INCOME/(LOSS) AFTER TAXATION AND TOTAL COMPREHENSIVE INCOME/(LOSS) FOR THE FINANCIAL PERIOD 1,334,306 (2,150,604) Net gain/(loss) after taxation is made up of the following: Realised amount 1,255,065 681,150 Unrealised amount 79,241 (2,831,754) 1,334,306 (2,150,604) 6
STATEMENT OF FINANCIAL POSITION AS AT 31 JANUARY 2019 2019 2018 RM RM ASSETS Financial assets at fair value through profit or loss 792,827 7,562,688 Cash and cash equivalents 124,056,437 119,061,805 Tax recoverable 5,164 - TOTAL ASSETS 124,854,428 126,624,493 LIABILITIES Amount due to Trustee 3,178 3,240 Auditors remuneration 10,017 1,297 Tax agent s fee 5,782 669 Other payables and accruals 4,823 891 TOTAL LIABILITIES 23,800 6,097 NET ASSET VALUE OF THE FUND 124,830,628 126,618,396 EQUITY Unitholders capital 128,759,307 128,769,000 Accumulated losses (3,928,679) (2,150,604) NET ASSETS ATTRIBUTABLE TO UNITHOLDERS 124,830,628 126,618,396 NUMBER OF UNITS IN CIRCULATION 128,759,000 128,769,000 NET ASSET VALUE PER UNIT 0.9695 0.9833 7
STATEMENT OF CHANGES IN EQUITY FOR THE FINANCIAL PERIOD ENDED 31 JANUARY 2019 Unitholders Accumulated capital losses Total RM RM RM Balance as at 1 November 2018 128,769,000 (5,262,985) 123,506,015 Total comprehensive income for the financial period - 1,334,306 1,334,306 Movement in unitholders capital: Cancellation of units (9,693) - (9,693) Balance as at 31 January 2019 128,759,307 (3,928,679) 124,830,628 Balance as at 15 November 2017 (date of launch) - - - Total comprehensive losses for the financial period - (2,150,604) (2,150,604) Movement in unitholders capital: Creation of units arising from applications 128,769,000-128,769,000 Balance as at 31 January 2018 128,769,000 (2,150,604) 126,618,396 8
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