MANULIFE INVESTMENT FUNDS SIP Growth Portfolio (Apr 2018) # Fund Information (30 Apr 2018) SIPGRO KULSIPGRO Bid Price/Unit NAV USD 1.3505 Investment Objective Fund Size USD 5.36 million SIP Growth Portfolio is a unitized fund, which is designed to provide medium to Units in circulation 3.97 million long term capital growth for those who hold a long term investment view and Fund Currency USD who are prepared to accept considerable fluctuations in the value of their Launch Date 23 July 2008 investments in order to achieve long term returns. Management Fee 1.30% p.a. Dealing Daily FUND PERFORMANCE SINCE INCEPTION Portfolio Breakdown 1 (23 July 2008 to 30 April 2018) Equities 50% 40% 30% 20% 10% 0% -10% -20% -30% -40% Jul-08 Jul-09 Jul-10 Jul-11 Jul-12 Jul-13 Jul-14 Jul-15 Jul-16 Jul-17 Fund Graph depicts returns calculated on NAV to NAV basis Source: Bloomberg MGF - American Growth Fund (A Share) 31.5% MGF - European Growth Fund (A Share) 8.6% MGF - Global Property Fund (AA Share) 7.5% MGF - Global Resources Fund (AA Share) 5.4% MGF - US Small Cap Equity Fund (AA Share) 4.1% MGF - Japanese Growth Fund (A Share) 3.1% MGF - Asian Equity Fund (A Share) 1.1% Bonds and Others MGF - US Bond Fund (AA Share) 18.9% MGF - US Special Opportunities Fund (AA Share) 16.8% MGF - US Treasury Inflation-Protect Fund (AA Share) 5.3% Liquidity and others -2.3% Fund Performance Performance SIP Growth Portfolio 1 Month 0.87% 3 Months -4.14% 6 Months -0.99% YTD -2.34% 1 Year 2.90% 3 Years 4.61% 5 Years 13.18% Since Inception 35.05% *Source: Bloomberg Note: Fund's performance is calculated on NAV to NAV. The value of units may go up as well as down. ¹The percentages presented hereof are internally sourced and computed for indication purposes only
Asia Pacific ex Japan Asia ex Japan equities managed to post a gain in April despite volatility during the month. The market started off in negative territory due to rising trade war concerns but recovered at the end of the month as tensions eased. Oil prices continued their rally from last month and industrial metals rose sharply. In China, first quarter 2018 GDP was in-line with estimates of 6.8% year-on-year. Manufacturing and non-manufacturing Purchasing Managers Index (PMI) readings were both ahead of expectations, signalling that the economy is still in an expansion phase while retail sales remain strong. Moreover, the People s Bank of China (PBoC) cut the reserve requirement ratio by 100 basis points (bps). South Korea outperformed the region on the back of strength from the technology sector driven by index heavyweight Samsung Electronics after reporting first quarter results that were stronger than expected. Furthermore, South Korea s President Moon met with North Korea s President Kim, reaffirming their commitment to denuclearise the Korean Peninsula. However, Taiwan was one of the worst performing markets as it was dragged down by the tech sector, which was suffering from the muted demand for iphones as well as softer guidance from a tech bellwether. India rebounded after underperformance in the first quarter. As the Rupee depreciated against the US dollar, information technology and healthcare sectors stand to benefit. The central bank kept rates unchanged albeit with a hawkish tone from the Monetary Policy Committee of India (MPC) minutes. ASEAN markets were lower on the month, except for Singapore, which was driven by strong performance in financials as the banks reported stronger-than-expected earnings. Indonesia s country rating was upgraded one notch higher on the investment grade scale by Moody s on the back of an increasingly credible and effective policy framework. Given prudent fiscal economic and monetary policy, the country s ability to absorb external shocks has improved. Thailand continued to show economic expansion driven by exports and tourism. After Malaysia s parliament was dissolved earlier in the month, general elections will take place in early May. Equities remain an attractive asset class in 2018 as earnings growth is expected to sustain through the year, thanks to a more broadbased recovery in the global economy. Significant reforms have taken place in the past two years and most Asian economies are more resilient to an interest rate tightening cycle compared to the period of the first taper tantrum. We expect that economic growth in the region will be supported by a relatively benign interest rate environment as inflation stays at reasonable levels. More importantly, valuations remain undemanding. China has clearly stated its plan to promote stable and quality growth. We expect deleveraging to continue. Balance sheet and cash flow strengths remain the key factors to consider in stock selection. Consumer Price Index (CPI) is expected to gain momentum, and consumer companies with pricing power are expected to outperform. The real estate sector is expected to remain stable. However, we expect the cycle will shift in favour of the larger companies as the industry begins to consolidate amid a tighter liquidity environment. The energy sector in China has underperformed its regional peers last year. As oil price rises further, we expect interest will return to the sector as valuations appear attractive and earnings expectations are low. In Taiwan, we expect upstream tech suppliers to continue to deliver robust growth, thanks to rising demand for higher processing power and speed from artificial intelligence and Internet-of-Thing products. Non-Apple smartphone supply chain is expected to deliver better performance, thanks to new model launches by Chinese OEMs. Growth in the electric vehicle supply chain is expected to be slower in 2018 as Tesla tries to ramp up production of Model 3. Exporters may face near term headwinds from a stronger Taiwanese dollar but we expect the impact to normalise over time. In South Korea, domestic demand is expected to recover thanks to a stronger domestic economy supported by robust export growth. We see strength in outbound tourism. The thawing of geopolitical tension between China and South Korea also raised hope of a recovery in inbound tourism. We continue to like the banking sector as loan growth and asset quality remain healthy. The South Korean banks have outperformed their regional peers in terms of recovery in asset quality and return on equity, but stocks are undervalued relative to their regional peers. India is expected to continue to underperform. A higher crude oil price and upcoming state elections could cause transient volatility in the near term. That said, we continue to believe in the country s economic growth potential over the longer term. Growth momentum in South East Asia is expected to gain pace in 2018. Growth in domestic consumption is expected to step in following a year of growth driven by exports in 2017. The run-up to elections in Malaysia, Thailand, and Indonesia should provide further support to domestic consumption in the near term. The energy sector, especially the oil and gas industry, has troughed as oil prices continue to recover. This is a space to watch in 2018. Demand for cars is expected to recover in Thailand as the country cycles through the first car buyer scheme, which was implemented a few years ago. Indonesia continues to deliver in terms of fortifying its fiscal position. Tax receipts have improved, and the government continues to spend on infrastructure development. We believe this forms a strong foundation for longer term growth. There are many good companies with steady growth and trading on cheap valuations in Indonesia. These companies are clearly underappreciated and we see the most upside in these stocks within the South East Asia region. Page 2 of 5
North America The US stock market was bumpy again in April. On the positive side, global economic growth continued to improve, and corporate earnings largely exceeded expectations. However, rising commodity costs and the 10-year US Treasury yield s push past 3% stirred inflation fears that pressured returns. International trade tensions also weighed on performance. Within the broad-based S&P 500 Index, energy stocks posted a sizable gain, helped by higher oil prices, but most sectors posted modest gains or losses. The consumer staples sector saw the biggest decline, as increased competition hampered prices and volume growth. Our outlook has not changed. We continue to believe prospects for US stocks remain favourable. Valuations look more attractive than at the start of the year. The US economy stands to benefit from the US housing recovery, a stronger financials sector, and improved consumer balance sheets. We also expect savings from the new US tax law to bolster spending for corporations and consumers. Going forward, we plan to take advantage of future market volatility as it creates attractive entry points for stocks we like. Europe European markets gained in April on waning fears of a trade war erupting between the US and China, buoyant commodity prices, and stabilising industrial production trends in Europe. Brent oil reached US$75 per barrel, its highest level in over three years, making energy the best-performing sector. After a protracted period of major oil companies reining in capital expenditure, the energy market has become faced with supply shortages. The major negative economic surprise over the month was first-quarter GDP in the UK, which recorded its lowest rate of growth since 2012, at 0.1%. The British pound fell sharply against the US dollar as the weak data reduced the likelihood that the Bank of England would raise its interest rate in May. Whether this slowdown was a one-off caused by severe weather conditions hampering construction and retail activity, or a reflection of deeper issues in the UK economy, will become more evident over the course of the year. While the European economic recovery should gather steam this year, the boost to corporate earnings may be partially clouded by currency challenges. We believe the strong euro will particularly affect the performance of exporting sectors, such as industrials, and the automotive industry. We also see rising inflation and borrowing costs amid looming risks that could weigh on consumer sentiment and lead to a moderate derating of equities. Overall, we view the underlying health of the corporate industry as strong enough to offset these negative factors and deliver moderate gains for European equity investors over the medium term. We maintain that the energy and materials sectors are in a sweet spot at least while investors enjoy the benefit of higher commodity prices coupled with the capital discipline adopted by management following the last downturn. However, we believe that this restraint rarely holds, as the promise of high-return investments that attends rising prices becomes too tempting to ignore. It makes sense for a single producer to ramp up investment, but when the wider industry does this, the result is usually projects coming online just as the next downturn hits, leading to significant value destruction. We are therefore keeping a close eye on the capital allocation policies of our holdings in these sectors and will look to reduce our positions when valuations factor in commodity prices that enable the industry to earn above its cost of capital. Japan The market rose in April, mainly driven by the decline in the yen versus the US dollar. Unfortunately, this came too late for some Japanese companies earnings forecasts, which looked extremely conservative as they used 100 yen to the US dollar (rather than the current and last year s average 110 yen/us$). As the market moves into full year earnings season, there have been some large moves both up and down as the market reacts to earnings forecasts for the next fiscal year. The best performing sectors over the month were utilities, insurance, and real estate as the market continues to focus on laggard domestic sectors. The worst performing sectors were pharmaceuticals, tires, and electronics. The electronics sector has been particularly hard hit by concerns over component orders for the Apple iphone. The best performing stock in the Topix 500 Index was Tokyo Electric Power. TEPCO grew profits by 12% last year, beating consensus estimates by 20% as the company s efforts to cut costs paid off. The worst performer was Ono Pharmaceutical after data showed that their cancer drug, Opdivo, was losing the race to dominate the market for lung cancer to Merck s rival drug, Keytruda. 2017 had been a strong year for both the Japanese economy and the equity market. After a weak start due to conservative forecasts based on a stronger currency, the market rallied on upward earnings revisions driven by demand for machinery and technology exports and support from the domestic economy and a weaker currency. We expect the market will continue to drive upwards on the back of further upward earnings revisions. There will be wobbles along the way as the market weighs up the negative impact from rising bond yields and the fear of tariff wars vs the overall strong global growth backdrop. A reflationary domestic economy would be supportive of the financial sector. Domestic demand from construction and other sectors in the run-up to the Tokyo Olympics in 2020, combined with the tight labour market, should lead to further pressures on the inflation rate. Mr Kuroda has retained his role as governor of the Bank of Japan (BoJ) and will continue to pursue the BoJ s target of 2% inflation. Japan remains the cheapest developed market on both price to earnings and price to book. Japan s return on equity (ROE) has also been steadily improving and currently stands at 9%. We believe this could reach 10% by 2019. Although this is still well below the US (18%), it is on a faster growth path. One of the drivers for higher ROE is the record level of share buybacks. Most Japanese corporates have a net cash position giving them ample opportunity to make further buybacks in 2018. Page 3 of 5
Global Equity market volatility persisted throughout much of April. Geopolitical events, particularly the prospect of trade conflict between the US and China, as well as escalating tensions between the US and Russia regarding Syria, continued to impact markets. Global economic expansion continued and was supported in Europe by a strong labour market. In China, growth was led by increased domestic consumption. In the US, consumer confidence came in ahead of consensus expectations, and first-quarter annualised GDP growth was strong. Inflation appeared to be slowly picking up in the US, but there was little sign of an increase in the outlook for prices in the eurozone. Despite the volatility, a strong earnings season, particularly in the US, pushed developed market equities higher, as they outperformed their emerging market counterparts over the month. Oil prices rose in response to production cuts from the Organization of the Petroleum Exporting Countries (OPEC) and strong global oil demand. As a result, commodities were the top-performing asset class and energy was the best-performing sector, while the consumer staples sector lagged. Both developing and emerging market equities ended the month on a positive note. However, the year-to-date performance of many major indices remains marginally negative. The US continues to underperform, and we therefore continue to favour international markets. While international markets benefited in the first quarter from US dollar weakness, the US dollar has since strengthened. The implication of this performance is that price-earnings ratios for most equities are higher than historical averages, and existing levels have not been seen since the early 2000s. Other multiples tell a similar story. Also, international equities are trading at extended valuation discounts relative to the U.S. Our analysis shows that debt levels have risen, even as profit margins appear to be near peak levels. We believe solid global economic growth should translate into double-digit earnings growth, but our concern is that current valuations have largely priced this in. Valuation concerns aside, we believe there are additional macroeconomic issues that should be in focus for investors. The Fed appears committed to increasing the federal funds rate, supported by early signs of inflation in the economy. Moreover, tight labour markets appear to be affecting employment costs, and commodity prices have risen, partly in response to potential tariffs. However, disinflationary forces should limit the Fed to three to four rate increases this year. Negative demographics (in which younger workers are replacing older, more expensive ones), a surplus of inexpensive labour, and evolving technology continue to hamper wage growth. International markets, on the other hand, have experienced weaker inflation numbers. We believe markets are currently in a valuation-rich environment. Against this backdrop, we continue to focus on companies that have enduring businesses, strong management teams with solid track records of effective capital allocation, strong balance sheets, and sustainable free cash flow. We continue to view the US financials sector positively, although we remain cautious of European firms within the sector. We also continue to favour sustainable, quality franchises across sectors, but we recognise that in a growth environment, the benefits that these companies provide in the event of a market decline may not be valued in the short term. Momentum markets may prove challenging as the Fund, which has a valuation focus, seeks to provide protection against potential market downturns. We believe the biggest potential market risks stem from high global valuations and high debt levels. Rising yields, stemming from higher interest rate expectations, continue to present risks to equity valuations, particularly for companies with high levels of debt. Moreover, with central banks generally signalling the end of unconventional monetary policy, we are concerned that the transition, if not executed well, could have a negative impact on capital markets. The SIP Growth Portfolio is managed by Manulife Asset Management Services Berhad and is fund of funds structures. It invests all or substantially all of its assets into the Underlying Funds under the Manulife Global Fund platform. Please refer to the Portfolio Breakdown for the list of the Underlying Funds and the allocation. Past performance is not an indication for future results. This report is prepared for information purposes only. Important Notes: The fund performances are strictly the performance of the investment-linked (IL) fund and not to be treated as the gross premium/contribution of the IL insurance product. In the event of exceptional circumstances, such as high volume of sale investment within a short period of time, Manulife Insurance Berhad ("the Company") reserves the right to defer or suspend issuance or redemption of units. Page 4 of 5
Investment in the fund is subject to certain risks, including but not limited to: Risk Type Description Risk Management (Bond funds) Risk Management (Equity funds) Fund Management Risk The selection of securities which make up the investments of the fund is subjective and securities selected may perform better or worse than overall market. To mitigate this risk, the investment Manager has in place a disciplined investment process and practices prudent risk management. Manager has in place a disciplined investment process and practices prudent risk management. In addition, risk is also monitored through risk models. Liquidity Risk The risk of the funds being unable to meet their obligations at the reasonable cost or at any time. Manager will review and monitor the Fund continuously, and actively manage asset allocations of the Fund. In addition, the investment Manager will practice prudent liquidity management to enable the Fund to meet short term obligations. Manager will review and monitor the Fund continuously, and actively manage asset allocations of the Fund. In addition, the Investment Manager will practice prudent liquidity management. Market or Price Risk Market risk arises when the value of the securities fluctuate in response to the general market and economic conditions. The Investment Manager will attempt to diversify the portfolio, and monitor the investment climate and market conditions to take measures, where necessary and appropriate, to mitigate this risk. This may include lowering the fixed income exposure and/or reallocating the investments into more defensive investment instruments such as cash, deposits and/or other money market instruments. This risk is managed through sector/stock diversification and asset allocation. This risk is managed through sector/stock diversification and asset allocation. This may include reallocating the investments into more defensive investment instruments such as cash, deposits, money market and/or other fixed income instruments. Timing Risk Company / Stock Specific Risk Interest Rate Risk The risk is subject to the volatility of the market/interest rate. The risk of loss due to the fall of stocks/shares prices given the deteriorating business condition. The Investment Manager will manage it based on its professional knowledge and experienced investment skill. Timing risk will be managed via technical tools (i.e. from Bloomberg) as well as based on the Investment Manager's professional knowledge and experience investment skill. N/A Manager will be performing continuous research and analysis on the balance sheet strength, earnings generation capability and strength of management team of the company. The interest rate is a general economic This risk will be mitigated via the N/A indicator that will have an impact on the management of the duration of the fixed management of the Fund. This risk refers income securities. to the effect of interest rate changes on the market value of fixed income securities. In the event of rising interest rates, prices of fixed income securities will decrease and vice versa. Meanwhile, fixed income securities with longer maturities and lower coupon/profit rates are more sensitive to interest rate changes. Inflation Risk This is the risk that investors' investment in The risk may be mitigated by investing in N/A the Fund may not grow or generate income fixed income securities that can provide at a rate that keeps pace with inflation. positive real rate of return. Credit Risk The risk of loss due to the counter party's Credit risk may be managed by N/A inability to make payment of coupon/profit performing continuous fundamental and/or principal. credit research and analysis to ascertain the creditworthiness of its issuer. Page 5 of 5