United Global Internet Fund Semi Annual Report for the period 1 st January to 30 th June 2013
MANAGER UOB Asset Management Ltd Registered Address: 80 Raffles Place UOB Plaza Singapore 048624 Company Registration No. : 198600120Z OPERATIONS ADDRESS 80 Raffles Place #06-00, UOB Plaza 2 Singapore 048624 Tel: 1800 22 22 228 DIRECTORS OF UOB ASSET MANAGEMENT Terence Ong Sea Eng Cheo Chai Hong Thio Boon Kiat TRUSTEE / REGISTRAR HSBC Institutional Trust Services (Singapore) Limited 21 Collyer Quay #10-02, HSBC Building Singapore 049320 CUSTODIAN State Street Bank and Trust Company State Street Financial Center One Lincoln Street Boston, Massachusetts 02111-2900 United States of America AUDITORS PricewaterhouseCoopers LLP 8 Cross Street #17-00, PWC Building Singapore 048424 SOLICITORS TO THE MANAGER Allen & Gledhill LLP One Marina Boulevard #28-00 Singapore 018989 SOLICITORS TO THE TRUSTEE Drew & Napier LLC 10 Collyer Quay #10-01, Ocean Financial Centre Singapore 049315 1
A) Fund Performance Fund Performance/ Benchmark Returns 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 June 2000 Ann Comp Ret United Global Internet Fund 5.92 14.50 14.01 3.24 0.72-0.38-4.28 Benchmark 10.49 23.82 32.91 15.98 8.13 4.59-7.95 Source: Lipper, a Thomson Reuters Company, Bloomberg. Note: The performance returns of the Fund are in Singapore dollars based on a NAV-to-NAV basis with net dividends reinvested. The Benchmark of the Fund: The composite Benchmark comprises of the following indices: 10% Bloomberg Asia Pacific Internet, 10% Bloomberg Euro Internet & 80% Bloomberg US Internet. For the six months ended 30 June 2013, the net asset value of the Fund rose 14.5%, compared with a 23.8% increase in the benchmark composite of Bloomberg Internet indices, in Singapore dollar terms. The Fund s overweight position in companies with exposure to cashless payment platforms and to Internet search and advertising contributed positively to performance. However, this was offset by drags due to an overweight position in certain niche companies within the technology hardware & equipment industry, and underweight position in the e-commerce space. As such, the Fund underperformed by 9.3% points against the benchmark. In terms of stock selection, top contributors to the Fund include Google Inc, Yahoo Japan Corporation, and Visa Inc. Key detractors include VMware Inc, Dialog Semiconductor Plc and Teradata. The Fund exited earlier positions of VMware Inc, Teradata and Altera Corp by end June 2013, as they failed to meet our expectations. The Fund added positions in ARM Holding, Cisco Systems and Oracle Corp for the sustainability of their long-term earnings growth potential and favourable valuations. As at end June 2013, the Fund was positioned as follows: By Sub-sector Software & Services (70.2%), Technology Hardware & Equipment (13.1%), Semiconductors & Semiconductor Equipment (4.6%), Retailing (4.5%), Cash and equivalents (7.6%). By Country United States (70.5%), Spain (5.3%), Japan (3.8%), China (3.5%), Germany (2.9%), Others (6.4%), Cash and equivalents (7.6%). 2
Market Review In the six months ending June 2013, the Internet sector, as represented by the benchmark, outperformed the broad market (MSCI World Index) by 10.8%. The Fund favoured the cashless payment segment, where we believe the penetration of e-commerce transaction volume and value, which are driven by higher consumption on the Internet, would gain momentum on the back of innovative payment technologies. In this space, the Fund held Visa Inc, Mastercard and EBay as we believe that these companies offer the best proxy for exposure to increased usage of cashless payment online platforms. The Fund also favoured the enterprise software segment given its earnings resilience, which in turn is underpinned by high recurring revenue streams. Citrix, Microsoft and Amadeus contributed positively to the Fund s performance. More importantly, these software vendors are leading proponents of Cloud computing, which has gained increasingly larger market awareness and acceptance in recent years. This, in our view, will create new addressable opportunities and additional revenue stream for the companies. The Fund s exposure to the enterprise IT hardware sector, namely Cisco, posted positive returns as well. Due to the proliferation of the smart mobile devices, data centres around the world have been spurred to upgrade critical networking equipment, optimize existing infrastructure and improve network efficiency. Earlier concern by the market over Cisco losing its market relevance with the emergence of software-defined networking (SDN) was largely dismissed upon the company s positive first quarter earnings release and forward guidance. Worldwide personal computer (PC) unit shipment growth rate further contracted in the first half of 2013, at a compounded rate of -23.7%, according to IDC estimates. Despite the launch and positive reviews of Ultrabooks and Windows 8 operating system from Microsoft, the PC sector succumbed to the emergence of tablet computing platform. The Fund had an underweight exposure to this segment, as the outlook of the PC industry seemed to be on a downward secular decline. This positioning mitigated the underperformance of the Fund partially over the review period. Outlook and Fund Strategy There has been an accelerating adoption rate globally of smart mobility devices such as smart phones and tablets, a growing penetration of alternative modes of cashless transactions on mobile and e-commerce platforms, and a continued build-up of networking infrastructure. These trends are likely to persist as droves of consumers globally shift their consumption of goods and services online, with the help of new mobile platforms. The long-discussed themes of the Internet of Things or Big Data are upcoming industry phenomena of floating masses of digital information generated electronically by all kinds of human activities into the Internet space (or the Cloud). Such new trends would allow the large scale application of business intelligence and analytics on the information to gain insights of evolving human behavioral patterns that could be used to enhance user experience and generate profitability. 3
We are expecting these trends to gain further traction in the coming years with the increasing penetration of Internet connection globally. Through the growing captivity of social media platforms and other increasingly engaging online services, individuals are staying more connected to the Internet and consuming more online. We expect this to be a global trend, with e-commerce likely to grow faster than the overall economy. Businesses are also shifting more of their marketing and distribution budgets to online channels, making them a mainstream tactic to better serve their customers. Companies with potential exposure to the emergence of the Cloud, both on software and hardware platforms that cater to the build-up of the Internet infrastructure, are likely beneficiaries of this emerging business spending trend. Based on our current expectations of the Internet space, we favour companies with the first-mover advantage and the ability to build their scale in this new environment to reap the benefits of the explosive online traffic volume growth and the new paradigm of consumption pattern. Against this backdrop, we will persist to position the Fund optimally to benefit from the IT industry s long-term secular growth potential, continued profitability and attractive valuations. 4
B) Investments at fair value and as a percentage of NAV as at 30 June 2013 under review classified by i) Country Fair Value (S$) % of NAV China 74,515 3.50 France 47,017 2.21 Germany 60,229 2.83 Japan 81,000 3.81 South Korea 51,529 2.42 Spain 112,725 5.30 United Kingdom 38,208 1.79 United States 1,501,480 70.54 Portfolio of investments 1,966,703 92.40 Other net assets 161,843 7.60 Total 2,128,546 100.00 ii) Industry Consumer Discretionary 95,092 4.47 Information Technology 1,871,611 87.93 Portfolio of investments 1,966,703 92.40 Other net assets 161,843 7.60 Total 2,128,546 100.00 iii) Asset Class Equities 1,966,703 92.40 Other net assets 161,843 7.60 Total 2,128,546 100.00 iv) Credit rating of debt securities 5
C) Top Ten Holdings The top 10 holdings as at 30 June 2013 and 30 June 2012 10 largest holdings at 30 June 2013 Percentage of total net assets attributable to Fair Value unitholders (S$) % GOOGLE INC - CLASS A 390,472 18.34 CISCO SYSTEMS INC 231,243 10.86 EBAY INC 187,456 8.81 VISA INC - CLASS A SHARES 185,223 8.70 MASTERCARD INC - A 180,974 8.50 YAHOO INC 168,722 7.93 AMADEUS IT HOLDING SA-A 112,725 5.30 AMAZON.COM INC 95,092 4.47 YAHOO JAPAN CORPORATION 81,000 3.81 TENCENT HOLDINGS LIMITED 74,515 3.50 10 largest holdings at 30 June 2012 Percentage of total net assets attributable to Fair Value unitholders (S$) % MICROSOFT CORP 228,559 9.07 GOOGLE INC - CLASS A 227,786 9.04 CITRIX SYSTEMS INC 175,432 6.97 VISA INC - CLASS A SHARES 161,548 6.41 YAHOO INC 160,326 6.37 CISCO SYSTEMS INC 158,690 6.30 QUALCOMM INC 157,266 6.24 HITACHI LTD 154,321 6.13 EMC CORP MASSACHUSETTS 124,401 4.94 YAHOO JAPAN CORPORATION 114,337 4.54 6
D) Exposure to derivatives i) fair value of derivative contracts and as a percentage of NAV as at 30 June 2013 ii) net gains/(losses) on derivative contracts realised during the financial period ended 30 June 2013 iii) net gains/(losses) on outstanding derivative contracts marked to market as at 30 June 2013 E) Amount and percentage of net asset value (NAV) invested in other schemes as at 30 June 2013 F) Amount and percentage of borrowings to net asset value (NAV) as at 30 June 2013 G) Amount of redemptions and subscriptions for the period 01 January 2013 to 30 June 2013 Total amount of redemptions SGD 327,835 Total amount of subscriptions SGD 7,885 H) The amount and terms of related-party transactions for the period 01 January 2013 to 30 June 2013 i) As at 30 June 2013 the Fund maintained current accounts with the United Overseas Bank Limited as follows: Bank balances SGD 1,904 ii) Purchase/holdings of UOBAM unit trusts by UOB or its affiliated companies as at 30 June 2013 iii) Investment in Initial Public Offerings managed by UOB Group. iv) As at 30 June 2013 there was no brokerage income earned by UOB Kay Hian Pte Ltd. 7
I) Expense ratios 30 June 2013 4.64% 30 June 2012 4.65% 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 expense ratio at 30 June 2013 was based on total operating expenses of $104,861 (2012: $128,463) divided by the average net asset value of $2,261,817 (2012: $2,761,274) for the year. The total operating expenses do not include (where applicable) brokerage and other transactions 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 30 June 2013 38.69% 30 June 2012 39.96% 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, being purchases of $834,775 (2012: purchases of $1,071,784) divided by the average daily net asset value of $2,157,862 (2012: $2,681,982). K) Any material information that will adversely impact the valuation of the scheme such as contingent liabilities of open contracts 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 30 June 2013 and 30 June 2012 ii) expense ratios for the period ended 30 June 2013 and 30 June 2012. iii) turnover ratios for the period ended 30 June 2013 and 30 June 2012 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. 9
STATEMENT OF TOTAL RETURN For the half year ended 30 June 2013 (Un-audited) 30 June 30 June 2013 2012 $ $ Income Dividends 6,568 12,583 Less: Expenses Management fee 18,738 23,415 Trustee fee 2,480 2,493 Audit fee 6,595 6,632 Registrar fee 7,439 7,480 Valuation fee 2,142 2,676 Custody fee 2,383 2,000 Interest expenses 10 - Transaction cost* 5,360 - Other expenses 19,621 10,666 64,768 55,362 Net loss (58,200) (42,779) Net gains or losses on value of investments Net gain on investments 350,737 50,074 Net foreign exchange loss (364) (927) 350,373 49,147 Total return for the period before income tax 292,173 6,368 Less: Income tax (1,531) (2,648) Total return for the period 290,642 3,720 * The Fund has adopted the recommendations of the Statement of Recommended Accounting Practice 7 Reporting Framework for Unit Trusts ( RAP 7 ) issued by the Institute of Singapore Chartered Accountants (formerly known as the Institute of Certified Public Accountants of Singapore) in June 2012 for the financial period beginning 1 January 2013. In accordance with the RAP7, all expenses relating to the purchase and sale of financial instruments are charged against income. As a transitional provision in the first year of application, reclassification of comparative figures is not required. 10
STATEMENT OF FINANCIAL POSITION As at 30 June 2013 (Un-audited) 30 June 31 December 2013 2012 $ $ ASSETS Portfolio of investments 1,966,703 2,154,666 Sales awaiting settlement 66,448 29,830 Cash and bank balances 241,776 39,152 Total Assets 2,274,927 2,223,648 LIABILITIES Payables 21,953 65,794 Purchases awaiting settlement 124,428 - Total Liabilities 146,381 65,794 EQUITY Net assets attributable to unitholders 2,128,546 2,157,854 11
STATEMENT OF MOVEMENTS OF UNITHOLDERS FUNDS For the half year ended 30 June 2013 (Un-audited) 30 June 31 December 2013 2012 $ $ Net assets attributable to unitholders at the beginning of financial period/year 2,157,854 2,704,205 Operations Change in net assets attributable to unitholders resulting from operations 290,642 (11,203) Unitholders contributions/(withdrawals) Creation of units 7,885 4,125 Cancellation of units (327,835) (539,273) Change in net assets attributable to unitholders resulting from net creation and cancellation of units (319,950) (535,148) Total decrease in net assets attributable to unitholders (29,308) (546,351) Net assets attributable to unitholders at the end of financial period/year 2,128,546 2,157,854 12
STATEMENT OF PORTFOLIO As at 30 June 2013 (Un-audited) By Geography - Primary Quoted Equities Percentage of total net assets attributable to Holdings at Fair value at unitholders at 30 June 30 June 30 June 2013 2013 2013 $ % CHINA TENCENT HOLDINGS LIMITED 1,500 74,515 3.50 FRANCE GEMALTO NV 410 47,017 2.21 GERMANY DIALOG SEMICONDUCTOR PLC 3,800 60,229 2.83 JAPAN YAHOO JAPAN CORPORATION 130 81,000 3.81 SOUTH KOREA NHN CORPORATION 160 51,529 2.42 SPAIN AMADEUS IT HOLDING SA-A 2,800 112,725 5.30 UNITED KINGDOM ARM HOLDINGS PLC 2,500 38,208 1.79 13
STATEMENT OF PORTFOLIO As at 30 June 2013 (Un-audited) By Geography - Primary (continued) Quoted Equities Percentage of total net assets attributable to Holdings at Fair value at unitholders at 30 June 30 June 30 June 2013 2013 2013 $ % UNITED STATES AMAZON.COM INC 270 95,092 4.47 CISCO SYSTEMS INC 7,500 231,243 10.86 EBAY INC 2,850 187,456 8.81 GOOGLE INC - CLASS A 350 390,472 18.34 MASTERCARD INC - A 250 180,974 8.50 ORACLE CORPORATION 1,600 62,298 2.93 VISA INC - CLASS A SHARES 800 185,223 8.70 YAHOO INC 5,300 168,722 7.93 TOTAL UNITED STATES 1,501,480 70.54 Portfolio of investments 1,966,703 92.40 Other net assets 161,843 7.60 Net assets attributable to unitholders 2,128,546 100.00 14
STATEMENT OF PORTFOLIO As at 30 June 2013 (Un-audited) By Geography - Primary (Summary) Quoted Equities Percentage of Percentage of total net assets total net assets attributable to attributable to unitholders at unitholders at 30 June 31 December 2013 2012 % % China 3.50 - France 2.21 - Germany 2.83 3.08 Japan 3.81 14.21 South Korea 2.42 1.92 Spain 5.30 3.96 Taiwan - 4.00 United Kingdom 1.79 - United States 70.54 72.68 Portfolio of investments 92.40 99.85 Other net assets 7.60 0.15 Net assets attributable to unitholders 100.00 100.00 15
STATEMENT OF PORTFOLIO As at 30 June 2013 (Un-audited) By Industry - Secondary Quoted Equities Percentage of Percentage of total net assets total net assets attributable to attributable to Fair value at unitholders at unitholders at 30 June 30 June 31 December 2013 2013 2012 $ % % Consumer Discretionary 95,092 4.47 - Industrials - - 1.96 Information Technology 1,871,611 87.93 97.89 Portfolio of investments 1,966,703 92.40 99.85 Other net assets 161,843 7.60 0.15 Net assets attributable to unitholders 2,128,546 100.00 100.00 16