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QUA RTERLY REPORT MA RCH 2015
ARECA Steady fixedINCOME FUND
Contents
CORPORATE DIRECTORY 2
MANAGER’S REPORT
Fund Information, Performance & Review 3
Market Review & Outlook 7
TRUSTEE’S REPORT 9
STATEMENT BY THE MANAGER 9
UNAUDITED FINANCIAL STATEMENTS FOR
Areca Steady fixedINCOME Fund 10
QUARTERLY REPORT MARCH 2015
ARECA Steady fixedINCOME FUND
2
C O R P O R A T E D I R E C T O R Y
MANAGER
Areca Capital Sdn Bhd (740840-D)
107, Blok B, Pusat Dagangan Phileo Damansara 1
No. 9, Jalan 16/11, Off Jalan Damansara
46350 Petaling Jaya, Selangor
Tel: 603-7956 3111, Fax: 603-7955 4111
website: www.arecacapital.com
e-mail: [email protected]
BOARD OF DIRECTORS
Dato’ Wee Hoe Soon @ Gooi Hoe Soon
(Independent, Chairman)
Wong Teck Meng (Executive)
Raja Datuk Zaharaton Bt Raja Dato’ Zainal Abidin
(Non-Executive Non-Independent)
Tam Chiew Lin (Non-Executive Non-Independent) - Resigned w.e.f. 6 March 2015
Dr. Junid Saham (Independent)
INVESTMENT COMMITTEE MEMBERS
Dato’ Wee Hoe Soon @ Gooi Hoe Soon
(Independent, Chairman)
Raja Datuk Zaharaton Bt Raja Dato’ Zainal Abidin
(Non-Independent)
Teoh Boon Kiaw (Non-Independent)
- Resigned w.e.f. 16 February 2015
Dr. Junid Saham (Independent)
AUDIT COMMITTEE MEMBERS
Dato’ Wee Hoe Soon @ Gooi Hoe Soon
Wong Teck Meng
Dr. Junid Saham
TRUSTEE
RHB Trustees Berhad (573019-U)
6th Floor, Plaza OSK
Jalan Ampang
50450 Kuala Lumpur
Tel: 03-9207 7778 Fax: 03-2175 3223
AUDITOR
PricewaterhouseCoopers (AF1146)
Level 10, 1 Sentral, Jalan Travers
Kuala Lumpur Sentral, P O Box 10192
50706 Kuala Lumpur
Tel: 03-2173 1188, Fax: 03-2173 1288
TAX ADVISER
PricewaterhouseCoopers Taxation Services
Sdn Bhd (464731-M) Level 10, 1 Sentral, Jalan Travers
Kuala Lumpur Sentral, P O Box 10192
50706 Kuala Lumpur
Tel: 03-2173 1188, Fax: 03-2173 1288
M A N A G E R ’ S O F F I C E A N D B R A N C H E S
HEAD OFFICE
107, Blok B, Pusat Dagangan Phileo Damansara 1, No. 9, Jalan 16/11, Off Jalan Damansara,
46350 Petaling Jaya, Selangor
Tel: 603-7956 3111, Fax: 603-7955 4111
website: www.arecacapital.com
e-mail: [email protected]
PENANG – PULAU TIKUS
368-2-02 Belissa Row
Jalan Burma, Georgetown
10350 Pulau Pinang Tel : 604-210 2011 Fax: 604-210 2013
PERAK – IPOH
11A, (First Floor)
Persiaran Greentown 5
Greentown Business Centre
30450 Ipoh, Perak Tel : 605-249 6697/6698
Fax: 605-249 6696
MALACCA
95, Jalan Melaka Raya 24
Taman Melaka Raya
75000 Melaka
Tel : 606-282 9111 Fax: 606-283 9112
QUARTERLY REPORT MARCH 2015
ARECA Steady fixedINCOME FUND
3
F U N D I N F O R M A T I O N
Name of the Fund Areca Steady fixedINCOME Fund
Fund Category/
Type
Fixed Income (Wholesale Fund)/Income
Objective of the
Fund
To provide sophisticated investors with a stable stream of consistent income
while maintaining capital stability by investing in fixed income investments
with medium to long term investment horizon.
Benchmark Maybank’s 12-month fixed deposit rate
Distribution Policy
of the Fund
Yearly or more frequent, subject to availability of the distributable income.
In the absence of instructions to the contrary from a Unit Holder, the
Manager is entitled to reinvest the income distributed from the Fund in
additional units of that Fund at the NAV per unit at the end of the
distribution day with no entry fee.
Profile of
unitholdings
* excluding units held
by the Manager
As at 31 March 2015
Size of Holding
(Units)
No. of
accounts %
No. of
units held
‘million
%
Up to 5,000 - - - -
5,001 to 10,000 - - - -
10,001 to 50,000 1 2.27 0.03 0.10
50,001 to 500,000 24 54.55 4.29 14.57
500,001 and above 19 43.18 25.14 85.33
Total* 44 100.00 29.46 100.00
Rebates & Soft
Commissions
The Manager retains soft commissions received from stockbrokers, provided
these are of demonstrable benefit to unitholders. The soft commissions may
take the form of goods and services such as data and quotation services,
computer software incidental to the management of the Fund and
investment related publications. Cash rebates, if any, are directed to the
account of the Fund. During the period under review, the Manager had not
received any soft commissions.
Inception Date 11 May 2009
Initial Offer Price RM1.0000 per unit during the initial offer period of 21 days ended 31 May
2009
Pricing Policy
Single Pricing – Selling and repurchase of units by the Manager are at Net
Asset Value per unit
Financial year end 30 June
QUARTERLY REPORT MARCH 2015
ARECA Steady fixedINCOME FUND
4
F U N D P E R F O M A N C E
01.1.2015
to
31.3.2015
01.10.2014
to
31.12.2014
Net Asset Value (“NAV”)
Total Net Asset Value (RM million) 32.82 32.42*
Units in circulation (million units) 29.94 30.04*
NAV per unit (RM) 1.0961 1.0792*
* Ex-Distribution
HIGHEST & LOWEST NAV Please refer to Note 1 for further information on NAV and pricing policy
Highest NAV per unit (RM) 1.0962 1.0930*
Lowest NAV per unit (RM) 1.0791 1.0790*
* Ex-Distribution
ASSET ALLOCATION % of NAV
Fixed Income Securities
Quoted securities-local 1.40 1.31
Unquoted bonds-local 79.50 74.11
Unquoted bonds-foreign 8.14 12.25
Floating rate negotiable instrument of deposit 9.17 9.14
Cash & cash equivalents including placements and repo 1.79 3.19
DISTRIBUTION
Distribution date - 30 Dec 2014
Gross distribution (sen per unit) - 1.00
Net distribution (sen per unit) - 1.00
NAV before distribution (RM per unit) - 1.0887 (29 Dec) NAV after distribution (RM per unit) - 1.0790 (30 Dec)
UNIT SPLITS
There was no unit split exercise for the financial period under review.
EXPENSE/ TURNOVER
Management expense ratio (MER) (%)
Please refer to Note 2 for further information
0.31 0.32
Portfolio turnover ratio (PTR) (times)
Please refer to Note 3 for further information
0.03 0.12
TOTAL RETURN
Please refer to Note 4 for further information
Total Return (%) 1.57 (0.05)
- Capital Return (%) 1.57 (0.96)
- Income Return (%) - 0.91
Annual Total Return (%) 6.50* (0.18)*
Benchmark: Average Maybank’s 12-month fixed deposit rate (%) 3.34* 3.34*
* Annualised for comparison purpose only
QUARTERLY REPORT MARCH 2015
ARECA Steady fixedINCOME FUND
5
1-yr 3-yrs 5-yrs
Average Total Return per annum (%) 3.61 3.55 5.59
NOTES:
Note 1: Selling of units by the Management Company (i.e. when you purchase units and invests in the
Fund) and redemption of units by the Management Company (i.e. when you redeem your units and
liquidate your investments) will be carried out at NAV per unit (the actual value of a unit). The entry/ exit
fee (if any) would be computed separately based on your net investment/ liquidation amount.
Note 2: MER is calculated based on the total fees and expenses incurred by the Fund, divided by the
average net asset value calculated on a daily basis.
Note 3: PTR is computed based on the average of the total acquisitions and total disposals of the
investment securities of the Fund, divided by the average net asset value calculated on a daily basis.
Note 4: Fund performance figures are calculated based on NAV to NAV and assume reinvestment of
distributions (if any) at NAV. The total return is sourced from Lipper. Benchmark data is sourced from
Malayan Banking Berhad.
Past performance is not necessarily indicative of future performance. Unit prices and
investment returns may go down, as well as up.
QUARTERLY REPORT MARCH 2015
ARECA Steady fixedINCOME FUND
6
F U N D R E V I E W
For the quarter ended 31 March 2015, the Fund posted an annualized return of 6.50%
against the benchmark, Maybank’s 12-month fixed deposit rate of 3.34%. The portfolio
outperformed the benchmark as a consequence of the favourable bond market environment this quarter.
The Fund is fully invested at 98.21% with exposure to 19 MYR denominated issues in a
diverse spread of sectors. The largest sector exposure remains the banking / finance
(45.00%) with an average modified duration of 3.3 years. We also hold 1.40% in loan
stocks while our exposure to SGD denominated issues amount to 8.14% of the portfolio.
Going forward, we look to invest in new creditworthy issues with the potential of gaining
from the yield curve slope and stable interest rates environment.
Investment Policy and Strategy The Fund primarily invests in a diversified portfolio of fixed income investments with
intention to hold until maturity. The Fund focuses mainly on quality debentures with
maturity of 3 to 7 years with small exposure to other maturity periods.
NAV per unit as at 31 March 2015 RM1.0961
Asset Allocation/ Portfolio Composition as at 31.3.2015 31.12.2014
Quoted securities-local 1.40% 1.31%
Unquoted bonds-local 79.50% 74.11%
Unquoted bonds-foreign 8.14% 12.25%
Floating rate negotiable
instrument of deposit 9.17% 9.14%
Cash & cash equivalents 1.79% 3.19%
Performance of Areca Steady fixedINCOME Fund
for the financial period since inception to 31 March 2015
79.50%
9.17%
8.14% 1.79% 1.40%
Areca Steady fixedINCOME Fund
Maybank 12 Months Fixed Deposit Rate
QUARTERLY REPORT MARCH 2015
ARECA Steady fixedINCOME FUND
7
MARKET REVIEW & OUTLOOK
ECONOMIC REVIEW & OUTLOOK
Picking up from the US Quantitative Easing (QE) taper towards the end of 2014, 1Q 2015 witnessed the announcement of European Central Bank's (ECB) version of QE. Together with the
ongoing Japanese QE program, this ensured the continuity of an ample global liquidity
environment and in turn prolonging the bond market rally and depression of interest rates.
In the US, pick-up in consumer confidence and improved labour conditions prompted a switch from
‘considerable period of time’ to ‘patient’ and finally to its removal when referring to retaining
Federal Fund rates at current low levels. Reference is now made to inflation target of 2%; again
to indicate when ‘lift-off’ of rate hike may occur, which has been carefully crafted to describe a
return to normalcy as opposed to tightening intentions. The market is beginning to shift from June
to September as the anticipated ‘lift-off’ date.
In what appears to be pre-emptive, several central banks reduced benchmark interest rates or
widened currency bands resulting in weaker currencies in an attempt to address weaker economic
outlook or to ward off disruptive excessive liquidity from their systems. The Swiss National Bank
even disbanded its 4-year peg to the Euro days before ECB’s QE announcement causing volatile
reactions in the forex market. Negative benchmark rates and bond yields in several Europe nations
ensued, as the market prepared for ECB’s €60 bil a month bond buying program.
Diverging from the US, weaker global growth and worldwide disinflation combined with a plunge in
oil prices, encouraged nations to take the rate cut move. They include Canada, Australia, China,
India, South Korea, Thailand and Indonesia. Singapore, which manages its monetary policy
through Nominal Effective Exchange Rate (NEER), lowered the curve prompting weakness in line with regional trend.
The ‘off the cliff’ drop in oil price negatively affected our nation’s revenue through anticipated
lower dividend payout from Petronas. A re-budget was announced in January. On the flip side,
lower oil price has translated to lower ‘managed float’ petrol pump price, resulting in lower
inflation in 1Q. However, Bank Negara Malaysia (BNM), however, resisted the temptation to join in
the rate cut act, citing that our monetary policy is already accommodative. I believe, that for
Malaysia, the lower inflation will be mitigated by the impending GST imposition in April which may
provide reason for BNM to ‘wait and see’ the after-effects on economic data especially spending
trends.
QUARTERLY REPORT MARCH 2015
ARECA Steady fixedINCOME FUND
8
FIXED INCOME MARKET REVIEW & OUTLOOK
A liquidity driven bond rally kept global bond markets buoyant. The Federal Reserve’s patient and
cautious steps to normalise rates have also helped suppress benchmark 10 year US Treasuries in a
range of 1.65-2.25% throughout the quarter.
In Malaysia, mirroring the upbeat global sovereign bond market, 5 year Malaysian Government
Securities (MGS) trended down in a 3.60-3.85% range. Foreign holdings of total Malaysian Government debts in Ringgit declined further this quarter from RM212 bil to RM200 bil. However,
upon further analysis, short term discounted instruments contributed a drop of RM19 bil while
longer term MGS and Government Investment Issues (GII) enjoyed a resurgence of interest with
an increase of RM6.8 bil. This shows confidence despite the bad press from 1MDB financial strain
and the likely sovereign credit rating downgrade by FITCH.
For 1Q 2015, the Government raised RM23.0 bil through seven MGS/GII issues. In addition two
Skim Perumahan Kerajaan were issued, totaling RM4 bil. As of end March 2015, foreigners held
RM157.9 bil MGS/GII or 28.8% of outstanding MGS/GII. Private Debt Securities (PDS) issued for
the period in review was RM14.8 bil. Foreigners hold a meager RM13.6 bil or 2.9% of total PDS outstanding.
For this period, benchmark 3, 5 and 10 years MGS eased between 23 and 32 bps to 3.371%,
3.601% and 3.869% respectively. On the PDS front, yield curve flattened with long end lower by
13 bps.
As for Singapore, 10 year government benchmark bond yields ended the quarter almost
unchanged at 2.27% but endured a swing between 1.80-2.50% during this term. SGD/MYR
strengthened further by 1.9% to 2.6969 despite Monetary Authority of Singapore (MAS) lowering
inflation target and slope of NEER.
BNM would likely wait to observe the net effect of lower oil price and GST before guidance can be fairly obtained. In all likelihood Overnight Policy Rate (OPR) may be retained throughout the year
although sentiment swung from a 'likely rate hike' (last quarter) to a' slim chance of rate cut'
(start of Q1) to a status of data dependent.
QUARTERLY REPORT MARCH 2015
ARECA Steady fixedINCOME FUND
9
T R U S T E E ’ S R E P O R T
For The Period Ended 31 March 2015
To the Unit holders of Areca Steady fixedINCOME Fund
We have acted as Trustee of Areca Steady fixedINCOME Fund (the “Fund”) for the financial period
ended 31 March 2015. In our opinion and to the best of our knowledge, Areca Capital Sdn Bhd, the
Manager has operated and managed the Fund in accordance with the following:-
(a) limitations imposed on the investment powers of the Manager and the Trustee under the
Deed, the Securities Commission Malaysia's Guidelines on Wholesale Funds, the Capital
Markets and Services Act, 2007 and other applicable laws;
(b) valuation/pricing is carried out in accordance with the Deed and any regulatory
requirements; and
(c) creation and cancellation of units are carried out in accordance with the Deed and relevant
regulatory requirements.
For and on behalf of the Trustee
RHB TRUSTEES BERHAD (Company No: 573019-U)
TONY CHIENG SIONG UNG
DIRECTOR
Kuala Lumpur
8 May 2015
S T A T E M E N T B Y T H E M A N A G E R
To the Unit holders of Areca Steady fixedINCOME Fund
We, Wong Teck Meng and Dato’ Wee Hoe Soon @ Gooi Hoe Soon, two of the Directors of Areca
Capital Sdn Bhd, do hereby state that in our opinion as the Manager, the unaudited financial
statements are drawn up in accordance with the provisions of the Deed and give a true and fair
view of the financial position of the Fund as at 31 March 2015 and of its results, changes in net
asset attributable to unitholders and cash flows of the Fund for the financial period ended 31
March 2015 in accordance with the Malaysian Financial Reporting Standards and International
Financial Reporting Standards.
For and on behalf of the Manager
ARECA CAPITAL SDN BHD
WONG TECK MENG
EXECUTIVE DIRECTOR
DATO’ WEE HOE SOON @ GOOI HOE SOON
INDEPENDENT DIRECTOR
Kuala Lumpur
8 May 2015
QUARTERLY REPORT MARCH 2015
ARECA Steady fixedINCOME FUND
10
UNAUDITED STATEMENT OF FINANCIAL POSITION
As At 31 March 2015 31.3.2015 31.12.2014
Note RM RM
Current Assets
Financial assets at fair value through profit
or loss 4 32,236,511 31,388,886
Cash and cash equivalents 5 621,546 1,073,122
Total Assets 32,858,057 32,462,008
Current Liabilities
Accrued management fee 34,781 34,402
Other payables and accruals 3,800 3,800
Total Liabilities 38,581 38,202
Net Asset Value of the Fund 32,819,476 32,423,806
Equity
Unit holders’ capital 30,258,215 30,368,378
Retained earnings 2,561,261 2,055,428
Total Net Asset Attributable to Unit Holders 32,819,476 32,423,806
Number of Units in Circulation 29,943,407 30,044,317
Net Asset Value Per Unit (Ex-Distribution) 1.0961 1.0792
The accompanying notes form an integral part of these financial statements.
QUARTERLY REPORT MARCH 2015
ARECA Steady fixedINCOME FUND
11
UNAUDITED STATEMENT OF COMPREHENSIVE INCOME
For The Financial Period Ended 31 March 2015
1.1.2015
to
31.3.2015
1.10.2014
to
31.12.2014
RM RM
Investment Income
Interest income 406,578 404,984
Net gain/(loss) on financial assets at fair value
through profit or loss
200,544
(315,587)
607,122 89,397
Expenses
Management fee 100,689 103,858 Trustee's fee - -
Audit fee - -
Tax agent’s fee - -
Administrative expenses 600 2,460
101,289 106,318
Net Income Before Taxation 505,833 (16,921)
Taxation - -
Net Income/(Loss) After Taxation And Total
Comprehensive Income For The Financial Period 505,833 (16,921)
Net Income/(Loss) After Taxation Is Made Up As
Follows:
Realised amount 430,439 338,523
Unrealised amount 75,394 (355,444)
505,833 (16,921)
The accompanying notes form an integral part of these financial statements.
QUARTERLY REPORT MARCH 2015
ARECA Steady fixedINCOME FUND
12
UNAUDITED STATEMENT OF CHANGES IN EQUITY
For The Financial Period Ended 31 March 2015
Unit holders’
capital
Retained
earnings
Total net
asset value
RM RM RM
Balance as at 1 January 2015
30,368,378
2,055,428
32,423,806
Movement in unit holders’ capital:
Creation of units arising from application - - - Creation of units arising from distribution - - -
Cancellation of units (110,163) - (110,163)
Total comprehensive income for the financial
period - 505,833 505,833
Balance as at 31 March 2015 30,258,215 2,561,261 32,819,476
Balance as at 1 October 2014
35,477,723
2,370,033
37,847,756
Movement in unit holders’ capital:
Creation of units arising from application - - - Creation of units arising from distribution 297,684 - 297,684
Cancellation of units (5,407,029) - (5,407,029)
Distribution - (297,684) (297,684)
Total comprehensive loss for the financial period - (16,921) (16,921)
Balance as at 31 December 2014 30,368,378 2,055,428 32,423,806
The accompanying notes form an integral part of these financial statements.
QUARTERLY REPORT MARCH 2015
ARECA Steady fixedINCOME FUND
13
UNAUDITED STATEMENT OF CASH FLOWS
For The Financial Period Ended 31 March 2015
01.1.2015
to
31.3.2015
01.10.2014
to
31.12.2014 Note RM RM
Cash Flows From Operating Activities
Proceeds from disposal of investments 1,331,000 5,296,256
Purchase of investments (2,073,500) (2,501,800)
Interest received from deposits with licensed
financial institutions 8,807 8,524
Interest received from unquoted fixed income
securities 493,191 427,962
Management fee paid (100,311) (108,251)
Payment for other fees and expenses (600) (9,760)
Net cash flows (used in)/generated from
operating activities (341,413) 3,112,931
Cash Flows From Financing Activities
Proceeds from creation of units - 297,684
Payment for cancellation of units (110,163) (5,407,029)
Distribution paid - (297,684)
Net cash flows used in financing activities (110,163) (5,407,029)
Net Decrease In Cash And Cash Equivalents (451,576) (2,294,098)
Cash And Cash Equivalents At The Beginning Of The Financial Period
1,073,122
3,367,220
Cash And Cash Equivalents At The End Of The
Financial Period 5 621,546 1,073,122
The accompanying notes form an integral part of these financial statements.
QUARTERLY REPORT MARCH 2015
ARECA Steady fixedINCOME FUND
14
NOTES TO THE FINANCIAL STATEMENTS – 31 March 2015
1 THE FUND, THE MANAGER AND THEIR PRINCIPAL ACTIVITIES
Areca Steady fixedINCOME Fund (“the Fund”) is a wholesale fund that was formed under a
custodian structure on 11 May 2009. A trustee was later appointed for the Fund with the
signing of a Trust Deed dated 24 July 2009 as modified by the First Supplemental Deed
dated 15 August 2013 (“the Deed”) between Areca Capital Sdn Bhd as the Manager, RHB
Trustees Berhad as the Trustee and all the registered unitholders of the Fund.
The principal activity of the Fund is to invest in investments as defined under Schedule 6 of
the Deed, which include money market instruments, fixed income securities and deposits
with financial institutions. The Fund commenced operations on 11 May 2009 and will
continue its operations until terminated by the Trustee in accordance with Part 11 of the
Deed.
The objective of the Fund is to provide sophisticated investors with a stable stream of
consistent income while maintaining capital stability by investing in fixed income investments
with medium to long term investment horizon.
The Manager of the Fund is Areca Capital Sdn Bhd, a company incorporated in Malaysia. Its
principal activities are managing private and unit trust funds.
2 FINANCIAL INSTRUMENTS AND RISK MANAGEMENT OBJECTIVES AND POLICIES
The Fund seeks to provide sophisticated investors with a stable stream of consistent income
while maintaining capital stability by investing in fixed income investments with medium to
long term investment horizon. In order to meet its stated investment objectives, the Fund
utilises risk management for both defensive and proactive purposes. Rigorous analysis of
sources of risk in the portfolio is carried out and the following policies are implemented to
provide effective ways to reduce future risk and enhance future returns within the Fund’s
mandate.
The Fund is exposed to a variety of risks which include market risk (including price risk and
interest rate risk and foreign exchange/currency risk), credit risk, liquidity risk, business risk
and capital risk.
Financial risk management is carried out through internal control processes adopted by the
Manager and adherence to the investment restrictions as stipulated Deed.
Financial instruments of the Fund as follows:
Loan and
receivables
Financial
assets at fair
value through
profit or loss Total
31 March 2015
Quoted securities - 460,000 460,000
Unquoted fixed income securities - 31,776,511 31,776,511
Cash and cash equivalents 621,546 - 621,546
621,546 32,236,511 32,858,057
QUARTERLY REPORT MARCH 2015
ARECA Steady fixedINCOME FUND
15
Loan and
receivables
Financial
assets at fair
value through
profit or loss Total
31 December 2014
Quoted securities - 425,000 425,000
Unquoted fixed income securities - 30,963,886 30,963,886
Cash and cash equivalents 1,073,122 - 1,073,122
1,073,122 31,388,886 32,462,008
All current liabilities are financial liabilities which are carried at amortised cost.
Market risk
(a) Price risk
This risk refer to changes and developments in regulations, politics, and the economy
of the country. The very nature of a unit trust fund, however, helps mitigate this risk
because a fund would generally hold a well-diversified portfolio of securities from
different market sectors so that collapse of any one security or any one market sector
would not impact too greatly on the value of the fund.
The Fund's overall exposure to price risk was as follows:
31.3.2015 31.12.2014
RM RM
Financial assets at fair value through
profit or loss
32,236,511
31,388,886
(b) Interest rate risk
Cash flow interest rate risk is the risk that the future cash flows of a financial
instrument will fluctuate because of changes in market interest rates.
Fair value interest rate risk is the risk that the value of a financial instrument will fluctuate due to changes in market interest rates.
In general, when interest rates rise, unquoted fixed income securities prices will tend to
fall and vice versa. Therefore, the NAV of the Fund may also tend to fall when interest
rates rise or are expected to rise. However, investors should be aware that should the
Fund holds an unquoted fixed income securities till maturity, such price fluctuations
would dissipate as it approaches maturity, and thus the growth of the NAV shall not be
affected at maturity. In order to mitigate interest rates exposure of the Fund, the
Manager will manage the duration of the portfolio via shorter or longer tenured assets depending on the view of the future interest rate trend of the Manager, which is based
on its continuous fundamental research and analysis.
This risk is crucial in a bond fund since bond portfolio management depends on
forecasting interest rate movements. Prices of bonds move inversely to interest rate
movements, therefore as interest rates rise, the prices of bonds decrease and vice
versa. Furthermore, bonds with longer maturity and lower yield coupon rates are more
susceptible to interest rate movements.
Investors should note that fixed income securities (such as the bonds held by the Fund)
and money market instruments are subject to interest rate fluctuations. Such
QUARTERLY REPORT MARCH 2015
ARECA Steady fixedINCOME FUND
16
investments may be subject to unanticipated rise in interest rates which may impair the
ability of the issuers to make payments of interest and principal, especially if the
issuers are highly leveraged. An increase in interest rates may therefore increase the
potential for default by an issuer.
The Fund’s investments in deposits with licensed financial institutions are short term in
nature. Therefore, exposure to interest rate fluctuations is minimal.
(c) Currency risk
As the Fund may invest its assets in securities denominated in a wide range of
currencies other than Ringgit Malaysia, the net asset value of the Fund expressed in
Ringgit Malaysia may be affected favourably or unfavourably by exchange control
regulations or changes in the exchange rates between Ringgit Malaysia and such other
currencies. The risk is minimised through investing in a wide range of foreign
currencies denominated assets and thus, diversifying the risk of single currency
exposure.
In the normal course of investment, the Manager will usually not hedge foreign
currency exposure. The Manager may however depending on prevailing market
circumstances at a particular point in time, choose to use forward, option contracts or
other derivatives for hedging and risk reduction purposes.
Credit risk
Credit risk refers to the ability of an issuer or counterparty to make timely payments of
interest, principals and proceeds from realisation of investment. The Manager manages the
credit risk by undertaking credit evaluation to minimise such risk.
Credit risk arising from placements on deposits in licensed financial institutions is managed
by ensuring that the Fund will only place deposits in reputable licensed financial institutions.
The settlement terms of the proceeds from the creation of units' receivable from the
Manager and redemption of units payable to the Manager are governed by the Securities
Commission's Guidelines on Wholesale Funds.
Credit risk is a concern for unquoted fixed income securities. The risk arises when an issuer
is unable to service any profit/contractual coupon or repay the principal amount upon
redemption. In such cases, investors may suffer significant losses with respect to their
capital invested and income foregone. Management of the credit risk is largely accounted for
by the Fund’s management of issue-specific risk. This refers to the emphasis on credit
analysis conducted to determine issuers’ or guarantors’ ability to service promised payments.
The maximum exposure to credit risk before any credit enhancements is the carrying
amount of the financial assets is set out below:
QUARTERLY REPORT MARCH 2015
ARECA Steady fixedINCOME FUND
17
Financial assets at
fair value through
profit or loss
RM
Cash and
Cash
Equivalents
RM
Total
RM
As at 31 March 2015
Finance
AAA - 1,310 1,310
AA3/AA- - 620,236 620,236
Quoted securities 460,000 - 460,000
Unquoted fixed income securities:
AAA 1,085,659 - 1,085,659
AA1/AA+ 511,075 - 511,075
AA2/AA 4,195,810 - 4,195,810
AA3/AA- 17,076,650 - 17,076,650
A1/A+ 1,141,793 - 1,141,793
Non-rated 7,765,524 - 7,765,524
32,236,511 621,546 32,858,057
As at 31 December 2014
Finance
AAA - 31,683 31,683
AA3/AA- - 1,041,439 1,041,439
Quoted securities 425,000 - 425,000
Unquoted fixed income securities:
AAA 1,064,076 - 1,064,076 AA1/AA+ 503,426 - 503,426
AA2/AA 5,206,048 - 5,206,048
AA3/AA- 16,083,088 - 16,083,088
A1/A+ 1,166,667 - 1,166,667
Non-rated 6,940,581 - 6,940,581
31,388,886 1,073,122 32,462,008
The Manager considers the risk of material loss in the event of non-performance by the
counterparties of the Fund to be unlikely. All financial assets of the Fund at the end of the
financial year are neither past due nor impaired.
Liquidity risk
Liquidity risk is the risk that investments cannot be readily sold at or near its actual value
without taking a significant discount. This will result in lower NAV of the Fund. The Manager
manages this risk by maintaining sufficient level of liquid assets to meet anticipated
payment and cancellations of unit by unit holders, liquid assets comprise bank balance,
deposit with a licensed financial institution and other instruments, which are capable of
being converted into cash within 7 days.
The table below analyses the Fund's financial liabilities into relevant maturity groupings
based on the remaining period at the statement of financial position date to the contractual
maturity date. The amounts in the table below are the contractual undiscounted cash flows.
QUARTERLY REPORT MARCH 2015
ARECA Steady fixedINCOME FUND
18
Less than
one month
More
than one
month
Total
RM RM RM
As at 31 March 2015
Accrued management fee 34,781 - 34,781
Other payables and accrued expenses - 3,800 3,800
Contractual cash outflows 34,781 3,800 38,581
As at 31 December 2014
Accrued management fee 34,402 - 34,402
Other payables and accrued expenses - 3,800 3,800
Contractual cash outflows 34,402 3,800 38,202
Business risk
Business risk of emerging companies with a short track record that tends to be higher than
matured and well-established companies. The Fund gives preference to invest in companies
with a reasonable track record compared to a new company.
The Manager can manage the market cycles and short-term fluctuations by virtue of its
experience, the analytical process adopted by its Fund Manager and by constructing a
diversified investment portfolio.
Redemption and subscription of units are important in the day-to-day management of the
Fund. Liquidity is monitored everyday to ensure the Fund is not affected especially by
unexpected redemption.
The compliance unit is in place to ensure no breaches in investment limits. If there is any
breach, the compliance unit can quickly notify the Fund Manager to take corrective action.
In managing the Fund, the Fund Manager has established policies and procedures outlining
the internal control mechanism, reporting responsibilities and internal audit and compliance
function.
The performance and investment activities of the Fund are regularly reviewed by the
Investment Committee and the Board of Directors of the Manager.
Capital risk
The capital of the Fund is represented by equity consisting of unit holders’ capital and
retained earnings. The amount of equity can change significantly on a daily basis as the Fund
is subject to daily subscriptions and redemptions at the discretion of shareholders. The Fund’s
objective when managing capital is to safeguard the Fund’s ability to continue as a going
concern in order to provide returns for shareholders and benefits for other stakeholders and
to maintain a strong capital base to support the development of the investment activities of
the Fund.
Fair value estimation
The fair value of financial assets and liabilities traded in active market (such as publicly
traded derivatives and trading securities) are based on quoted market prices at the close of
trading on the year end date. Prior to 1 July 2013, the quoted market price used for financial
assets held by the Fund was the current bid price; the quoted market price for financial
liabilities was the current asking price. The Fund adopted MFRS 13 “Fair Value Measurement”
from 1 July 2013 and changed its fair valuation inputs to utilise the last traded market price
for both financial assets and financial liabilities.
An active market is a market in which transactions for the asset or liability take place with
sufficient frequency and volume to provide pricing information on an ongoing basis.
QUARTERLY REPORT MARCH 2015
ARECA Steady fixedINCOME FUND
19
The fair value of financial assets and liabilities that are not traded in an active market is
determined by using valuation techniques. The Fund uses a variety of methods and makes
assumptions that are based on market conditions existing at each year end date. Valuation
techniques used for non-standardised financial instruments such as options, currency swaps
and other over-the-counter derivatives, include the use of comparable recent arm’s length
transactions, reference to other instruments that are substantially the same, discounted cash
flow analysis, option pricing models and other valuation techniques commonly used by
market participants making the maximum use of market inputs and relying as little as
possible on entity-specific inputs.
For instruments for which there is no active market, the Fund may use internally developed
models, which are usually based on valuation methods and techniques generally recognised
as standard within the industry. Valuation models are used primarily to value unlisted
securities, debt securities and other debt instruments for which market were or have been
inactive during the financial year. Some of the inputs to these models may not be market
observable and are therefore estimated based on assumptions.
The output of a model is always an estimate or approximation of a value that cannot be
determined with certainty, and valuation techniques employed may not fully reflect all factors
relevant to the positions the Fund holds.
The fair value are based on the following methodology and assumptions:
(i) Bank balance and deposits with licensed financial institutions with maturities less than 1
year, the carrying value is a reasonable estimate of fair value.
(ii) The carrying value less impairment provision of receivables and payables are assumed
to approximate their fair values. The carrying value of the financial assets and financial
liabilities approximate their fair value due to their short term nature.
Valuations are therefore adjusted, where appropriate, to allow for additional factors including
model risk, liquidity risk and counterparty risk.
Fair value hierarchy
The table below analyses financial instruments carried at fair value by valuation method. The
different levels have been defined as follows:
Level 1: Quoted prices (unadjusted) in active market for identical assets or liabilities. Level 2: Inputs other than quoted prices included within level 1 that are observable
for the asset or liability, either directly (that is, as prices) or indirectly (that
is, derived from prices).
Level 3: Inputs for the asset and liability that are not based on observable market
data (that is, unobservable inputs)
The level in the fair value hierarchy within which the fair value measurement is categorised
in its entirety is determined on the basis of the lowest level input that is significant to the
fair value measurement in its entirety. For this purpose, the significance of an input is
assessed against the fair value measurement in its entirety. If a fair value measurement
uses observable inputs that require significant adjustment based on unobservable inputs, that measurement is a Level 3 measurement.
Assessing the significance of a particular input to the fair value measurement in its entirety
requires judgment, considering factors specific to the asset or liability.
The determination of what constitutes ‘observable’ requires significant judgment by the Fund.
The Fund considers observable data to be that market data that is readily available,
regularly distributed or updated, reliable and verifiable, not proprietary, and provided by
independent sources that are actively involved in the relevant market.
QUARTERLY REPORT MARCH 2015
ARECA Steady fixedINCOME FUND
20
The following table analyses within the fair value hierarchy the Fund’s financial assets (by
class) measured at fair value:
Level 1 Level 2 Level 3 Total
RM RM RM RM
31 March 2015
Financial assets at fair value through
profit or loss:
- quoted securities 460,000 - - 460,000 - unquoted fixed income securities - 31,776,511 - 31,776,511
31 December 2014
Financial assets at fair value through
profit or loss:
- quoted securities 425,000 - - 425,000
- unquoted fixed income securities - 30,963,886 - 30,963,886
Investments whose values are based on quoted market prices in active markets, and are
therefore classified within Level 1, include active quoted securities. The Fund does not adjust
the quoted prices for these instruments.
Financial instruments that trade in markets that are considered to be active but are valued
based on quoted market prices, dealer quotations or alternative pricing sources supported by
observable inputs are classified within Level 2, these include unquoted fixed income securities.
As Level 2 instruments include positions that are not traded in active markets and/or are
subject to transfer restrictions, valuations may be adjusted to reflect illiquidity and/or non-
transferability, which are generally based on available market information.
3 BASIS OF PREPARATION OF THE FINANCIAL STATEMENTS
The financial statements have been prepared under the historical cost convention in
accordance with the Malaysian Financial Reporting Standards (“MFRS”) and International
Financial Reporting Standards (“IFRS”).
The preparation of financial statements in conformity with the MFRS and IFRS requires the
use of certain critical accounting estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date
of the financial statements, and the reported amounts of revenues and expenses during the
reported financial year. It also requires the Manager to exercise their judgment in the
process of applying the Fund’s accounting policies. Although these estimates and judgment
are based on the Manager’s best knowledge of current events and actions, actual results
may differ.
4 FINANCIAL ASSETS AT FAIR VALUE THROUGH PROFIT OR LOSS
31.3.2015 31.12.2014
RM RM
Designated at fair value through profit or loss
- Quoted investments 460,000 425,000
- Unquoted fixed income securities 31,776,511 30,963,886
32,236,511 31,388,886
QUARTERLY REPORT MARCH 2015
ARECA Steady fixedINCOME FUND
21
31.3.2015 31.12.2014
RM RM
Net gain/(loss) on assets at fair value through
profit or loss:
-realised gain on disposals 125,150 39,857
-unrealised fair value gain/(loss) 75,394 (355,444)
200,544 (315,587)
Financial assets at fair value through profit or loss as at 31 March 2015 are as follows:
Nominal
value Name of Issuer Carrying
value
Fair value as at
31.3.2015
Fair value
as at 31.3.2015
expressed as a
percentage of
value of the
Fund RM RM RM %
6,000,000 5.15% Alpha Circle Sdn Bhd
19/11/2019 AA- 6,097,415 6,118,355 18.64
3,000,000 8.25% Hong Leong Bank Berhad
09/09/2039 AA3 3,411,218 3,397,418 10.35
2,000,000 2.00% Eastern & Oriental
Berhad 06/06/2020 NR 2,077,062 2,082,039 6.34
2,000,000 4.66% Jati Cakerawala Sdn Bhd
31/07/2018 AA3 1,999,296 2,007,096 6.12 2,000,000 4.50% AMMB Holdings Berhad
08/08/2019 AA3 1,982,655 1,994,695 6.08
1,250,000 6.70% CIMB Bank Berhad
07/10/2038 AA 1,373,317 1,362,654 4.15
1,000,000 8.25% AmBank (M) Berhad
18/08/2039 A1 1,145,873 1,141,793 3.48
1,000,000 5.46% TRIplc Ventures Sdn Bhd
08/10/2021 AAA 1,077,539 1,085,659 3.31
1,000,000 5.60% CIMB Thai Bank Public Company Limited 05/07/2024
AA3 1,030,838 1,034,548 3.15
1,000,000 5.35% Golden Assets
International Finance Limited
05/08/2019 AA3 1,019,672 1,011,332 3.08
1,000,000 4.30% Noble Group Limited
29/01/2016 AA2 1,005,226 1,008,046 3.07
1,000,000 4.40% AmIslamic Bank Berhad
30/09/2021 AA3 1,003,781 1,005,031 3.06
750,000 4.75% Hong Leong Bank Berhad 30/12/2020 AA2 761,544 761,859 2.32
500,000 7.50% PBFin Berhad
05/06/2059 AA2 567,571 563,721 1.72
500,000 4.70% YTL Power International
Berhad 13/10/2021 AA1 509,220 511,075 1.56
500,000 4.85% Alpha Circle Sdn Bhd
17/11/2017 AA- 507,326 508,176 1.55
500,000 4.50% Hong Leong Bank Berhad
21/06/2024 AA2 498,214 499,529 1.52
QUARTERLY REPORT MARCH 2015
ARECA Steady fixedINCOME FUND
22
Nominal
value Name of Issuer Carrying
value
Fair value
as at
31.3.2015
Fair value
as at
31.3.2015
expressed as a
percentage of
value of the
Fund
1,000,000 5.00% Maybank 3-Year Callable
KLIBOR Range Accrual FRNID
21/07/2017 NR 1,007,579 1,009,589 3.08
1,000,000 5.50% Hong Leong Bank Berhad
5-Year Callable KLIBOR Range Accrual FRNID 02/08/2018
NR 984,526 1,007,685 3.07
1,000,000 5.90% CIMB 5-Year Callable
KLIBOR Range Accrual FRNID
17/10/2018 NR 960,244 992,144 3.02
Total bonds in Malaysia 29,020,116 29,102,444 88.67
Bond in
Singapore
SGD
1,000,000 5.125% Genting Singapore Ltd
12/09/2017 NR 2,595,946 2,674,067 8.14
Total bonds in Singapore 2,595,946 2,674,067 8.14
Total unquoted fixed income
securities 31,616,062 31,776,511 96.81
Quoted Securities
TRADING/SERVICES
500,000 Barakah-Offshore-RCULS 13/18 425,000 460,000 1.40
Total investments 32,041,062 32,236,511 98.21
Unrealised gain on financial assets at fair value through
profit or loss 195,449
Total fair value of financial
assets at fair value through
profit or loss
32,236,511
QUARTERLY REPORT MARCH 2015
ARECA Steady fixedINCOME FUND
23
Financial assets at fair value through profit or loss as at 31 December 2014 are as follows:
Nominal
value Name of Issuer Carrying
value
Fair value as at
31.12.2014
Fair value
as at 31.12.2014
expressed as a
percentage of
value of the
Fund RM RM RM %
6,000,000 5.15% Alpha Circle Sdn Bhd
19/11/2019 AA- 6,032,563 6,021,223 18.58
3,000,000 8.25% Hong Leong Bank Berhad
09/09/2039 AA3 3,533,745 3,472,245 10.71
2,000,000 4.66% Jati Cakerawala Sdn Bhd
31/07/2018 AA3 2,024,203 2,023,043 6.24
2,000,000 4.50% AMMB Holdings Berhad
08/08/2019 AA3 2,010,480 2,005,340 6.18 1,250,000 6.70% CIMB Bank Berhad
07/10/2038 AA 1,357,241 1,352,665 4.17
1,000,000 8.25% AmBank (M) Berhad
18/08/2039 A1 1,173,328 1,166,668 3.60
1,000,000 3.00% TRIplc Ventures Sdn Bhd
08/10/2021 AAA 1,068,646 1,064,076 3.28
1,000,000 5.60% CIMB Thai Bank Public
Company Limited 05/07/2024
AA3 1,041,860 1,045,260 3.22 1,000,000 5.35% Golden Assets
International Finance Limited
05/08/2019 AA2 1,031,820 1,033,450 3.19
1,000,000 4.40% AmIslamic Bank Berhad
30/09/2021 AA3 1,016,310 1,014,630 3.13
1,000,000 4.30% Noble Group Limited
29/01/2016 AA2 1,014,672 1,016,182 3.13
750,000 4.75% Hong Leong Bank Berhad
30/12/2020 AA2 755,618 752,760 2.33
500,000 7.50% PBFin Berhad 05/06/2059 AA2 558,924 558,324 1.72
500,000 4.70% YTL Power International
Berhad 13/10/2021 AA1 505,751 503,426 1.56
500,000 4.85% Alpha Circle Sdn Bhd
17/11/2017 AA- 502,472 501,347 1.55
500,000 4.50% Hong Leong Bank Berhad
21/06/2024 AA2 496,616 492,666 1.52
1,000,000 5.00% Maybank 3-Year Callable
KLIBOR Range Accrual FRNID 21/07/2017 NR 1,009,863 1,007,853 3.11
1,000,000 5.50% Hong Leong Bank Berhad
5-Year Callable KLIBOR Range
Accrual FRNID 02/08/2018
NR 1,019,438 996,279 3.07
1,000,000 5.90% CIMB 5-Year Callable
KLIBOR Range Accrual FRNID
17/10/2018 NR 1,009,052 961,052 2.96
Total bonds in Malaysia 27,162,602 26,988,489 83.25
QUARTERLY REPORT MARCH 2015
ARECA Steady fixedINCOME FUND
24
Nominal
value Name of Issuer Carrying
value
Fair value
as at
31.12.2014
Fair value
as at
31.12.2014
expressed as a
percentage of
value of the
Fund
Bond in
Singapore
SGD
1,000,000 5.125% Genting Singapore Ltd
12/09/2017 NR 2,571,201 2,629,621 8.10
500,000
4.25% Guoco LL IHT Pte Ltd
23/05/2015 NR 1,314,885 1,345,776 4.15
Total bonds in Singapore 3,886,086 3,975,397 12.25
Total unquoted fixed income
securities 31,048,689 30,963,886 95.50
Quoted Securities
TRADING/SERVICES
500,000 Barakah-Offshore-RCULS 13/18 675,000 425,000 1.31
Total investments 31,723,688 31,388,886 96.81
Unrealised loss on financial
assets at fair value through
profit or loss (334,802)
Total fair value of financial
assets at fair value through
profit or loss
31,388,886
5 CASH AND CASH EQUIVALENTS
31.3.2015 31.12.2014
RM RM
Bank balance with a licensed bank 1,310 31,683
Deposits with licensed financial institutions 620,236 1,041,439
621,546 1,073,122
The effective weighted average interest rate of short-term deposits with licensed financial
institutions per annum as at the date of statement of financial position are as follows:
31.3.2015 31.12.2014
% %
Deposits with licensed financial institutions
3.35
3.29
The deposit have an average maturity of 6 days.
6 QUARTERLY ACCOUNTS
The quarterly accounts for the 3-month period ended 31 March 2015 have not been audited.