RHB DANA HAZEEM INTERIM REPORT 2019 - Kenangadepreciate (-7.5%). Asia ex-Japan equities inched up 6.1% in June 2019 (YTD: 9.4%) driven by strong recovery in China (7.3% in June 2019)

RHB DANA HAZEEM

INTERIM REPORT 2019

For the financial period ended 31 August 2019

1

GENERAL INFORMATION ABOUT THE FUND

Name, Category and Type

Fund Name - RHB Dana Hazeem

Fund Category - Balanced fund (Shariah-compliant)

Fund Type - Income and growth fund

Investment Objective, Policy and Strategy

Objective of the Fund

This Fund aims to maximise total returns through a combination of long term*

growth of capital and current income^ consistent with the preservation of capital#.

Note: * “long term” in this context refers to a period of between 5 – 7 years.

^ The income is in the form of units. # Although the Fund aims to preserve its value, the Fund is not a capital

guaranteed fund or a capital protected fund.

Strategy

This Fund seeks to achieve its investment objective through a diversified portfolio

of Shariah-compliant investments comprising Shariah-compliant equities, sukuk,

Islamic money market instruments, Islamic deposits with licensed financial

institutions and Islamic collective investment schemes.

The asset allocation of the Fund will be as follows:-

40% - 60% of

Net Asset Value

- Investments in Shariah-compliant equity and equity related securities of companies that have dividend and/or growth

potential.

40% - 60% of

Net Asset Value

- Investments in non-equity Shariah-compliant investments.

The actual asset allocation will be reviewed from time to time depending on

economic and market conditions.

2

Performance Benchmark

The performance of the Fund is benchmarked against the Dana Hazeem Index

which is a composite benchmark comprising of 50% FTSE Bursa Malaysia EMAS

Shariah (“FBMS”) Index (RM) and 50% Maybank Islamic Berhad’s 12-month

Islamic Fixed Deposit (RM).

Permitted Investments

This Fund may invest or participate in Shariah-compliant securities of and securities

relating to companies whose business activities comply with Shariah requirements

listed on the Bursa Malaysia or any other market considered as an eligible market

(including foreign market), sukuk / instruments of companies whose business

activities comply with Shariah requirements listed on Bursa Malaysia or traded in /

listed on any other market considered as an eligible market (including foreign

market); Government Investment Issues (GII), Islamic accepted bills, Bank Negara

monetary notes-i, Islamic negotiable instruments, Cagamas sukuk, other obligations

issued or guaranteed by the Malaysian government , Bank Negara Malaysia and

other government-related agencies that comply with Shariah requirements, Islamic

collective investment schemes, Islamic financial derivatives, Islamic structured

products, Islamic money market instruments and Islamic deposits with any financial

institutions, participate in the lending of Shariah-compliant securities that complies

with Shariah requirements, and any other investments permitted by Shariah

Advisory Council of the Securities Commission Malaysia (“SACSC”) and/or the

Shariah Adviser from time to time. Consequently, all investments for this Fund are

to be designated as Shariah-compliant and in this regard, the Shariah Adviser will

advise on the selection of investments to ensure compliance with Shariah-

requirements.

Distribution Policy

The Fund will declare distributions, if any, to unitholders depending on the level of

income generated at each relevant period. Distributions, if any, after deduction of

taxation and expenses (i.e. net distributions) are declared annually.

3

MANAGER’S REPORT

MARKET REVIEW

Equity

Generally, global equity market advanced in March 2019, supported by the

improvement in major developed markets. United States (“US”) S&P 500 index

rose by 1.8% in March 2019 fuelled mainly by the recent dovish tone by the Federal

Reserve (“Fed”) during its latest rate announcement while the progress in US-China

trade talks was heading to a final stage. The Fed had lowered its projections for US

growth and inflation while expecting no interest rate hike in year 2019 as the global

economic growth remained weak. Within Asia Pacific region, China market rose the

most in March 2019 with Shenzhen Composite Index increased by 9.6% amid

improving economic outlook and positive development over the on-going trade

negotiations. Chinese stocks were further buoyed by Morgan Stanley Capital

International (“MSCI”)’s move to increase weight for China-listed shares in its

benchmark indices. Meanwhile for ASEAN region, Malaysia’s Kuala Lumpur

Composite Index (“KLCI”) index fell 3.75% amid heavy foreign outflows. Foreign

funds sold RM1.35billion of Malaysia’s equities in first quarter of year 2019. The

best performing market in ASEAN was the Philippines, advanced by 2.8% on the

back of possible rate cut this year.

Global markets climbed in April 2019, with the MSCI World rising 3.2% for the

month and extending year-to-date ("YTD") returns to 15.2%. A sharp bounce in the

Deutscher Aktienindex (“DAX”) (7.1%) alongside yet another strong US

performance saw the MSCI Developed Market gain 3.4%, well ahead of the 2.0%

advance registered in Emerging Market. Prior flexibility of central banks yielded

signs of growth stabilization/recovery. Global equity investor sentiment remained

upbeat, signalling an embracing of risk, with the futures market anticipating a

benign policy outlook. Asia ex-Japan added 1.8% in April 2019, taking YTD

returns to 13.3%. China (2.2% in April 2019, 20.3% YTD) extended its rally,

almost completely recuperating its year 2018 losses, backed by the bottoming out of

activity in response to prior policy easing. The KLCI was flat in April 2019, with

KLCI underperforming Asia Pacific Ex Japan by almost 2.0%. Foreign investors net

sold RM1.5 billion, adding to 4 months of year 2019 net sell of RM2.9 billion. 10-

year Malaysian Government Securities (“MGS”) rose 2 basis points (“bps”) Month-

on-Month (“MoM”) to 3.79%, while Malaysia Ringgit (“MYR”) depreciated 1.3%

MoM on fears of likely Malaysia debt exclusion from Financial Times Stock

Exchange (“FTSE”) Russell World Global Bond Index. Industrials outperformed on

revival of the downsized East Coast Rail Line (“ECRL”) and Bandar Malaysia

project; followed by consumer discretionary (Genting Bhd-led), and healthcare

(Glove Manufacturers-led). Telecommunications underperformed (mainly Telekom-

led), followed by Financials (mainly Public Bank-led). The surge in Brent Crude on

supply concerns intensified following the US decision to end waivers on Iranian oil

4

imports. Brent Crude climbed 9.0% intra-month, before softening 2.4% due to

rising US stockpiles, to end the month 6.4% higher.

World equity markets tumbled in the month of May 2019, down 6.2% due to re-

escalation of US-China trade war tension. The consequent rise in near-term

uncertainty caused the US yield curve (10-year minus 3-month) to invert again

within the space of two months, leading the futures market to anticipate two rate

cuts by year end. The risk-off sentiment caused Emerging Markets to decline by

7.5% in May 2019, underperforming Developed Markets (-6.1% in May 2019).

FTSE Bursa Malaysia (“FBM”) KLCI went against the odds with a 0.5% monthly

gain. This was mainly underpinned by the solid gains in the telecommunication

sector. The news of the proposed mega merger between Axiata and DiGi has

significantly re-rated both heavyweights by 18% and 8%, respectively. Meanwhile,

the positive performance of blue chips such as Tenaga also helped to support the

KLCI index during May 2019. FBM Emas Shariah Index was down slightly at

0.35% while other key indices such as FBM Small Cap and FBM 70 were largely

sold down given concerns over heightened external risks.

Global equity markets made a strong come back advancing 6.4% during the month

of June 2019 and extending YTD returns to 14.9%. The US Dollar (“USD”)

weakened as market participants price in three rate cuts by the Fed in 2019, starting

in July 2019. A basket of emerging market (“EM”) currencies gained 2.0% against

the USD in June 2019, with the Pakistan Rupee being the only EM currency to

depreciate (-7.5%). Asia ex-Japan equities inched up 6.1% in June 2019 (YTD:

9.4%) driven by strong recovery in China (7.3% in June 2019). The Bursa Malaysia

KLCI rose 1.3% MoM but fell by 1.1% in first half of year 2019 to close at 1,672

level at the end of Jun 2019. The market rebound was driven by optimism over

potential rate cuts in the US and easing US-China trade tensions. In June 2019, the

KLCI underperformed the Bursa Malaysia Emas Index (“EMAS”) or the broader

market, and small-cap sector. It also underperformed the MSCI Asia Pacific ex-

Japan Index (“MXASJ”). On the economic front, Malaysia registered a 3.1% yoy

increase in approved investments in first quarter of year 2019 on the back of robust

manufacturing sector, in which 54.4% of RM53.9 billion were foreign investments.

Malaysia Nikkei PMI fell to 48.8 in May 19 vs. the seven-month high of 49.4 in

April 2019.

Global equity markets stayed flat in July 2019, up marginally by 0.2%. Asia ex-

Japan slid 2.2% in July 2019, dragging YTD returns to 7.0%. Growth headwinds

continue to persist in China (-0.9%), prompting calls for a lot more robust domestic

monetary reflation than the modest improvement seen in second quarter of year

2019. KLCI retracted -2.23% in July 2019 to 1,635 points. Petronas names Petronas

Chemical (-10.8%), Petronas Dagangan (-7.5%) and Petronas Gas (-7.4%) led the

decline, while Genting Malaysia (19.4%) and Dialog (5.8%) were the top

performers on positive newsflow and oil prices. On a YTD basis, KLCI declined -

3.30%, led by Hartalega, Petronas Chemical, Top Glove (macro/industry issues)

while top gainers were Genting Malaysia, Axiata, Genting Berhad, Digi (newsflow-

5

driven). BNM has maintained the Overnight Policy Rate (“OPR”) rate at 3%

following the Monetary Policy Committee (“MPC”) meeting and said that the

monetary policy remains accommodative. In 5 months of year 2019, the

government has reduced its fiscal deficit by 39% YoY to RM21.4 billion, on track

to achieve fiscal deficit target of 3.4% of Gross Domestic Product (“GDP”) in 2019.

Malaysia Nikkei Purchasing Managers’ Index (“PMI”) fell to 47.8 in June 2019 vs.

48.8 in May 2019. Meanwhile, the Industrial Production Index (“IPI”) increased 4%

YoY in May 2019, above consensus' expectation of 3.5%. June 2019 Consumer

Price Index (“CPI”) rose to a 13-month high of 1.5% YoY (vs. May 2019’s 0.2%)

on the back of a low base effect due to the removal of Goods and Services Tax in

June last year.

Global equities receded 2.6% in August 2019 but YTD returns is still commendable,

up 12.1%. The inversion of the 2year-10year US Treasury yield curve and another

round of escalation in the US-China trade war caused panic selling among investors.

Investors were worried over coming recession and start to take refuge in safe

havens, sending precious metals higher (Gold: 7.5%, Silver: 13.0%, Platinum:

8.0%). Asia Ex-Japan slid 4.6% in August 2019, curtailing YTD returns to 2.1%

only. China (-4.3%) was dragged down by the worst monthly depreciation of the

Yuan (-3.8%) since January 1994, that led the US to label the former a "currency

manipulator". ASEAN fell 4.5% in August 2019, despite 25bps rate cuts in Thailand

(-3.0%) while Indonesia (-3.7%) and the Philippines were down 3.7% and 3.5%

respectively. The KLCI declined 1.4% MoM to end at 1,612 points in August 2019.

August 2019 recorded the highest net equity outflow of RM2.6 billion for the year,

bringing 8 months of year 2019 net outflows to RM7.3 billlion. Exporters like

rubber gloves (Top Glove and Hartalega) and Plantations (Sime Darby Plantations)

outperformed on the back of the weaker MYR, which led to outperformance of the

Healthcare/Consumer Staples sector. Meanwhile, the Genting group of companies

underperformed due to the acquisition of cash-strapped US casino operator Empire

Resorts.

Fixed Income

For the period under review, the local bond market both Malaysia’s sovereign

papers i.e. MGS and GII yields rallied to a new lows to close the first quarter of the

year by 30 bps to 40 bps lower. For reference, the current 10-year MGS yield ended

the quarter at 3.77% from 4.07% at the beginning of the year. This recent rally in

local bond market has been infused by further dovish affirmation stance on growth

and inflation outlook by Bank Negara Malaysia (“BNM”) at their recent MPC and

BNM Annual Report released. Following the release, trading momentum saw

renewed interest with market participants seen adding stocks and subsequently

pressing the yields down and extending the sovereign curve lower as interest rates

are expected to remain accommodative with long-end yields stay attractive. At

month-end closed, MGS yields 3-year, 5-year, 7-year, 10-year, 15-year, 20-year and

30-year MGS were reported at 3.38% (Feb-2019: 3.57%), 3.53% (3.71%), 3.72%

(3.87%), 3.77% (3.89%), 4.09% (4.29%), 4.29% (4.49%) and 4.58% (4.71%)

respectively. The GII – Shariah compliant version of MGS mirrored the same

6

pattern with its MGS counterpart as the whole curve ended lower in March 2019.

The GII 15-year and GII 20-year were the best performers with yield closed 9 bps

lower during the month. At month end close, the 3-year, 5-year, 7-year, 10-year, 15-

year, 20-year and 30-year GII were reported at 3.48% (Feb 2019: 3.64%), 3.63%

(3.82%), 3.79% (3.97%), 3.82% (4.03%), 4.11% (4.37%), 4.36% (4.60%) and

4.62% (4.84%) respectively.

US Treasury (“UST”) 10-year yields started out March 2019 at 2.75% and rallied

massively throughout the month to close at 2.405% as the Federal Open Market

Committee’s (“FOMC”) revised their median dot plot expectations to no rate hike

for year 2019. The FOMC March meeting on 20 March 2019 was more dovish than

what markets expected, where policy rates were kept unchanged at 2.25%-2.50% in

a unanimous decision. The latest dot plots show that the median projection of the

Fed policy rates was lowered to 2.4% (from 2.9% in December 2018) which implies

no more hikes in 2019. In a separate statement, the FOMC showed that they intend

to slow the reduction of Treasury securities by reducing the cap on monthly

redemptions from the current level of USD30 billion to USD15 billion beginning in

May 2019 and to conclude the balance sheet reduction program at the end of

September 2019.

BNM cut OPR by 25bps to 3.00% in May 2019. MGS yields fell 6 bps - 20 bps

across the curve quarter-on-quarter tracking the falling global yields, where long

durations outperformed. Yields in 20-year 30-year sector slipped 20 bps in second

quarter of year 2019 as compared to 11-14bps decline in 5-year 10-year sector. On a

positive note, the sentiment in MYR bonds wasn’t significantly affected by the

news of FTSE Russell’s potential exclusion of MGS from the World Government

Bond Index (“WGBI”) subject to the outcome of upcoming review in September

2019. Govvies yields came down despite foreign outflows and a weaker Malaysian

Ringgit against USD.

Local sovereign bonds MGS and GII continued to remain supported as demand for

duration extension exhibited to be more pronounced during the month of July

despite broad risk aversion development arising from the G20 Summit. Ultra-long

end MGS and GII yields down sharply by as much as 14 bps in the 15-year tenor at

the early part of the month as the 10-year benchmark MGS tested new low of 3.60%

to 3.65%. The reopening of 30-year MGS had further reflected this year theme of

ample local liquidity and the lack of corporate bond supply to drive investors for

yields hunting further out the curve. With dovish stance on policy rate by major

central banks and still uncertain implication on global growth from the prolonged

trade front, yields moderated lower month-over-month. We continue to see market

players comfortably extending out the curve and their portfolio duration towards the

end of the month with long-tenors of both MGS and GII showed active demand as

investors look to load up their portfolio ahead.

Month-on-month, the MGS yields rallied substantially as the longer-end space saw

the 30-year MGS dipped 15 bps lower on duration extending play amid

concentrated dovish signal by major central bankers on global growth concern. The

7

3-year, 5-year, 7-year, 10-year, 15-year, 20-year and 30-year MGS closed the month

at 3.29% (June-2019: 3.30%), 3.43% (3.42%), 3.55% (3.55%), 3.59% (3.63%),

3.80% (3.91%), 3.99% (4.06%) and 4.18% (4.33%) respectively. On the other hand,

action on the GII – the Shariah compliant version of MGS were more pronounce at

the back end as the spread ended very narrow and at some points of the curve

reached parity level. The outperformer being the 30-year GII which rallied 12 bps

compared to previous month’s closed. At month end, the 3-year, 5-year, 7-year, 10-

year, 15-year, 20-year and 30-year GII were reported at 3.31% (June-2019: 3.34%),

3.43% (3.44%), 3.54% (3.60%), 3.61% (3.65%), 3.81% (3.91%), 4.00% (4.06%)

and 4.23% (4.35%) respectively.

Against all expectations for a calm summer month, August turned out to be an

eventful month from dramatic trade war of words between the US and China that

led to further tariff hikes by President Donald Trump for another USD300 billion

worth of imported items from China, political volatility in LATAM and Hong Kong

to global climate change all within a month. Additionally it was also a month of

likely synchronized of easing monetary policies view by major central banks across

the globe.

Rising uncertainties have pushed yields broadly lower over the month of August

2019, with 10-year USTs tightened 52bps month to date as risk-off flows took hold.

The US 2-year/10-year curve also inverted, sending a strong bearish signal for risk

of potential US recession. Fed annual Jackson Hole Symposium kept the easing

doors open, although policymakers were reluctant to commit to an official shift

towards a loosening cycle.

At the close, the benchmark US Treasury 2-year, 5-year, 10-year and 30-year UST

were last traded at 1.52% (July 2019: 1.87%), 1.39% (1.83%), 1.50% (2.02%) and

1.97% (2.53%) respectively.

On the local front, Malaysian Ringgit Govvies extended its rally for month of

August at unprecedented pace pushing yields to levels closed to October 2016. The

30-year MGS and GII benchmark tighten significantly circa 40bps from 4.18% level

at month’s beginning to a low of 3.70% and 3.73% before closing at 3.78% and

3.81% respectively, as investors continue to extend out the curve.

At the close the MGS 3-, 5-, 7-, 10-, 15-, 20- and 30-year MGS closed the month at

3.12% (July 2019: 3.29%), 3.23% (3.43%), 3.26% (3.55%), 3.29% (3.59%), 3.48%

(3.80%), 3.54% (3.99%) and 3.78% (4.18%) respectively. On the other hand, action

on the GII – the Shariah compliant version of MGS were more pronounce at the

back end as the spread ended very narrow and at some points of the curve reached

parity level. The outperformer being the 30-year GII which rallied 42 bps compared

to previous month’s closed. At month end, the 3-, 5-, 7-, 10-, 15-, 20- and 30-year

GII were reported at 3.13% (July 2019: 3.31%), 3.25% (3.43%), 3.27% (3.54%),

3.32% (3.61%), 3.51% (3.81%), 3.62% (4.00%) and 3.81% (4.23%) respectively.

8

ECONOMIC REVIEW AND OUTLOOK

Malaysia’s real GDP growth weakened to 4.5% YoY in first quarter of year 2019

(fourth quarter of year 2019: 4.7%) as external demand moderated while domestic

demand slowed. BNM has adjusted their GDP forecast lower to 4.3% to 4.8% from

the earlier official projection of 4.9%. The central bank also expects muted

inflation, with full year CPI this year at 0.7-1.7% amidst a lack of demand-pull

pressures. Headline inflation for May 2019 remained unchanged for the third

consecutive month at 0.2% YoY, falling slightly below the consensus of 0.3% YoY.

CPI stood at 1.5% in June 2019 which is in line with expectation and higher

compared to 0.2% YoY recorded in previous month of May 2019. The abolishment

of GST to zero-rated on 1 June 2018 led to the increase in some of the index of the

main groups. Accordingly, economists see year 2019 inflation at 1.4% which is in

line with BNM projection of 0.7% to 1.7% in its latest Quarterly Economic Bulletin.

The downside risk to the forecasted inflation number is if the targeted fuel subsidy

(with price caps on RON95 lifted concurrently) could be delayed. In the scenario

where the RON95 prices remain to be capped at RM2.08/liter through year 2019,

full year inflation could instead come in closer to 0.8% to 1% accordingly.

The Malaysian economy registered quicker growth of 4.9% YoY in second quarter

of year 2019 (first quarter of year 2019: 4.5%), driven by higher domestic demand

and net exports. Overall domestic demand contributed 4.3 percentage point to

second quarter of year 2019 GDP growth (first quarter of year 2019: 4.1 percentage

point) while net exports surprisingly grew at a much faster pace of 22.9% YoY in

second quarter of year 2019 (first quarter of year 2019: 10.9% YoY), lifted by a

bigger decline in imports (-2.1% vs -1.4% YoY).

MARKET OUTLOOK AND STRATEGY GOING FORWARD

Equity

The revival of the ECRL and Bandar Malaysia projects is a partial revival of China's

Belt and Road projects in Malaysia. China is an important trading partner for

Malaysia, which accounts for 14% of Malaysia’s exports. Also an important source

of foreign direct investments (“FDIs”) and tourist arrivals. With the mending of

China relations, we view tourist related sector as a beneficiary of higher passenger

from China tourists, in the run up to Visit Malaysia 2020. We are of the view that

there is limited downside risk for Malaysia equity markets and our market will ride

along with regional markets. Thus far, Malaysia is one of the worst performing

market YTD owing to outflow of funds due to MSCI rebalancing, subdued growth

with fiscal constraints and weakening currency. Stock and sector selection will

continue to drive the fund performance and we are looking at the turnaround of oil

and gas sector as well as the revival of some construction projects as potential alpha

return.

9

First quarter of year 2019 corporate earnings continued to disappoint, as more

companies missed earnings projections. The high ratio of earnings disappointment

suggests that Malaysian corporates are facing a more challenging operating

environment due to local and external (US-China trade war; slower global growth)

factors. While economic outlook remains uninspiring due to heightened

uncertainties in the global and domestic environments, trade tensions and prolonged

weakness in commodity-related sectors, Bank Negara Malaysia’s decision to cut

OPR by 25 bps to 3% in May 2019 serves as a pre-emptive measure to address the

potential downside risk to growth. We believe the accommodative environment

bodes well for continued expansion in economic activities, albeit on a gradual pace.

Given the external uncertainties, our portfolio will focus on domestic related sectors

that are less affected by external demand.

Fixed income

The re-escalation of trade disputes has triggered fear of deeper global recession with

US and China seen ratcheting up their retaliatory measures. Bond yields are

expected to be supported by dovish global central bank rhetoric. Continued

tightening in UST yields is expected to amplify the appeal of carry trade themes

from a risk-reward perspective, thus investors to continue extending out the curve in

search for higher relative yields. Upcoming FOMC monetary policy meeting in

September will remain a key focus.

We shall continue to retain the duration for USD portfolio and active management

is key to be cognizant of a possible reversal in yields after a sharp drop in August.

Key risks are neutral monetary policies by major central banks in expectation of

better economic perspective next year and clear trade solution between the world’s

two trade giants.

Sequential upside surprises in the Malaysia’s GDP numbers should help alleviate

pertinent concerns of a potentially steeper slowdown stemming from double

whammy from domestic factors as well as rising downside risks from the global

economy although a simultaneous fall in imports is viewed as not encouraging as it

suggests softening domestic demand ahead.

BNM has also announced further liberalization of Foreign Exchange Administration

(“FEA”) Rules to support the market’s liquidity. We remain constructive that the

measures will bode well to support the case of Malaysia’s continued inclusion in the

WGBI index by FTSE Russell.

Against the backdrop of a challenging global environment, Malaysia economy is

expected to remain broadly stable supported by continued expansion in domestic

demand while private sector spending is anticipated to remain the key driver of

growth. We opined that the outlook for the rest of year 2019 will still highly

influenced by the development on external front and with general dovish policy

signals by major central banks, benign inflation outlook for Malaysia indicates more

space for BNM to prescribe additional monetary easing if the situation permits.

10

In the local fixed income market, supply technical for the second half of year 2019

is envisaged to be favourable especially in the fourth quarter where hefty maturities

of MGS/GII could further support the government yields during the anticipated

period. We view that the risk of FTSE Russell’s decision is unlikely to disrupt

market stability on the back of ample domestic liquidity and lowest foreign holdings

since November 2011. Nevertheless, it may still exert some pressure in MGS/GII

curve in addition to the net supply of RM4.7 billion in this upcoming quarter.

Therefore, we remain positioned to capture any opportunities as volatility is

expected to surface due to the uncertainty at the time where tightening pricing could

turn less favourable in term of risk-reward perspective. Consequently, in a low rates

environment where reinvestment risk will be a challenge, we advocate an active

management strategy where we will be deploying cash into undervalued

government bonds and selective credits with greater efforts in secondary trading in

order to achieve higher total return.

REVIEW OF FUND PERFORMANCE AND STRATEGY DURING THE

PERIOD

For the period under review, the RHB Dana Hazeem registered a positive return of

0.49%* compared with its benchmark return of 2.28%*, hence the fund had

underperformed its benchmark by 1.79%*.

*Source: Lipper Investment Management (“Lipper IM”), 5 September 2019

11

PERFORMANCE DATA

Annual Total Returns

28.02.2019-

31.08.2019

%

Financial Year Ended

28/29 February

2019 2018 2017 2016 2015

% % % % %

RHB Dana Hazeem

- Capital Return 0.49 (9.48) (1.10) (6.17) 2.36 (4.97)

- Income Return - - - 2.26 8.17 7.58

- Total Returns 0.49 (9.48) (1.10) (4.05) 10.72 2.23

Dana Hazeem Index 2.28 (4.02) 7.38 3.53 (0.65) 4.03

Average Annual Returns

1 Year

31.08.2018-

31.08.2019

%

3 Year

31.08.2016 -

31.08.2019

%

5 year

31.08.2014 –

31.08.2019

%

Since Launch

11.03.2013**

- 31.08.2019

%

RHB Dana Hazeem (3.46) (2.84) (1.54) 1.02

Dana Hazeem Index (0.87) 2.16 1.83 3.41

12

Performance of RHB Dana Hazeem

for the period from 11 March 2013 ** to 31 August 2019

Cumulative Return Over The Period (%)

Source: Lipper IM, 5 September 2019

The abovementioned performance figures are indicative returns based on daily Net

Asset Value of a unit (as per Lipper Database) since inception.

The calculation of the above returns is based on computation methods of Lipper.

** Being the last day of the Initial Offer Period.

Note : Past performance is not necessarily indicative of future performance and

unit prices and investment returns may go down, as well as up.

The abovementioned performance computations have been adjusted to

reflect distribution payments and unit splits wherever applicable.

01.03.2019- As at 28 February

Fund Size 31.08.2019 2019 2018 2017

Net Asset Value (RM million) 27.77 32.10 52.08 90.31*

Units In Circulation (million) 63.87 74.20 108.99 186.91*

Net Asset Value Per Unit (RM) 0.4347 0.4326 0.4779 0.4832*

13

* The figures quoted are ex-distribution

# The MER for the financial period was lower compared with the previous

financial period due to lower expenses incurred during the financial period

under review (refer to Note 12).

## The PTR for the financial period was lower compared with the previous

financial period due to lower average net asset value for the financial period

under review (refer to Note 13).

DISTRIBUTION

For the financial period under review, no distribution has been proposed by the Fund.

01.03.2019-

31.08.2019

Year Ended 28 February

Historical Data 2019 2018 2017

Unit Prices

NAV - Highest (RM) 0.4473 0.4771 0.5030 0.5377*

- Lowest (RM) 0.4234 0.4142 0.4666 0.4721*

Distribution and Unit Split

Gross Distribution Per Unit (sen) - - - 1.1000

Net Distribution Per Unit (sen) - - - 1.1000

Ex date - - - 20.02.2017

NAV before distribution (cum) - - - 0.4955

NAV after distribution (ex) - - - 0.4864

Unit Split - - - -

Others

Management Expense Ratio

(MER) (%) #

0.81

1.69

2.25

1.79

Portfolio Turnover Ratio (PTR)

(times) ##

0.17

0.90

0.61

0.56

14

PORTFOLIO STRUCTURE

The asset allocations of the Fund as at reporting date were as follows:

As at As at 28 February

31 August

2019

2019

2018

2017

Sectors % % % %

Shariah-compliant

Investments

Communication - 9.30 - -

Construction 6.12 4.67 1.84 -

Consumer Products 5.16 3.42 16.26 23.88

Energy 5.03 5.06 - -

Finance 5.39 5.19 1.41 1.28

Health 6.88 7.36 - -

Industrial Products 5.03 3.30 6.35 9.23

Infrastructure Projects - - 2.06 -

Materials - 1.14 - -

Mining - - 1.33 -

Plantation 5.07 2.52 1.24 1.53

Properties - 2.69 4.88 -

Technology - 1.67 1.50 -

Telecommunications 10.61 - - -

Trading/Services - - 21.91 12.82

Utilities 6.71 9.32 - -

56.00 55.64 58.78 48.74

Collective investment schemes 2.54 - - -

Unquoted Sukuk 37.35 35.33 41.33 40.63

Liquid assets and other net

current assets

4.11

9.03

(0.11)*

10.63

100.00 100.00 100.00 100.00

* The excess over 100% of net asset value is attributable to amount due to stockbrokers,

which has not yet been paid as at reporting date.

15

BREAKDOWN OF UNIT HOLDINGS BY SIZE

Account Holders No. Of Units Held*

Size of Holdings No. % (‘000) %

5,000 and below 232 16.44 732 1.15

5,001 to 10,000 270 19.14 2,035 3.19

10,001 to 50,000 685 48.55 15,202 23.80

50,001 to 500,000 220 15.59 22,223 34.79

500,001 and above 4 0.28 23,676 37.07

Total 1,411 100.00 63,868 100.00

*Excluding Manager’s stock

SOFT COMMISSION

The Fund Manager may only receive soft commission in the form of research and

advisory services that assist in the decision-making process relating to the Fund’s

investments.

During the financial period under review, the soft commission received from the

brokers had been retained by the Manager as the goods and services provided are of

demonstrable benefit to the unitholders.

16

RHB DANA HAZEEM

UNAUDITED STATEMENT OF FINANCIAL POSITION

AS AT 31 AUGUST 2019

Note 31.08.2019 28.02.2019 RM RM

ASSETS

Investments 5 26,628,046 29,197,258

Deposits with licensed financial institutions 6 425,158 2,387,353

Bank balances 6 1,056,116 1,249,000

Amount due from stockbroker 513,008 -

Amount due from Manager - 1,736

Dividend receivable 20,282 9,700

Tax recoverable 1,277 32

TOTAL ASSETS 28,643,887 32,845,079

LIABILITIES

Amount due to stockbroker (558,396) -

Amount due to Manager (270,988) (696,915)

Accrued management fee (36,044) (38,329)

Amount due to Trustee (1,442) (1,533)

Other payables and accruals (9,840) (12,367)

TOTAL LIABILITIES (876,710) (749,144)

NET ASSET VALUE

27,767,177

32,095,935

EQUITY

Unitholders’ capital 28,627,132 33,139,331

Accumulated losses (859,955) (1,043,396)

27,767,177 32,095,935

UNITS IN CIRCULATION 8 63,874,000 74,196,000

NET ASSET VALUE PER UNIT 0.4347 0.4326

The accompanying notes are an integral part of the financial statements.

17

RHB DANA HAZEEM

UNAUDITED STATEMENT OF INCOME AND EXPENSES

FOR THE FINANCIAL PERIOD ENDED 31 AUGUST 2019

Note

01.03.2019-

31.08.2019

01.03.2018 -

31.08.2018

RM RM

INCOME/(LOSS)

Dividend income 305,023 342,947

Profit from unquoted sukuk 307,551 527,207

Profit from Islamic deposits with licensed

financial institutions

8,838

16,117

Net loss on investments 5 (168,180) (3,211,552)

Net foreign currency exchange gain/(loss) 27,687 (35,886)

480,919 (2,361,167)

EXPENSES

Management fee 9 (228,813) (337,911)

Trustee’s fee 10 (9,153) (13,517)

Audit fee (3,513) (3,706)

Tax agent’s fee (1,672) (1,765)

Transaction costs (37,086) (111,951)

Other expenses (3,867) (36,777)

(284,104) (505,627)

Net income/(loss) before taxation 196,815 (2,866,794)

Taxation 11 (13,374) (40,163)

Net income/(loss) after taxation 183,441 (2,906,957)

Net income/(loss) after taxation is

made up of the following:

Realised amount (277,867) (3,237,992)

Unrealised amount 461,308 331,035

183,441 (2,906,957)


18

RHB DANA HAZEEM

UNAUDITED STATEMENT OF CHANGES IN NET ASSETS VALUE


Unitholders’

capital

Retained

earnings/

(accumulated

loss)

Total net

asset value

RM RM RM Balance as at 1 March 2018 48,649,489 3,434,972 52,084,461

Movement in net asset value:

Net loss after taxation - (2,906,957) (2,906,957)

Creation of units arising from

applications 57,989 - 57,989

Cancellation of units (9,471,534) - (9,471,534)

Balance as at 31 August 2018 39,235,944 528,015 39,763,959

Balance as at 1 March 2019 33,139,331 (1,043,396) 32,095,935

Movement in net asset value:

Net income after taxation - 183,441 183,441

Creation of units arising from

applications

34,828 -

34,828

Cancellation of units (4,547,027) - (4,547,027)

Balance as at 31 August 2019 28,627,132 (859,955) 27,767,177


19

RHB DANA HAZEEM

UNAUDITED STATEMENT OF CASH FLOWS


01.03.2019 -

31.08.2019

01.03.2018 -

31.08.2018

RM RM

CASH FLOWS FROM OPERATING

ACTIVITIES

Proceeds from sale of Shariah-compliant

investments

5,554,491

24,540,106

Purchase of Shariah-compliant investments (3,140,567) (16,597,201)

Dividends received 279,946 302,783

Profit received from Islamic deposits with

licensed financial institutions

8,838

16,117

Profit received from unquoted sukuk 303,504 494,361

Management fee paid (231,098) (350,248)

Trustee’s fees paid (9,244) (14,010)

Payment for other fees and expenses (11,579) (45,463)

Net cash generated from operating activities 2,754,291 8,346,445

CASH FLOWS FROM FINANCING

ACTIVITIES

Cash proceeds from units created 36,564 153,128

Cash paid for unit cancelled (4,972,954) (9,115,292)

Net cash used in financing activities (4,936,390) (8,962,164)

Net decrease in cash and cash equivalents (2,182,099) (615,719)

Effect of foreign exchange 27,020 (35,886)

Cash and cash equivalents at the beginning

of the financial period

3,636,353

1,397,560

Cash and cash equivalent at the end of the

financial period

1,481,274

745,955


20

RHB DANA HAZEEM

NOTES TO THE UNAUDITED FINANCIAL STATEMENTS


1. THE FUND, THE MANAGER AND THEIR PRINCIPAL ACTIVITIES

The RHB Dana Hazeem (hereinafter referred to as “the Fund”) was constituted

pursuant to the execution of a Master Deed dated 24 September 2012 as modified

via its First Supplemental Deed dated 4 September 2013, Second Supplemental

Deed dated 26 February 2015, Third Supplemental Deed dated 25 May 2015 and

Fourth Supplemental Deed dated 13 January 2016 (hereinafter referred to as “the

Deeds”) between RHB Asset Management Sdn Bhd (“the Manager”) and HSBC

(Malaysia) Trustee Berhad (“the Trustee”).

The Fund was launched on 18 February 2013 and will continue its operations until

terminated according to the conditions provided in the Deed.

The principal activity of the Fund is to invest in Permitted Investments as defined in

the Deed.

All investments will be subject to the Securities Commission Malaysia’s (“SC”)

Guidelines on Unit Trust Funds, SC requirements, the Deeds, except where

exemptions or variations have been approved by the SC, internal policies and

procedures and objective of the Fund.

The main objective of the Fund is to maximise total returns through a combination

of long term growth of capital and current income consistent with the preservation

of capital.

The Manager is a company incorporated in Malaysia and is a wholly-owned

subsidiary of RHB Investment Bank Berhad, effective 6 January 2003. Its principal

activities include rendering of investment management services, management of

unit trust funds, private retirement schemes and provision of investment advisory

services.

These financial statements were authorised for issue by the Manager on 22 October

2019.

21

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

2.1 Basis of preparation of the financial statements

The financial statements have been prepared under the historical cost convention, as

modified by financial assets and financial liabilities (including derivative instruments) at

fair value through profit or loss, except as disclosed in this summary of significant

accounting policies, and in accordance with Malaysian Financial Reporting Standards

(“MFRS”) and International Financial Reporting Standards (“IFRS”).

The preparation of financial statements in conformity with 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 financial period. It also requires the Manager to exercise its judgement in the

process of applying the Fund’s accounting policies. Although these estimates and

judgement are based on the Manager’s best knowledge of current events and actions,

actual results may differ.

(a) The Fund has applied the following standard and interpretation to the existing

standard for the first time for the financial period beginning on 1 March 2019:

(i) Financial period beginning on/after 1 September 2019

IC Interpretation 23 ‘Uncertainty over Income Tax Treatments’ (effective 1 January 2019) provides guidance on how to

recognise and measure deferred and current income tax assets

and liabilities where there is uncertainty over a tax treatment.

If an entity concludes that it is not probable that the tax

treatment will be accepted by the tax authority, the effect of the

tax uncertainty should be included in the period when such

determination is made. An entity shall measure the effect of

uncertainty using the method which best predicts the resolution

of the uncertainty.

IC Interpretation 23 will be applied retrospectively.

22


(CONTINUED)

2.1 Basis of preparation of the financial statements (continued)

(a) The Fund has applied the following standard and interpretation to the existing

standard for the first time for the financial period beginning on 1 March 2019

(continued):

(i) Financial period beginning on/after 1 September 2019 (continued)

Annual Improvements to MFRSs 2015 – 2017 Cycle: Amendments to MFRS 112 ‘Income Taxes’ (effective from 1

January 2019) clarify that where income tax consequences of

dividends on financial instruments classified as equity is

recognised (either in profit or loss, other comprehensive income

or equity) depends on where the past transactions that generated

distributable profits were recognised. Accordingly, the tax

consequences are recognised in profit or loss when an entity

determines payments on such instruments are distribution of

profits (that is, dividends). Tax on dividend should not be

recognised in equity merely on the basis that it is related to a

distribution to owners.

The adoption of the amendments to published standard and interpretation

to existing standard do not give rise to any material impact on the

financial statements of the Fund.

23


(CONTINUED)

2.2 Financial assets

Classification

The Fund classifies its financial assets in the following measurement categories:

• those to be measured subsequently at fair value through profit or loss, and

• those to be measured at amortised cost

The Fund classifies its investments based on both the Fund’s business model for

managing those financial assets and the contractual cash flow characteristics of the

financial assets. The portfolio of financial assets is managed and performance is

evaluated on a fair value basis. The Fund is primarily focused on fair value

information and uses that information to assess the assets’ performance and to make

decisions. The Fund has not taken the option to irrevocably designate any equity

securities as fair value through other comprehensive income. The contractual cash

flows of the Fund’s debt securities are solely principal and profit, however, these

securities are neither held for the purpose of collecting contractual cash flows nor

held both for collecting contractual cash flows and for sale. The collection of

contractual cash flows is only incidental to achieving the Fund’s business model’s

objective. Consequently, all investments are measured at fair value through profit or

loss.

The Fund classifies cash and cash equivalents, amount due from stockbrokers,

amount due from Manager and dividend receivable at amortised cost as these

financial assets are held to collect contractual cash flows consisting of the amount

outstanding.

The Fund designates its investments in quoted Shariah-compliant investments,

collective investment schemes and unquoted sukuk as financial assets at fair value

through profit or loss at inception.

Financing and receivables are non-derivative financial assets with fixed or

determinable payments that are not quoted in an active market and have been

included in current assets. The Fund’s financing and receivables comprise cash and

cash equivalents, amount due from stockbrokers, amount due from Manager and

dividend receivable which are all due within 12 months.

24


(CONTINUED)

2.2 Financial assets (continued)

Recognition and measurement

Regular purchases and sales of financial assets are recognised on the trade date - the

date on which the Fund commits to purchase or sell the asset. Financial assets and

financial liabilities at fair value through profit or loss are initially recognised at fair

value. Transaction costs are expensed as incurred in the statement of income and

expenses.

Financial assets are derecognised when the rights to receive cash flows from the

investments have expired or the Fund has transferred substantially all risks and

rewards of ownership.

Subsequent to initial recognition, all financial assets at fair value through profit or

loss are measured at fair value. Gains or losses arising from changes in the fair

value of the ‘financial assets at fair value through profit or loss’ category are

presented in profit or loss within net gain or loss on investments in the period in

which they arise.

Dividend income from financial assets at fair value through profit or loss is

recognised in the statement of income and expenses within dividend income from

investments when the Fund’s right to receive payments is established.

Profit on debt securities at fair value through profit or loss is recognised in the

statement of income and expenses.

Quoted Shariah-compliant investments and collective investment schemes are

initially recognised at fair value and subsequently re-measured at fair value based on

the market price quoted on the relevant stock exchanges at the close of the business

on the valuation day, where the close price falls within the bid-ask spread. In

circumstances where the close price is not within the bid-ask spread, the Manager

will determine the point within the bid-ask spread that is most representative of the

fair value.

25


(CONTINUED)


Recognition and measurement (continued)

If a valuation based on the market price does not represent the fair value of the

securities, for example during abnormal market conditions or when no market price

is available, including in the event of a suspension in the quotation of the securities

for a period exceeding 14 days, or such shorter period as agreed by the Trustee, then

the securities are valued as determined in good faith by the Manager, based on the

methods or bases approved by the Trustee after appropriate technical consultation.

Unquoted sukuk denominated in Ringgit Malaysia are valued based on fair value

prices quoted by a bond pricing agency (“BPA”) registered with the SC as per the

SC Guidelines on Unit Trust Funds. Where such quotations are not available or

where the Manager is of the view that the price quoted by the BPA for a specific

unquoted fixed income security differs from the market price by more than 20 basis

points, the Manager may use the market price, provided that the Manager:

(i) Records its basis for using a non-BPA price;

(ii) Obtains necessary internal approvals to use the non-BPA price; and

(iii) Keeps an audit trail of all decisions and basis for adopting the market price.

Islamic deposits with licensed financial institutions are stated at cost plus accrued

profit calculated on the effective profit method over the period from the date of

placement to the date of maturity of the respective deposits, which is a reasonable

estimate of fair value due to the short-term nature of the deposits.

Financings and receivables are subsequently carried at amortised cost using the

effective profit method.

26


(CONTINUED)


Impairment of financial assets (continued)

The Fund measures credit risk and expected credit losses using probability of

default, exposure at default and loss given default. Management consider both

historical analysis and forward looking information in determining any expected

credit loss. Management consider the probability of default to be close to zero as

these instruments have a low risk of default and the counterparties have a strong

capacity to meet their contractual obligations in the near term. As a result, no loss

allowance has been recognised based on 12 month expected credit losses as any

such impairment would be wholly insignificant to the Fund.

Significant increase in credit risk

A significant increase in credit risk is defined by management as any contractual

payment which is more than 30 days past due or a counterparty credit rating which

has fallen below BBB/Baa.

Definition of default and credit-impaired financial assets

Any contractual payment which is more than 90 days past due is considered credit

impaired.

Write-off

The Fund write off financial assets, in whole or in part, when it has exhausted all

practical recovery efforts and has concluded there is no reasonable expectation of

recovery. The assessment of no reasonable expectation of recovery is based on

unavailability of debtor’s sources of income or assets to generate sufficient future

cash flows to repay the amount. The Fund may write-off financial assets that are still

subject to enforcement activity. Subsequent recoveries of amounts previously

written off will result in impairment gains. There are no write-offs/recoveries during

the financial period.

27


(CONTINUED)

2.3 Financial liabilities

Financial liabilities are classified according to the substance of the contractual

arrangements entered into and the definitions of a financial liability.

Financial liabilities, within the scope of MFRS 9 are recognised in the statement of

financial position when, and only when, the Fund becomes a party to the contractual

provisions of the financial instrument.

The Fund’s financial liabilities which include amount due to stockbrokers, amount

due to Manager, accrued management fee, amount due to Trustee and other

payables and accruals are recognised initially at fair value and subsequently

measured at amortised cost using the effective profit method.

A financial liability is de-recognised when the obligation under the liability is

extinguished. Gains and losses are recognised in statement of income and expenses

when the liabilities are de-recognised, and through the amortisation process.

2.4 Unitholders’ capital

The unitholders’ contributions to the Fund meet the criteria of the definition of

puttable instruments to be classified as equity instruments under MFRS 132

“Financial Instruments: Presentation”. Those criteria include:

the units entitle the holder to a proportionate share of the Fund’s net assets value;

the units are the most subordinated class and class features are identical;

there is no contractual obligations to deliver cash or another financial asset other than the obligation on the Fund to repurchase; and

the total expected cash flows from the units over its life are based substantially on the profit or loss of the Fund.

The outstanding units are carried at the redemption amount that is payable at each

financial period if the unitholders exercise the right to put the units back to the Fund.

Units are created and cancelled at prices based on the Fund’s net asset value per unit

at the time of creation or cancellation. The Fund’s net asset value per unit is

calculated by dividing the net assets attributable to unitholders with the total number

of outstanding units.

28


(CONTINUED)

2.5 Income recognition

Dividend income from quoted Shariah-compliant investments and collective

investment schemes are recognised when the Fund’s right to receive payment is

established. Dividend income is received from financial assets measured at FVTPL.

Realised gain or loss on sale of quoted Shariah-compliant investments and collective

investment schemes are arrived at after accounting for cost of investments,

determined on the weighted average cost method.

Realised gain or loss on disposal of unquoted sukuk is measured by the difference

between the net disposal proceeds and the carrying amounts of the investments

(adjusted for accretion of discount or amortisation of premium).

Net income or loss is the total of income less expenses.

2.6 Taxation

Current tax expense is determined according to Malaysian tax laws and includes all

taxes based upon the taxable income earned during the financial period.

Tax on dividend income from foreign quoted Shariah-compliant investments is

based on the tax regime of the respective countries that the Fund invests in.

2.7 Cash and cash equivalents

For the purpose of the statement of cash flows, cash and cash equivalents comprise

bank balance and Islamic deposits with licensed financial institutions which are

subject to an insignificant risk of changes in value.

29


(CONTINUED)

2.8 Amount due from/to stockbrokers

Amounts due from/to stockbrokers represent receivables for securities sold and

payables for securities purchased that have been contracted for but not yet settled or

delivered on the date of the statement of financial position respectively. The amount

due from stockbrokers balance is held for collection.

These amounts are recognised initially at fair value and subsequently measured at

amortised cost. At each reporting date, the Fund shall measure the loss allowance on

amounts due from stockbrokers at an amount equal to the lifetime expected credit

losses if the credit risk has increased significantly since initial recognition. If, at the

reporting date, the credit risk has not increased significantly since initial

recognition, the Fund shall measure the loss allowance at an amount equal to 12-

month expected credit losses. Significant financial difficulties of the broker,

probability that the broker will enter bankruptcy or financial reorganisation, and

default in payments are all considered indicators that a loss allowance may be

required.

2.9 Presentation and functional currency

Items included in the financial statements of the Fund are measured using the

currency of the primary economic environment in which the Fund operates (the

“functional currency”). The financial statements are presented in Ringgit Malaysia

(“RM”), which is the Fund’s presentation and functional currency.

Due to mixed factors in determining the functional currency of the Fund, the

Manager has used its judgement to determine the functional currency that most

faithfully represents the economic effects of the underlying transactions, events and

conditions and have determined the functional currency to be in RM primarily due

to the following factors:

• Part of the Fund’s cash is denominated in RM for the purpose of making settlement of the creation and cancellation.

• The Fund’s units are denominated in RM. • The Fund’s expenses are denominated in RM.

30


(CONTINUED)

2.10 Foreign currency translation

Foreign currency transactions in the Fund are accounted for at exchange rates

prevailing at the transaction dates. Foreign currency monetary assets and liabilities

are translated at exchange rates prevailing at the reporting date. Exchange

differences arising from the settlement of foreign currency transactions and from the

translation of foreign currency monetary assets and liabilities are recognised in

statement of income and expenses.

2.11 Segmental information

Operating segments are reported in a manner consistent with the internal reporting

used by the chief operating decision-maker. The operating results are regularly

reviewed by the Manager and the Investment Committee. The Investment

Committee assumes the role of chief operating decision maker, for performance

assessment purposes and to make decisions about resources allocated to the

investment segment based on the recommendation by the Investment & Security

Selection Committee.

31

3. FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES

The Fund is exposed to a variety of risks, which include market risk, price risk,

profit rate risk, currency risk, credit risk, liquidity risk, Shariah specific 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 in the

Securities Commission’s Guidelines on Unit Trust Funds.

Market risk

Securities may decline in value due to factors affecting securities markets generally

or particular industries represented in the securities markets. The value of a security

may decline due to general market conditions which are not specifically related to a

particular company, such as real or perceived adverse economic conditions, changes

in the general outlook for corporate earnings, changes in profit or currency rates or

adverse investors’ sentiment generally. They may also decline due to factors that

affect a particular industry or industries, such as labour shortages or increased

production costs and competitive conditions within an industry. Equity securities

generally have greater price volatility than unquoted sukuk. The market price of

securities owned by a unit trust fund might go down or up, sometimes rapidly or

unpredictably.

Price risk

Price risk is the risk that the fair value of the investments of the Fund will fluctuate

because of changes in market prices.

The Fund is exposed to price risk arising from profit rate risk in relation to its

investments of RM10,370,444 (28.02.2019: RM11,338,242) in unquoted sukuk.

The Fund’s exposure to price risk arising from profit rate risk and the related

sensitivity analysis are disclosed in “Profit rate risk” below.

The Fund is also exposed to equity security price risk (other than those arising from

profit rate risk) for it investments of RM16,257,602 (28.02.2019: RM17,859,016) in

quoted Shariah-compliant investments and collective investment schemes.

The sensitivity analysis is based on the assumption that the price of the quoted

Shariah-compliant investments and collective investment schemes fluctuate by +/(-)

5% with all other variables held constant, the impact on the net income/loss is +/(-)

RM812,880 (28.02.2019: RM892,951).

32


(CONTINUED)

Profit rate risk In general, when interest rates rise, unquoted sukuk prices will tend to fall and vice

versa. Therefore, the net asset value of the Fund may also tend to fall when interest

rates rise or are expected to rise. 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 since unquoted sukuk portfolio management depends on

forecasting interest rate movements. Prices of unquoted sukuk move inversely to

interest rate movements, therefore as interest rates rise, the prices of unquoted sukuk

decrease and vice versa. Furthermore, unquoted sukuk with longer maturity and

lower yield coupon rates are more susceptible to interest rate movements.

Investors should note that unquoted sukuk and money market instruments are

affected by profit rate fluctuations. Such investments may be affected by

unanticipated rise in profit rates which may impair the ability of the issuers to make

payments of profit income and principal, especially if the issuers are highly

leveraged. An increase in profit rates may therefore increase the potential of default

by an issuer.

The table below summarises the sensitivity of the Fund’s net asset value and net

profit/(loss) after taxation to movements in prices of unquoted sukuk held by the

Fund as a result of movement in profit rate. The analysis is based on the

assumptions that the profit rate increased and decreased by 1% with all other

variables held constant.

The Fund’s overall exposure to profit rate risk was as follows:

% Change in

profit rate

Impact on net profit/(loss)

after taxation/ net asset

value

31.08.2019 28.02.2019 RM RM

+1% (23,415) (43,692)

-1% 23,486 43,692

The Fund’s indirect exposure to profit rate risk arises from investment in money

market instruments is expected to be minimal as the Fund’s investments comprise

mainly short term deposits with approved licensed financial institutions.

33


(CONTINUED)

Profit rate risk (continued)

Interest rate is a general indicator that will have an impact on the management of a

fund regardless of whether it is a Shariah-compliant fund or otherwise. It does not in

any way suggest that these funds will invest in securities or instruments, which are

Shariah non-compliant.

Currency risk

Currency risk is associated with financial instruments that are quoted and/or priced

in foreign currency denomination.

The Fund did not have any significant financial instruments denominated in foreign

currencies as at the reporting date. The following table indicates the currency to

which the Fund had significant exposure at the reporting date on its financial

instruments. The analysis calculates the effect of a reasonably possible movement

the foreign currency rate against Ringgit Malaysia with all other variables held

constant.

The sensitivity of the Fund's net profit/(loss) after taxation and asset value as at

reporting date to changes in foreign exchange movements at the end of each

reporting period. The analysis is based on the assumption that the foreign exchange

rate fluctuates by +/(-) 5%, with all other variables remain constants, is +/(-)

RM90,411 (28.02.2019: RM152,616).

Credit risk

Credit risk refers to the possibility that the issuer of a particular investment will not

be able to make timely or full payments of principal or income due on that

investment. Credit risk arising from unquoted sukuk can be managed by performing

continuous fundamental credit research and analysis to ascertain the

creditworthiness of its issuer. In addition, the Manager imposes a minimum rating

requirement as rated by either local and/or foreign rating agencies and manages the

duration of the investment in accordance with the objective of the Fund. The risk

arising from placements of Islamic deposits in licensed financial institutions is

managed by ensuring that the Fund will only place deposits in reputable licensed

financial institutions. For amount due from stockbrokers, the settlement terms are

governed by the relevant rules and regulations as prescribed by the Bursa Malaysia

Securities Berhad (“Bursa Malaysia”). The settlement terms of the proceeds from

the creation of units receivable from the Manager are governed by Securities

Commission Guidelines on Unit Trust Fund.

34


(CONTINUED)

Credit risk (continued)

The following table sets out the credit risk concentration of the Fund:

Investments

Cash and

cash

equivalents

Other

financial

assets*

Total

RM RM RM RM

31.08.2019 Financial institutions

AAA - 1,481,274 - 1,481,274

A 260,574 - - 260,574

AA3 1,235,057 - - 1,235,057

A1 4,436,512 - 4,436,512

A3 2,479,080 - - 2,479,080

AA- 1,959,221 - - 1,959,221

Other - - 533,290 533,290

10,370,444 1,481,274 533,290 12,385,008

Investments

Cash and

cash

equivalents

Other

financial

assets*

Total

RM RM RM RM

28.02.2019

Financial institutions AAA - 3,636,146 - 3,636,146

AA2 5,588,798 - - 5,588,798

A 256,899 - - 256,899

AA3 1,169,717 - - 1,169,717

A3 2,450,811 - - 2,450,811

AA- 1,872,017 - - 1,872,017

Other - - 9,700 9,700

11,338,242 3,636,146 9,700 14,984,088

* Comprise amount due from stockbrokers, dividend receivables and amount due

from Manager.

The financial assets of the Fund are neither past due nor impaired.

35


(CONTINUED)

Liquidity risk

Liquidity risk is the risk that the Fund will encounter difficulty in meeting its

financial obligations.

Liquidity risk exists when particular investments are difficult to sell, possibly

preventing a unit trust fund from selling such illiquid securities at an advantageous

time or price. Unit trust funds with principal investment strategies that involve

securities or securities with substantial market and/or credit risk tend to have the

greater exposure to liquidity risk. As part of its risk management, the Manager will

attempt to manage the liquidity of the Fund through asset allocation and

diversification strategies within the portfolio. The Manager will also conduct constant

fundamental research and analysis to forecast future liquidity of its investments.

The table below summarises the Fund’s financial liabilities into relevant maturity

groupings based on the remaining period from the statement of financial position date

to the contractual maturity date.

Less than

1 month

Between 1 month

to 1 year

RM RM

31.08.2019

Amount due to stockbrokers 558,396

Amount due to Manager 270,988 -

Accrued management fee 36,044 -

Amount due to Trustee 1,442 -

Other payables and accruals - 9,840

866,870 9,840

28.02.2019

Amount due to Manager 696,915 -

Accrued management fee 38,329 -

Amount due to Trustee 1,533 -

Other payables and accruals - 12,367

736,777 12,367

36


(CONTINUED)

Shariah specific risk

The risk that the investments do not conform to the principle of Shariah may result

in those investments being not Shariah-compliant. Should the situation arise,

necessary steps shall be taken to dispose of such investments in accordance with the

rules of divestments of non Shariah-compliant investments. If this occurs, the Fund

could suffer losses from the disposal and thus, adversely affecting the value of the

Fund.

Capital risk

The capital of the Fund is represented by equity consisting of unitholders’ capital of

RM28,627,132 (28.02.2019: RM33,139,331) and accumulated losses of RM859,955

(28.02.2019: RM1,043,396). 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 unitholders. 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 unitholders and benefits for other stakeholders and to maintain a strong

capital base to support the development of the investment activities of the Fund.

4. FAIR VALUE ESTIMATION

Fair value is defined as the price that would be received to sell an asset or paid to

transfer a liability in an orderly transaction between market participants at the

measurement date (i.e. an exit price).

The fair value of financial assets traded in an active market (such as publicly traded

derivatives and trading securities) are based on quoted market prices at the close of

trading on the financial period end date.

An active market is a market in which transactions for the assets or liabilities take

place with sufficient frequency and volume to provide pricing information on an

ongoing basis.

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 financial period 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 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.

37

4. FAIR VALUE ESTIMATION (CONTINUED)

The fair values are based on the following methodologies and assumptions:

(i) For bank balances, deposits and placements with licensed financial institutions with maturities less than 1 year, the carrying value is a reasonable estimate of

fair value.

(ii) The carrying value of receivables and payables are assumed to approximate their fair values due to their short term nature.

Fair value hierarchy

The Fund adopted MFRS 13 “Fair Value Measurement” in respect of disclosures

about the degree of reliability of fair value measurement. This requires the Fund to

classify fair value measurements using a fair value hierarchy that reflects the

significance of the inputs used in making the measurements. The fair value

hierarchy has the following levels:

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 following table analyses within the fair value hierarchy the Fund’s financial

assets at fair value through profit or loss (by class) measured at fair value:

Level 1 Level 2 Level 3 Total

RM RM RM RM

31.08.2019

Investments:

- -Quoted Shariah-complaint

investments

15,551,372

-

-

15,551,372

- -Collective investment schemes

706,230

-

-

706,230

- Unquoted sukuk - 10,370,444 - 10,370,444

Total 16,257,602 10,370,444 - 26,628,046

38

4. FAIR VALUE ESTIMATION (CONTINUED)

Fair value hierarchy (continued)

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

28.02.2019

Investments:

- -Quoted Shariah-complaint

investments

17,859,016

-

-

17,859,016

- Unquoted sukuk - 11,338,242 - 11,338,242

Total 17,859,016 11,338,242 - 29,197,258

Investments in active listed equities, i.e. quoted Shariah-compliant investments

whose values are based on quoted market prices in active markets are classified

within Level 1. The Fund does not adjust the quoted prices for these instruments.

The Fund’s policies on valuation of these financial assets are stated in Note 2.2.

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. This includes

unquoted sukuk. 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. The Fund’s policies on valuation of these financial

assets are stated in Note 2.2.

39

5. INVESTMENTS

31.08.2019 28.02.2019 RM RM Investments:

Quoted Shariah-compliant investments – local 14,192,165 16,051,200

Quoted Shariah-compliant investments –

foreign

1,359,207

1,807,816

Collective investment schemes 706,230 -

Unquoted sukuk - local 10,370,444 11,338,242

26,628,046 29,197,258

01.03.2019 - 01.03.2018 -

31.08.2019 31.08.2018 RM RM Net loss on investments comprised:

- net realised loss on sale of investments (602,468) (3,572,171)

- net unrealised gain on changes in fair values

434,288

360,619

(168,180) (3,211,552)

Investments as at 31 August 2019 are as follows:

Name of Counter

Quantity

Cost

Fair value

% of

net asset

value RM RM %

QUOTED SHARIAH-

COMPLIANT

INVESTMENTS

- LOCAL

MALAYSIA

Construction

Econpile Holdings Bhd 537,000 292,473 410,805 1.48

Gamuda Bhd 200,000 534,500 720,000 2.59

IJM Corp Bhd 250,000 409,075 570,000 2.05

1,236,048 1,700,805 6.12

40

5. INVESTMENTS (CONTINUED)

Investments as at 31 August 2019 are as follows (continued):

Name of Counter

Quantity

Cost

Fair value

% of

net asset

value

RM RM %

QUOTED SHARIAH-

COMPLIANT

INVESTMENTS

- LOCAL

(CONTINUED)

MALAYSIA

Consumer Products

Bermaz Auto Bhd 200,000 458,300 456,000 1.64

DRB-Hicom Bhd 113,400 302,993 285,768 1.03

UMW Holdings Bhd 54,000 282,782 270,540 0.97

1,044,075 1,012,308 3.64

Energy

Serba Dinamik Holdings

Bhd 159,600 661,206 702,240 2.53

Yinson Holdings Bhd 100,000 460,920 695,000 2.50

1,122,126 1,397,240 5.03

Finance BIMB Holdings Bhd 202,900 843,436 821,745 2.96

Syarikat Takaful Malaysia

Keluarga Bhd 117,000 491,855 673,920 2.43

1,335,291 1,495,665 5.39

Health IHH Healthcare Bhd 120,000 623,376 694,800 2.50

Kossan Rubber Industries

Bhd 120,000 481,680 506,400 1.82

KPJ Healthcare Bhd 311,000 319,366 283,010 1.02

Top Glove Corporation

Bhd 89,900 462,446 427,025 1.54

1,886,868 1,911,235 6.88

41



Name of Counter

Quantity

Cost

Fair value

% of

net asset

value

RM RM %

QUOTED SHARIAH-

COMPLIANT

INVESTMENTS

- LOCAL

(CONTINUED)

MALAYSIA

Industrial Products

Kelington Group Bhd 250,000 285,850 312,500 1.13

Petronas Chemicals Group

Bhd 116,200 956,447 805,266 2.90

1,242,297 1,117,766 4.03

Plantation IOI Corp Bhd 180,000 815,292 793,800 2.86

Sime Darby Plantation Bhd 123,500 573,411 615,030 2.21

1,388,703 1,408,830 5.07

Telecommunications Axiata Group Bhd 200,000 920,800 1,010,000 3.64

Digi.Com Bhd 150,000 723,135 753,000 2.71

Telekom Malaysia Bhd 139,600 402,043 523,500 1.89

2,045,978 2,286,500 8.24

Utilities Malakoff Corporation Bhd 100,000 87,400 87,500 0.32

Tenaga Nasional Bhd 127,100 1,961,698 1,774,316 6.39

2,049,098 1,861,816 6.71

TOTAL QUOTED

SHARIAH-

COMPLIANT

INVESTMENTS

- LOCAL

13,350,484 14,192,165 51.11

42



Name of Counter

Quantity

Cost

Fair value

% of

net asset

value

RM RM %

COLLECTIVE

INVESTMENT

SCHEME

MALAYSIA

Axis Real Estate

Investment Trust 371,700 679,999 706,230 2.54

TOTAL COLLECTIVE

INVESTMENT

SCHEMES 679,999 706,230 2.54

TOTAL INVESTMENT 14,030,483 14,898,395 53.65

QUOTED SHARIAH-

COMPLIANT

INVESTMENTS

INDONESIA

Consumer Products &

Services

Indofood CBP Sukses

Makmur Tbk 78,100 277,830 278,567 1.00

PT Sarimelati Kencana 481,200 148,210 143,147 0.52

426,040 421,714 1.52

Industrial Products PT PP Persero Tbk 509,300 278,893 278,893 1.00

Telecommunications PT Telekomunikasi

Indonesia Persero Tbk 500,000 502,402 658,600 2.37

TOTAL INDONESIA 1,207,335 1,359,207 4.89

TOTAL QUOTED SHARIAH-

COMPLIANT INVESTMENTS -

FOREIGN 1,207,335 1,359,207 4.89

43



Name of Counter

Rating

Nominal

value

Cost

Fair value

% of

net asset

value

RM RM %

UNQUOTED

SUKUK-LOCAL

MALAYSIA

Bank Muamalat (M)

Bhd – 5.80%

(15/06/2026)

A3 2,400,000 2,429,364 2,479,080 8.93

Bright Focus Bhd –

2.50% (24/01/2030)

A1 4,000,000 3,166,396 1,802,445 6.49


5.00% (20/01/2023) A1 3,000,000 3,033,468 2,634,067 9.49

MEX II Sdn Bhd

6.00% (29/04/2030)

AA- 1,000,000 1,075,386 1,155,568 4.16

Muamalat IMTN –

5.50% (25/11/2021)

A 250,000 253,691 260,574 0.94

SPG IMTN 5.45%

(31/10/2033)

AA- 700,000 712,902 803,653 2.89

Tanjung Bin Energy -

6.20% (16/03/2032)

AA3 1,000,000 1,119,168 1,235,057 4.45

TOTAL UNQUOTED SUKUK

-LOCAL 11,790,375 10,370,444 37.35

TOTAL INVESTMENTS 27,028,193 26,628,046 95.89

44


Investments as at 28 February 2019 are as follows:

Name of Counter

Quantity

Cost

Fair value

% of

net asset

value RM RM %

QUOTED SHARIAH-

COMPLIANT

INVESTMENTS

- LOCAL

MALAYSIA

Communication

Axiata Group Bhd 200,000 920,800 832,000 2.59

Digi.Com Bhd 150,000 723,135 682,500 2.13

Telekom Malaysia Bhd 300,000 863,990 915,000 2.85

2,507,925 2,429,500 7.57

Construction

Econpile Holdings Bhd 400,000 184,640 162,000 0.51

Gamuda Bhd 200,000 534,500 588,000 1.83

IJM Corp Bhd 250,000 409,075 450,000 1.40

Muhibbah Engineering (M)

Bhd 100,000 297,090 299,000 0.93

1,425,305 1,499,000 4.67

Consumer Products

Bermaz Auto Bhd 200,000 458,300 438,000 1.36

45


Investments as at 28 February 2019 are as follows (continued):

Name of Counter

Quantity

Cost

Fair value

% of

net asset

value

RM RM %

QUOTED SHARIAH-

COMPLIANT

INVESTMENTS

- LOCAL

(CONTINUED)

MALAYSIA

Energy

Deleum Bhd 400,000 433,208 436,000 1.36

Hibiscus Petroleum Bhd 350,000 380,695 357,000 1.11

Serba Dinamik Holdings

Bhd 100,000 409,380 395,000 1.23

Yinson Holdings Bhd 100,000 460,920 435,000 1.36

1,684,203 1,623,000 5.06

Finance

BIMB Holdings Bhd 288,200 1,198,020 1,224,850 3.82

Syarikat Takaful Malaysia 100,000 389,870 440,000 1.37

1,587,890 1,664,850 5.19

Health

IHH Healthcare Bhd 120,000 623,376 687,600 2.14

Kossan Rubber Industries 120,000 481,680 465,600 1.45

KPJ Healthcare Bhd 750,000 770,175 757,500 2.36

Top Glove Corp Bhd 100,000 514,400 454,000 1.41

2,389,631 2,364,700 7.36

Industrial Products

Kelington Group Bhd 250,000 285,850 307,500 0.96

Petronas Chemicals Group

Bhd 30,000 282,510 276,600 0.86

V.S. Industry Bhd 250,000 427,950 248,750 0.78

996,310 832,850 2.60

Plantation

IOI Corp Bhd 180,000 815,292 808,200 2.52

46



Name of Counter

Quantity

Cost

Fair value

% of

net asset

value

RM RM %

QUOTED SHARIAH-

COMPLIANT

INVESTMENTS

- LOCAL

(CONTINUED)

MALAYSIA

Property

Eco World Development

Group 400,000 367,800 380,000 1.18

IOI Properties Group Bhd 300,000 602,610 483,000 1.51

970,410 863,000 2.69

Technology

Globetronics Technology

Bhd 288,200 493,365 537,600 1.67

Utilities

Gas Malaysia Bhd 100,000 294,700 286,000 0.89

Malakoff Corp Bhd 800,000 699,200 712,000 2.22

Petronas Gas Bhd 10,000 185,682 180,800 0.56

Tenaga Nasional Bhd 135,000 2,083,629 1,811,700 5.65

3,263,211 2,990,500 9.32


COMPLIANT INVESTMENTS

- LOCAL 16,591,842 16,051,200 50.01

47



Name of Counter

Quantity

Cost

Fair value

% of

net asset

value

RM RM %

QUOTED SHARIAH-

COMPLIANT

INVESTMENTS

- FOREIGN

INDONESIA

Communication

Pt Telekomunikasi

Indonesia Persero 500,000 502,403 555,840 1.73

Consumer Products

Pt Sarimelati Kencana 2,000,000 616,000 662,400 2.06

TOTAL INDONESIA 1,118,403 1,218,240 3.79

PHILIPPINES

Industrial Products

DMCI Holdings Inc 250,000 202,557 224,010 0.70

Materials

D&L Industries Inc 398,200 356,039 365,566 1.14

TOTAL PHILIPPINES 558,596 589,576 1.84


COMPLIANT INVESTMENTS -

FOREIGN 1,676,999 1,807,816 5.63

48



Name of Counter

Rating

Nominal

value

Cost

Fair value

% of

net asset

value

RM RM %

UNQUOTED

SUKUK-LOCAL

MALAYSIA

Bank Muamalat (M)

Bhd – 5.80%

(15/06/2026)

A3

2,400,000

2,428,847

2,450,811 7.64


2.50% (24/01/2030)

AA2

4,000,000

3,134,942

Documents

RHB DANA HAZEEM INTERIM REPORT 2019 - Kenangadepreciate (-7.5%). Asia ex-Japan equities inched up 6.1% in June 2019 (YTD: 9.4%) driven by strong recovery in China (7.3% in June 2019)