New Fund: AmDynamic Sukuk

After the spectacular performance of AmDynamic Bond fund, AmInvestment Services Bhd would like to replicate the success of the conventional fund into this newly launched shariah compliant fund.

The Fund aims to provide capital appreciation by investing primarily in Sukuk both locally and globally. To achieve the investment objective, the Fund will undertake active management to enhance and optimize returns from investing in sovereign, quasi-sovereign and corporate Sukuks. The sectorial weightings maybe adjusted to maximize the performance. There is no minimum rating for a Sukuk purchased or held by the Fund.

More about the Fund

Value-add of the Fund is derived from active tactical duration management, yield curve positioning and credit spread arbitrage. Credit spread arbitrage and yield curve positioning is part of relative value approach that involves analysis of general economic and market conditions and the use of models to analyze and compare expected returns as well as the assumed risks. The Investment Manager will focus on Sukuk that would deliver favourable return in light of the calculated risks.

In addition, the Investment Manager may also consider Sukuk with favourable or improving credit outlook that provide the potential for capital appreciation for these investments. The Fund may invest in Sukuk of varying maturities. The Fund’s investment maturity profile is subject to active tactical duration management in view of the interest rate scenario without any portfolio maturity limitation.

The Fund invests globally, including but not limited to Malaysia, Singapore, Indonesia, United Arab Emirates, Saudi Arabia, Bahrain, United Kingdom, Luxembourg, Jersey, Bermuda, Brunei, China, Australia, New Zealand, Japan, Hong Kong, United States of America and Germany. Notwithstanding the above, investments in foreign markets are limited to markets where the regulatory authority is a member of the International Organization of Securities Commission (IOSCO).

AmDynamic Sukuk is suitable for investors who:

• want steady growth in value by investing in Sukuk as an asset class;
• have Medium to Long Term investment goals; and
• are willing to assume additional interest rate risk, duration risk and liquidity risk associated with investing in Sukuks with longer duration and lower credit ratings.

Click here to download the fund prospectus

Source: Fund's prospectus

How Can A Profit-Guaranteed Investment Be Risky?

Investment professionals love complicating things.

Trust me on that. I was once like that.

You don’t believe me?

The next time you meet people from the investment industry, try asking them to give you a definition of the word “risk”.

Investopedia defines “risk” as “the chance that an investment’s actual return will be different than expected...risk is usually measured by the standard deviation of the historical/average return of a specific investment.” 

Don’t get me wrong. This is actually a pretty good definition of "risk”... that is if you speak finance. But most people don’t, and if you are like most people, you probably struggled to understand even the first sentence (actual return vs expected return...huh?). Good luck attempting to measure risk!

Then, what does RISK mean?

Complicated definitions aside, many investment professionals define “risks” consistent with the above definition i.e. in terms of “uncertainty” (or “volatility”, a fancy word for uncertainty). Professionals refer to a risky investment as one with a “high standard deviation” or “high volatility” (or in our language, high “uncertainty”).

The problem is, people don’t normally think of risk that way. An investment that is “uncertain” or “volatile” may not necessarily be risky. Let me give you an example;

Suppose there is no chance of losing money on this particular investment, but depending on a certain factor (e.g. how the weather turns out to be in a year’s time), you could either make a small profit or quadruple your money, or anywhere in between. We both know that if such an investment exists, it is a no brainer – this investment has no risk (you either win small or win BIG)!

But by definition, this investment is highly risky!  Why?  The outcome is highly uncertain: you could make a small profit (say +1%) or any amount up to quadrupling your money (+300%)! Isn’t it absurd that professionals define this as a highly risky investment? 

This is how I think “risk” should be defined:  The potential for losses.

That’s it! 

Therefore, a risky investment has a high potential for losses.  An example: a share of a single, unproven company in a politically and economically unstable country. A not risky investment has a low potential for losses – like a bank account.

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This guest post was written by Ching, the founder of iMoney.my, a price comparison website for Malaysians. Ching is a CFA charter holder, and was formerly an investment consultant and wealth advisor.

New Fund: OSK-UOB Asian Income Fund

If you have a medium risk appetite and are seeking for an investment opportunity in the Asian region, you may want to take a close look at OSK-UOB Asian Income Fund, a balanced fund which was newly launched by OSK-UOB Investment Management Berhad on 5 June 2012.

The fund is a feeder fund that aims to provide income and capital growth over the medium to long term by investing in one target fund, i.e, the Schroder Asian Income (fund's inception date: 24 October 2011 and is denominated in Singapore Dollar), which primarily invests in Asian equities and Asian fixed income securities.

More about Schroder Asian Income

The Schroder Asian Income can invests in Asian high yield bonds (30% - 70%), Asian high dividend yielding equities (30% - 70%), cash (0% - 30%) or other asset classes (0% - 10%). Cash will be used if necessary to limit downside risk during adverse market conditions. Financial derivatives are also used to stabilize the portfolio of the fund by hedging the fund's exposure to foreign currency.

This strategy allows the Schroder Asian Income to adjust its allocation according to the phases of the economic cycle to deliver more consistent returns.

Click here to know more about Schroder Asian Income fund

Click here to download the OSK-UOB Asian Income fund prospectus

Source: OSK-UOB Investment Management

New Fund: PB Dynamic Allocation Fund

Another new fund for the month of June, Public Mutual launched PB Dynamic Allocation Fund which allows the investor the opportunity to participate in tactical asset allocation strategy where instruments are allocated between the difference asset classes of equities, fixed income securities and money market instruments based on a flexible investment mandate. The fund may capitalize on potential investment opportunities if the market outlook is positive while reducing its equity exposure when weakness in the equity markets is expected.

As such, its equity content may range between 30% to 98% of the NAV of the fund. The balance of the fund's NAV may be invested in fixed income securities and liquid assets which include money market instruments and deposits.

Investment Strategy

Although the fund is actively managed, the frequency of its trading strategy will very much depend on market opportunities. The fund employs both the top-down and bottom-up approach to evaluate its investments. For its equity investments, the fund will invest in a diversified portfolio of blue chip stocks, index stocks and growth stocks listed in domestic and selected foreign stock markets. In identifying such companies, the fund adopts the bottom-up approach which relies on fundamental research.

The fund's investment may include listed warrants and options to enhance its returns. Also, it may consider investments in unlisted equities, particularly in companies that are expected to seek listing on the Bursa Securities or selected foreign markets within a time frame of 2 years.

Equity Linked Participation Notes?

More detail on equities, the fund may invest in equity linked participation notes for selected foreign stocks listed on the Luxembourg Stock Exchange. Equity linked participation notes are instruments designed to track designated securities. The movement of these notes are similar to the underlying shares listed in their respective markets.

Click here to download the prospectus

Source: Public Mutual

What is Bursa Malaysia Derivatives Local Participant?

Recently, Bursa Malaysia launched its Derivatives Local Participants Recruitment Drive to have more derivatives traders, so that a more vibrant and dynamic derivatives market can be seen in Malaysia. Anyway, what is it actually? I guess many of us, either yourself or investors or traders, also doesn't know the exact answer...

Again, it's time for Finance Malaysia to do Bursa Malaysia a favor to educate the public. A Local Participant (Locals) is a professional derivatives trader who trades for his/her own account. In essence, a self-employed trader. With the recent easing of entry requirements, those who aspire to be a Local Participant are not required to pass the licensing examination, show the relevant academic qualification and industry experience.

What is the benefits of being a Locals?

Locals have grown alongside the Exchange over the years, both in terms of numbers and trading participation in derivatives products. As a proprietary trader, they have unlimited trading potential. They trade as a business and have the option of working flexi-hours from anywhere. Locals also enjoy exchange fee rebates and tax abatement on their income such as below:

• A Local Participant will enjoy exchange fee and clearing fee incentives if he trades 1,000 contracts per month or more. 
• A Local Participant will receive a 50% tax abatement on income derived from derivatives trading.

What are the differences between the current and previous admission requirements of a Local Participant?

Effective 3 January 2012, the following  admission requirements of a Local Participants have been removed :- 

1. Have passed an examination approved  by BMDB or have  been granted an  exemption in respect thereof; 
2. Possess such qualification as approved by BMDB; and 
3. Possess sufficient and relevant trading experience.

In substitution of the above admission requirements, an applicant needs to attend a two-day familiarization programme conducted by BMDB.   

What are the products offered by BMDB for Local Participants?

BMDB offers a range of derivatives products for Local Participants, which include the two (2) key products, namely, Crude Palm Oil Futures ("FCPO") and FTSE Bursa Malaysia KLCI Futures ("FKLI").

Click here to download the "Local Participants Application Form"

Source: www.bursamalaysia.com

New Fund: AmConsumer Select - Capital Protected

AmInvestment Bank is launching a new capital-protected fund and it is optimistic of a good take-up rate for this RM100mil new fund. According to its CEO, the launch of the fund is timely in view of the current macroeconomic uncertainties. Since it is capital protected, the fund offers a safe haven for risk-averse investors looking to hedge against the uncertainty in the global market, she adds.

The Fund is a close-ended fund which aims to provide regular income with an investment horizon of 2.5 years (30 months) whilst providing capital protection on Maturity Date. The Fund seeks to achieve its objective by investing in ZNIDs and/or MGS and an over-the-counter option linked to the price movement of a basket of five (5) consumer related stocks.

For the purpose of the Fund, consumer related stocks refer to stocks of companies that produce products/services that are consumed by individuals. Selection of consumer related stocks is based on fundamental strength of the companies through internal research and brands that the Manager considers to be widely known among investors.

The Strategy...

Generally, the Fund will adopt a two-fold strategy to achieve its objective, i.e.

1. Capital protection* from fixed income portion
   At the Fund’s commencement, a minimum of 85% of the Fund’s NAV will be invested in 2.5-year ZNIDs and/or MGS with shorter or similar maturity tenure to the Fund’s maturity, which upon maturity of the Fund will achieve an amount equivalent to 100% of investor’s initial capital (which includes entry charge payable by investors). A maximum of 5% of the Fund’s NAV will be maintained in cash and/or money market instruments for liquidity purposes.
   
   
   
2. Fund’s return from option portion
   At the Fund’s commencement, up to 10% of the Fund’s NAV will be used to purchase a 2.5-year USD denominated option with an option counter-party, which is a financial institution carrying a minimum long-term rating of “A” by S&P or the equivalent rating by any other global rating agency. The option provides exposure which is linked to the price movement of a basket of five (5) consumer related stocks.

At the end of each quarter, if the closing price of each of the stock is at or above its respective initial level on any day within the quarter, the option counter-party pays a conditional coupon. The income distribution (if any) will however be paid half yearly to investors.

The basket of five (5) consumer related stocks (indicative selection only) currently identified as

follows:

If the Coupon Payout Condition is met at any quarter, the coupon payout from the option

counterparty is calculated as follows:

Coupon (RM) = (Notional Amount / USD/RMInitial) x coupon rate (settled in USD) x

USD/RMEnd

• “USD/RMInitial” refers to the USD/RM exchange rate for the determination of the Notional Amount in USD as at Commencement Date.
• “USD/RMEnd” refers to the actual USD/RM exchange rate for conversion of the coupon (received by the Fund) from USD to RM.

* Investors are advised that the Fund is not a guaranteed fund. Capital protection is provided through investments in ZNIDs and/or MGS and not by a guarantee. Consequently, the return of capital is SUBJECT TO the credit/default risk of the issuers of the ZNIDs and/or MGS and may result in losses.

Source: AmMutual

IPO: Gas Malaysia

Gas Malaysia Berhad (GMB) was established to sell, market and distribute natural gas and Liquefied Petroleum Gas (LPG). GMB is also responsible for the construction and operation of the Natural Gas Distribution System (NGDS), which is a system comprising 1,800km of gas pipelines and stations within Peninsular Malaysia owned by GMB. NGDS is connected to the Peninsular Gas Utilisation (PGU), which is the gas transmission pipeline across Peninsular Malaysia owned and operated by PGB.

GMB’s core business to sell, market and distribute natural gas to industrial, commercial and residential customers in Peninsular Malaysia via NGDS. In other words, GMB purchases natural gas from PGB and sells to GMB’s own customers at a profit margin. There are currently two players in Peninsular Malaysia’s natural gas distribution industry, comprising GMB and PGB. However, both serve different sets of customers, whereby GMB’s customer base consists of users that initially consume less than 2 MMScfd, whereas PGB supplies to PETRONAS customers consuming more than 2 MMScfd. Customers that initially consume less than 2MMScfd but subsequently increase their consumption exceeding 2MMScfd will remain as GMB’s customers.

Like a toll road?

Looking at it from a slightly different perspective, GMB’s business can be compared to that of PLUS i.e. a toll road operator. Basically, consider GMB’s pipeline infrastructure as a highway, while the “toll” is GMB’s absolute gross margins, i.e RM2.02-2.25, while the “cars” represent the volume of natural gas supplied to GMB’s customers. We believe this comparison is fair, as GMB does not bear the risk of volatile natural gas prices as it buys and sells natural gas at regulated prices. As such, further growth in GMB’s sales volume would further improve its economies of scale given that other costs are largely fixed administrative costs.

In February 2012, GMB signed a New Gas Supply Agreement (NGSA) with Petronas whereby effective from 1 January 2013, the maximum limit for GMB to supply to its customers individually will increase from 2 MMScfd to 5 MMScfd. The NGSA has a 10-year tenure with an option to extend for an additional 5 years. In addition, GMB also supplies LPG to consumers in Peninsular Malaysia.

Strong cash pile, 100% dividend payout for FY12. Management indicated that it will spend RM140-RM150m in FY12 for the expansion of GMB’s Natural Gas Distribution System and RM40m p.a. in both FY13 and FY14 for maintenance purposes. We think that it is possible for CAPEX to be funded internally, judging from the group’s huge cash pile of RM327m and retained earnings of RM360m as of Dec 2011. Besides, GMB is also committed to paying out 100% of its FY12 net earnings as dividends and it is targeting a minimum payout ratio of 75% from FY13 onwards.

Source: TA Securities, OSK Research, RHB Research Institute

Euro 2012 Football Championship: Poland's Economy Scores

It's football season again. This round we have EURO 2012 Championship which will kick off on 8th June 2012. Are you ready? Before that, let us look at the championship from financial perspective. Don't care who will win the championship, Poland already emerged as the winner financially. Why?

The UEFA European Football Championship has taken place every 4 years since 1960. For the first time in history, Poland and Ukraine have scored the chance to co-host the Euro 2012 Football Championship. Despite high set-up costs for the two emerging economies, both countries are likely to experience long-term economic benefits.

The Statistic and Requirements:

• Estimated 670,000 football fans will pack into the new stadiums
• Around 1.5million spectators at fan zones only
• Minimum requirement capacity of 30,000 to 50,000 spectators for infrastructure and modern stadiums
• Sufficient parking possibilities, hospitality facilities, luxury hotels and training facilities was needed
• Required transportation infrastructure linking the host cities must be modern, well developed and meet UEFA's high quality expectations

Challenging Requirements Boost Economic Growth

As a result of the increased government spending, Poland's unemployment rate has improved significantly. In addition to modernization costs, safety costs of almost USD 1 billion will push the total bill for the event to over USD 10 billion in Poland's case. The majority of the modernization bill has been allocated to motorway construction to connect the hosting cities and surrounding countries.

Poland to Benefits from Euro 2012

The investment spending of over USD 10 billion will be beneficial for Poland, as long as the increase in GDP directly or indirectly allocated to the football championship tops the costs. Four main sources of possible additional income exist:

1. Extra spending by tourists and local population during the event
2. Extra spending generated after the event as a result of tourists visiting the host countries and cities
3. Benefits resulting from the upgrade of the various infrastructure programs
4. Benefits resulting from presenting the country and its economy in a positive light

Based on outcomes of earlier football championships, a study commissioned by the UEFA estimated extra spending during the event at around USD 300 million and USD 250 million thereafter. However, it is likely that, for emerging countries such as Poland, the benefits of major sporting events are much greater than for developed countries. While the publicity from major sport events is the same for developed and emerging economies, the marginal profit is expected to vary substantially. Developed economies are already well known as holiday and business destinations when hosting such events, but emerging countries may attract many more investors and tourists.

Long-Term Benefits for the Equity Market

Since very few major sporting events have been hosted by emerging market countries, the possible impact on the economy and on the stock market is difficult to estimate. However, it is likely that in addition to the attractive fundamentals of emerging markets such as high growth, low debt and favorable demographics, the access presented to a wide range of potential investors and tourists could give the country's economic development a significant boost and result in sustainable long-term growth perspectives. Poland and the Ukraine are likely very much aware of the possible long-term opportunities arising from hosting the UEFA European Football Championship this year and aim to create history together by hosting this major event.

Source: Credit Suisse