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CONTENTS Page GROUP MANAGING DIRECTOR‟S STATEMENT 3 FUND PROFILE 4 GLOBAL AND LOCAL ECONOMIC REVIEW 8 EQUITY AND FIXED INCOME MARKET REVIEW 10 MARKET OUTLOOK AND INVESTMENT STRATEGY 12 FUND PERFORMANCE REPORT 14 SOFT COMMISSION RECEIVED FROM BROKERS 28 STATEMENT BY DIRECTORS 29 REPORT OF THE AUDITORS 30 STATEMENTS OF ASSETS AND LIABILITIES AS AT 31 DECEMBER 2011 32 STATEMENTS OF ASSETS AND LIABILITIES AS AT 31 DECEMBER 2010 33 STATEMENTS OF INCOME AND EXPENDITURE FOR FINANCIAL YEAR ENDED 34 31 DECEMBER 2011 STATEMENTS OF INCOME AND EXPENDITURE FOR FINANCIAL PERIOD ENDED 35 31 DECEMBER 2010 STATEMENTS OF CHANGES IN NET ASSET VALUE FOR FINANCIAL YEAR ENDED 36 31 DECEMBER 2011 STATEMENTS OF CHANGES IN NET ASSET VALUE FOR FINANCIAL PERIOD 36 ENDED 31 DECEMBER 2010 CASH FLOW STATEMENT FOR FINANCIAL YEAR ENDED 31 DECEMBER 2011 37 CASH FLOW STATEMENT FOR FINANCIAL PERIOD ENDED 31 DECEMBER 2010 38 NOTES TO THE FINANCIAL STATEMENTS 39 DETAILS OF INVESTMENTS 43 COMPARATIVE PERFORMANCE TABLE 53 P a g e | 2 GROUP MANAGING DIRECTOR’S STATEMENT In the Name of Allah, the Most Compassionate, the Most Merciful It is my great pleasure to present the 2011 Annual Report of Takaful Malaysia‟s Investment-Linked Funds consisting of the Ittizan (Balanced Fund), Istiqrar (Stable Capital Fund), Ihfaz Equity Index Fund, Ittihad Growth Fund, Istifad Blue Chips Fund, Irad Dividend Fund and Ihsan Balanced Fund for the year ended 31 December 2011. The year 2011 was a challenging year for the world economy as the United States (USA) suffered weaker than expected economic performance, Japan was hit by a devastating earthquake and Europe‟s sovereign debt crisis deepened. Despite these shocks, emerging market economies had demonstrated resilience, showing a steady growth path to recovery, well ahead of major developed countries which faced challenges of low growth, high unemployment, weak housing markets and mounting fiscal burdens. Against this backdrop, the International Monetary Fund (IMF) estimated the world economy to grow at a more moderate pace of 3.8% in 2011 after expanding at 5.2% in 2010. On the domestic front, the Malaysian economy continued to expand, albeit at a more modest pace of 5.1% in 2011 (7.2% growth in 2010), driven mainly by strong domestic demand. Continued pre-emptive and accommodative monetary stance adopted by Bank Negara Malaysia coupled with implementation of the government‟s initiatives such as Economic Transformation Programme (ETP), New Economic Model and the Budget 2011 had cushioned the impact of weaker economic growth in advanced economies. Nevertheless, on the financial market, amid adverse external uncertainties and massive sell-off of major and regional equity markets, the local bourse experienced greater volatility with the Bursa Malaysia‟s main benchmark for Shariah-compliant stocks, FTSE Bursa Malaysia Emas Shariah Index lost 1,390.83 points or 13.2% in the third quarter 2011 before bouncing back to register a modest gain of 2.41% in 2011. Despite the challenging investment landscape in 2011, all our funds continued to register encouraging growth in their net asset value per unit with the best performance led by Irad Dividend Fund with a return of 6.39% against its benchmark performance of 2.41%. This is followed by Ittizan (Balanced Fund) which had registered a return of 5.22%, outperforming their benchmark return of 2.56%. Similarly, our index tracker fund, Ihfaz Equity Index Fund also gained about 4.46%, outperforming its benchmark return of 2.41% during the same period under review. You may find out more about the funds‟ information and financial performance in the following pages. In 2012, the global growth is expected to remain moderate as world investment and trade continue to expand, but at a slower pace. However, the challenges remain as possible escalation of the ongoing fiscal concerns in the advanced economies could add further strains to the international financial system and undermine the prospects for continued global growth. For Malaysia, although the current challenging external environment could present greater downside risks to its economic growth prospects for 2012, Malaysia‟s strong fundamental on the back of resilient domestic demand is expected to support its economic growth trajectory. Amidst the expected external uncertainties and market volatility in 2012, we shall continue to be prudent and vigilant in outlining the investment strategies for your funds to ensure their long-term investment objectives are met and at the same time investment risk and return is managed efficiently. Last but not least, we would like to express our utmost appreciation and gratitude for your continuous support for our Takaful Investment-Linked products mainly the newly launched Takaful myGenLife. We will continue to strive and work hard to serve you better and achieve our vision to be the preferred choice for insurance. May Allah give us His guidance, Amin. DATO’ MOHAMED HASSAN MD KAMIL Group Managing Director P a g e | 3 FUND PROFILE ITTIZAN (BALANCED FUND) To achieve reasonable returns and capital growth opportunities through Investment selected investments in Shariah approved shares listed in Bursa Malaysia and Objective Shariah-compliant Islamic debt securities. Investment Invest in a balanced asset allocation comprising of Shariah-compliant equity Strategy and Islamic debt securities and money market. At least 30% and a maximum of 70% in Malaysian shares approved by the Asset Shariah Advisory Council of the Securities Commission; Allocation The balance in cash, long and short term Islamic debt securities and other liquid Islamic investments. Performance 70% FBM Emas Shariah Index (“FBMSI”) and 30% one-month return Maybank Benchmark General Investment Account rate (“GIA”). ISTIQRAR (STABLE CAPITAL FUND) To achieve relatively stable pattern of investment returns over medium term Investment through selected investment in Shariah approved shares listed in Bursa Objective Malaysia and Shariah-compliant fixed income securities. Investment Invest in a balanced asset allocation comprising mainly in Islamic debt Strategy securities with smaller exposure in Shariah-compliant equity. A maximum of 35% in Malaysian shares approved by the Shariah Advisory Asset Council of the Securities Commission; Allocation At least 65% and a maximum 100% in cash, long and short term Islamic debt securities and other liquid Islamic investments. Performance 30% FBM Emas Shariah Index (“FBMSI”) and 70% one-month return Maybank Benchmark General Investment Account rate (“GIA”). P a g e | 4 IHFAZ EQUITY INDEX FUND Investment To achieve returns that tracks the performance of FBM Emas Shariah Index. Objective Invest mainly in the top forty of the Index component stocks; closely tracking the Investment movement of the Benchmark in the medium to long term; Strategy Constant rebalancing of the component stocks to closely track the benchmark performance. 90% - 95% in Malaysian shares approved by the Shariah Advisory Council of the Asset Securities Commission; Allocation The balance in Islamic money market instruments. Performance FBM Emas Shariah Index (“FBMSI”). Benchmark ITTIHAD GROWTH FUND Investment To achieve capital growth opportunities and dividend income through selective Objective investments in Shariah approved shares listed in Bursa Malaysia. Invest primarily in selected Shariah-compliant equities that comprise of a diversified portfolio of index-linked companies, blue-chip stocks and companies with growth prospects and attractive dividend yields that are listed on Bursa Investment Malaysia; Strategy Active portfolio management – constant review on asset allocation and stocks holding. Stock/portfolio turnover would be practically high in search for opportunities in capital gain and dividend yield stocks. At least 50% and a maximum of 95% in Malaysian shares approved by the Asset Shariah Advisory Council of the Securities Commission; Allocation The balance in cash, long and short term Islamic debt securities and other liquid Islamic investments. Performance FBM Emas Shariah Index (“FBMSI”). Benchmark P a g e | 5 ISTIFAD BLUE CHIPS FUND Investment To achieve consistent capital growth in the long run through investments in Objective Shariah-compliant Blue Chips Shares. Invest primarily in Shariah-compliant equities with higher market capitalisation to Investment achieve long term capital growth; Strategy Active portfolio management - constant review on asset allocation and stock holding in search of stocks that meet the objective of the Fund. At least 40% and a maximum of 90% in Malaysian shares approved by the Asset Shariah Advisory Council of the Securities Commission; Allocation The balance in Islamic money market instruments. Performance FBM Emas Shariah Index (“FBMSI”). Benchmark IRAD DIVIDEND FUND To achieve dividend income in the long term through selective investments in high Investment dividend yield shares that provide a minimum annual gross dividend of 4.00%. Objective To achieve capital growth through selective investments in Blue Chips Shares that could potentially provide capital growth in the long run. Invest primarily in dividend yield stocks that provide a minimum annual gross dividend of 4.00% as well as blue-chip stocks that could potentially grow in the long run; Investment At all times, exposure in stocks that yield a minimum of 4% annual gross dividend Strategy shall be at least 50% of the equity exposure; Constant review on asset allocation and stock holding in search of stocks that comply with the objectives of