AXA CAPITAL GROWTH FUND
REPORTS AND FINANCIAL STATEMENTS
FOR THE YEAR ENDED
31ST DECEMBER 2020 AXA CAPITAL GROWTH FUND
REPORTS AND FINANCIAL STATEMENTS FOR THE YEAR ENDED 31ST DECEMBER 2020
TABLE OF CONTENTS
PAGES
Manager’s report 1-7
Performance table (unaudited) 8
Report of the Trustee to the unitholders of AXA Capital Growth Fund 9
Statement of responsibilities of the Manager and the Trustee 10
Independent auditor’s report 11-13
Statement of net assets 14
Statement of comprehensive income 15
Statement of changes in net assets attributable to unitholders 16
Statement of cash flows 17
Notes to the financial statements 18-35
Investment portfolio (unaudited) 36
Movement in investment portfolio (unaudited) 37
General information 38 AXA CAPITAL GROWTH FUND
MANAGER’S REPORT
Economic and Market Review for 2020
2020 will likely go down in history given the severity of the shocks linked to the Covid-19 pandemic. The pandemic triggered a social and economic crisis on a scale rarely seen in peacetime. The massive support from governments and central banks avoided what would have otherwise been a bloodbath. It has been a trying year but there have also been some grounds for hope with the discovery of several efficient vaccines in just ten months, major political advances within the European Union (EU) and strong political commitments from China, the EU, and soon the United
States to reduce CO2 emissions.
Unsurprisingly, the pandemic significantly impacted the US economy with activity moving in parallel with the variation in mobility restrictions. For 2020, we anticipate a -3.4% contraction of GDP, but many uncertainties remain for the 4th quarter, prey to a significant spike in new coronavirus cases. At the worst of the crisis, unemployment reached 14.7% (+11.2 points) before falling back to 6.7%. However, the number of jobs destroyed or not recovered still stood at 10 million at the year end. The government quickly intervened with a first relief package of $2.3 trillion in April and a second one of about $900 billion in December after many weeks of negotiations in Congress. The plans contained almost exclusively measures of immediate support to households and businesses: cheques sent to households, reinforcement of unemployment benefits, conditional loans, state guarantees, without forgetting aid to the states to cope with the expansion of the pandemic: tests, vaccination campaign. US GDP managed to rebound at a record post-war pace in the third quarter, growing by 33.4% on an annualised basis, although the economy remained about 3% smaller than pre-pandemic levels. Meanwhile, the Federal Reserve (Fed) supported budgetary measures and countered the financial risks associated with the economic downturn. In addition to emergency measures aimed at ensuring liquidity during the liquidity crisis at the beginning of the pandemic, the Fed lowered its key rates to the floor 0-0.25%, relaunched and extended its asset purchase programmes and granted exceptional credit facilities.
In the euro zone, economic activity was even more impacted by restrictive measures. A first strict lockdown in March-April, brought the economy to a complete standstill (down by around -70% of its normal activity). National governments and the ECB had no choice but to enact emergency measures to limit business bankruptcies, the fragmentation of the bond markets and ensure that favourable credit conditions were maintained. It is still too early to say whether these measures were sufficient, but they limited the most devasting social and economic consequences. Asa result of these and the gradual easing of lockdown restrictions, activity rebounded strongly in Q3 before declining in Q4, impacted by a second wave of the virus and the reintroduction of restrictions, requiring budgetary and monetary support once again. Since the beginning of the crisis, the European Central Bank (ECB) has been relatively reactive and multiplied its initiatives. The most important announcement was the creation of a new asset purchase programme, the PEPP (Pandemic Emergency Purchase Programme), to the tune of €1.85 trillion, but it also continued to encourage banks to distribute credit while supporting subprime loans, weakened by the economic downturn. The ECB’s very interventionist policy was reinforced during the second wave and should continue for several quarters due to low inflation. In addition to national support plans, the EU has taken a step forward in defining a recovery plan partly financed by ajoint debt issue. Despite several setbacks, the NGEU (“Next Generation EU”) recovery plan should be adopted at the beginning of 2021.
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MANAGER’S REPORT (CONTINUED)
Economic and Market Review for 2020 (Continued)
The British economy was probably the most impacted by the pandemic. A late but longer containment completely paralysed the country while it was already struggling with the uncertainties linked to its exit from the EU. As in other countries, massive budgetary coordinated with the central bank support helped to limit the disaster. Concerning Brexit, an agreement was reached at the end of December with an approval by the European Parliament to come. The UK should indeed continue to have access to the EU single market without quotas or customs duties for goods, while a new framework of competition rules will be put in place.
In China, the drastic lockdown following the outbreak of the epidemic in January appears to have been a success, with almost no new cases at year-end. The recovery of economic activity was robust and only punctuated by a few external difficulties with the closure of Western economies. Budgetary and monetary support were mainly oriented towards business resilience, while households initially suffered from the loss of income. China economy is expected to expand approximately +2.3% in 2020.
Japan was relatively spared by the pandemic even if its economy suffered the consequences with GDP expected to decline -5.5% in 2020. Industrial activity was impacted by the China’s shut-down at the beginning of the year, followed by that of the United States, while domestic demand remained sluggish. As with other countries, the government also unveiled a $2.2 trillion stimulus package to support household and business income while the Bank of Japan strengthened its monetary arsenal by opening the floodgates of credit and increasing its volumes of asset purchases.
Global equity markets experienced an extremely volatile year after starting off on a positive footing, bolstered by the signing of the US-China “phase one” trade agreement. However, the onset of coronavirus in China, its subsequent global spread and the resulting lockdown measures led to fears of a worldwide economic recession. A global policy response ensued, with central banks aggressively easing monetary conditions, while governments worldwide launched record levels of fiscal stimulus. Despite a second wave of the pandemic, stock-market performance was strong towards the end of the year as three separate coronavirus vaccines were found to be effective. Joe Biden’s win in the US election removed a source of political uncertainty in November and helped pave the way for a new, $900 billion economic bailout in December. On Christmas Eve, the UK and European Union (EU) finally announced a trade agreement, which further supported sentiment. The generally positive end-of-year mood lifted the MSCI AC World Index to record high levels during December. US equities bounced back strongly from their coronavirus-prompted sell-offs. European markets had also begun the year well. However, bourses tumbled as coronavirus spread, with Spain and Italy suffering dramatic rises in cases. Tensions in the negotiations between the EU and the UK over a future trade deal affected sentiment, but European markets subsequently rose as investors cheered the Brexit trade deal, which ended years of uncertainty. Further support emerged in the same month as the ECB expanded and extended its asset purchases. UK Equities dropped to their lowest level in over eight years on the combination of pandemic and Brexit fears. Towards the end of the year, UK equities rose as investors welcomed the UK-EU trade agreement and the start of vaccinations. The generally upbeat mood of UK investors prevailed despite the announcement of new national lockdowns and the emergence of a more infectious coronavirus variant. The pandemic and its implications for global growth dragged down emerging market stocks initially, with a sharp fall in oil prices exacerbating the impact. Emerging markets rebounded to end the year strongly amid a loosening of lockdown curbs and dovish monetary policy. Meanwhile Chinese stocks advanced amid hopes of more stable relations with the US following the election of President Biden and after Beijing and the EU agreed a new investment deal.
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MANAGER’S REPORT (CONTINUED)
Economic and Market Review for 2020 (Continued)
Within fixed income markets, the FTSE WGBI Hedged USD Index returned +6.11% in US dollars. Global government bond yields (which move inversely to prices) were generally down over the period, reflecting investors’ concerns about the coronavirus and its effects as well as thevery accommodative stance of most major central banks. Overall, the benchmark 10-year treasury yield fell from 1.92% at the end of 2019 to 0.92% by December’s close, touching a record low in March against a backdrop of investors’ worries about Covid-19. UK gilt yields, which move inversely to price, fell from 0.82% at the end of December 2019 to 0.20% over the period. Gilts benefited from safe-haven inflows while ongoing central bank support and the prospect of a sustained economic downturn anchored yields, which turned negative for the first time. In the Eurozone, the yield on Germany’s benchmark 10-year bund traded in negative territory amid concerns about the pandemic, ending December 2020 at -0.58%. The performance of credit markets was even more impacted by these trends. After a sharp widening of spreads between February and April 2020, central banks' purchase programmes enabled Investment Grade spreads to tighten to levels close to those at the end of 2019 with an even more pronounced narrowing of spreads for High Yield, which nevertheless remained above pre-crisis levels.
With regards to currency markets, the US dollar trended higher early in the period as a relative store of value during market volatility. However, it sold off later, amid rising numbers of new coronavirus cases. Confirmation from the Fed that ultra-loose monetary policy was likely to stay in place for some time further pressured the currency. By year-end, the US dollar index had weakened to its lowest level since March 2018. Sterling suffered a sell-off in March, hitting a 35-year low against the US dollar. Sterling was subsequently buffeted by the headwinds of a second wave of coronavirus, national lockdowns and uncertainties about Brexit. However, anticipation of a Brexit agreement boosted the pound into year-end. Sterling rose to the highest level of 2020 on its final trading day. The euro currency index touched six-year highs in June against a backdrop of expanded stimulus from the ECB. At the end of the period, the euro had risen to its highest level against the US dollar since early 2018. The Japanese yen strengthened initially as a safe-haven currency, going on to trade higher against the US dollar.
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MANAGER’S REPORT (CONTINUED)
Portfolio Performance Analysis and Strategy
Over the period under review from December 31st 2019 to December 31st 2020, the NAV per unit of AXA Capital Growth Fund I share class rose +9.78% while the NAV per unit of the AXA Capital Growth Fund A share class was up +9.58% compared to its composite benchmark which was up +12.15%. Over the past year, absolute performance benefited from the positive and even strong performance of equity markets and positive Asian credit markets as well as from the positive contribution from our global sovereign bond fund. However relative performance was suffered very slightly from our asset allocation which was exacerbated by the severe negative impact from selection within the underlying funds. With regards to asset allocation, relative performance was penalised by our overweight to equities at the beginning of the year and above all our underweight to sovereign bonds in the first quarter. We managed to significantly reduce this negative impact over the course of the year through our active asset allocation. Our equity allocation had an overall negative impact despite the slight positive impact from our overweight to China/Hong Kong equities and in particular our New China ETF which was more than offset by our allocation to US and European equities over 2020, in particular our overweight at the beginning of the year and underweight at the beginning of the spring rally. The overweight to Asian Credit also had a large negative impact on relative performance partially compensated by the positive impact on relative performance from our underweight of sovereign bonds. Following the negative impact of the widening of spreads during the first phase of the Covid-19 pandemic crisis, Asian Short Duration Investment Grade and in particular Asian High Yield benefited from a narrowing of spreads over the rest of the year however gaining less than equity markets. Finally, the cash underweight also benefited relative performance. Selection within the equity bucket was the biggest drag on relative performance due to the underperformance of most our equity funds.
With regards to our asset allocation, we began the year with an overweight to equities compared to our benchmark given the recently negotiated China-US trade deal and an improving economic backdrop. However, in the context of the Covid-19 pandemic, we reduced our exposure to equities moving from overweight to underweight at the end of the 1st quarter. Nevertheless, given the arsenal of both monetary and fiscal policy deployed across the globe, we initially moved toa neutral positioning and then to an equity overweight as it appeared that restrictions would be lifted as the virus came under (relative) control which should lead to a rebound in economic activity and in turn company earnings. Simultaneously, we initially increased our Fixed Income overweight and in particular our Cash allocation moving to overweight which was undone as the year progressed moving to an underweight Fixed Income at year end as we increased our equity exposure. We had gone underweight with regards to our cash allocation earlier in the year however at year end we temporarily increased our cash allocation to overweight in order to shore up liquidity in the portfolio.
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MANAGER’S REPORT (CONTINUED)
Portfolio Performance Analysis and Strategy (Continued)
Within equities, we were also quite proactive: after initially reducing our exposure to equity markets across the board in light of the impact of the pandemic, we gradually increased our exposure to most equity markets. We thus adopted a slight overweight with regards to China/Hong Kong equities in the first quarter which we reinforced during the rest of the year. The data soon pointed to signs of renewed economic activity as China exited from its lockdown measures which morphed into a full recovery as economic activity began to normalise while the authorities implemented fiscal and monetary stimulus policy measures to bolster economic activity thus comforting our overweight stance. We also moved to a slight overweight with regards to Japanese equities in the 1st half given our expectation that the rebound in Chinese economic activity would improve Japan’s external demand. In the same vein, we increased our exposure to Pacific ex Japan given the stabilisation of the virus throughout most of Asia (as well as Australia and New Zealand) leading to a reopening of domestic economies which combined with the rebound in Chinese economic activity was supportive better economic growth in the region. With regards to US equities, we reduced our exposure given the severe impact of lockdown measures on domestic demand moving to underweight. We then increased our exposure following the easing of restrictions across the country which we expected would translate in a pick-up of economic activity. However, we preferred to adopt a neutral stance even following the pick-up in activity given we expected that the American economy would likely continue to suffer from the spike in unemployment with the threat that the spike new cases would lead to the re-introduction of restrictive measures with a negative impact on growth which, in the end, did not fully materialise. Furthermore, the uncertainty of the US elections weighed on our outlook until November. By year-end the expected positive economic reaction to both the Biden stimulus and the roll out of the vaccine with stronger economic growth expected in the second half led us to adopt a very slight overweight to US equities. Nevertheless, our enthusiasm was tempered by the negative short-term impact of increasingly restrictive measures across the country to contain the virus and that US equities are expensive on some metrics. With regards to European equities, we had also moved to an underweight in the first quarter as the region’s economies ground to a halt following the severe lockdown measures. While European data remained weak, we expected a sequential improvement as most countries eased their lockdown restrictions as well the recovery of Chinese demand bode well for the zone’s exports prompting us to move from underweight to overweight with regards to European equites. However, we trimmed back our position as even more stringent measures to contain the virus case load continued to weigh on economic activity although the potential upside in the expected economic recovery in 2021 led us to maintain a close to neutral exposure.
Within the Bond bucket, we maintained a net preference for Asian Credit (through both our Short Duration and High Yield funds) which we expected would continue to benefit from the accommodative monetary policies on the part of Asian central banks whilst benefiting from the search for yield on the part on investors. During the pandemic, all major banks continue to embrace massive monetary policy initiatives to combat initially market then the economic dislocation. In this environment, we maintain a slight Fixed Income overweight throughout most of the year with a net preference for Asian Credit while underweighting global sovereign bonds. At year end, our preference for equities led us to underweight Fixed Income within the portfolio.
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MANAGER’S REPORT (CONTINUED)
Outlook
Most people will be glad to put 2020 behind them and focus on the recovery that we expect to continue in 2021. Short term however there is some uncertainty on how the rollout of the vaccine and the impact of the current second Covid-19 wave on activity will play out. More than ever, monetary policy and fiscal policy are needed to support growth and confidence in order to avoid a sharper contraction in activity. We think that this message has been received loud and clear by the powers that be.
In the United States, we can now put the Presidential Election behind us with the confirmation by the Electoral College of Joe Biden as the country’s 46th President. President Trump continues to challenge the results, but one by one his legal challenges have been thrown out. The hand over process has finally started and the Biden team begins to take shape. The focus would seem to be on experience. Former Fed President Yellen is being mooted for the Treasury. The new Administration will have their work cut out for them containing the pandemic which is currently accelerating in the US. The announced restrictions will probably have the effect of pushing softer growth into Q1 2021 whilst recent employment data is mixed. However, the first distribution of vaccines is underway and over 25 million people have already been vaccinated. This is very positive. More support for the economy is vital as delivered by both the US and the EU following a period of political wrangling. The Democrat win in the Georgia Senate elections allows for them to control Congress which will be key in shaping policy going forward. The Federal Reserve also confirmed a continuation of the current loose policy stance with no mention of tapering inthe distant future either.
In Europe, the Brexit negotiations went down to the wire with an agreement on Christmas eve - just a week shy of the January 1st deadline. Europe is also amidst a second tenacious Covid-19 wave and progress is slower this time around. Selected and focused restrictions are the order of the day everywhere as Governments are desperate to avoid national lockdowns. Germany is struggling to contain the pandemic but data in France, Spain, Italy and the UK is still worrisome too. The ECB announcement that it will increase the size of their PEPP purchase by 500 billion with a possible extension to June 2022 is a very welcome signal. Another welcome piece of news is that the EU has finally ratified the Recovery and Resilience Fund thanks to a compromise with Poland and Hungary. This will at least provide a more unified back drop as to the sustainability of debt levels for the more fragile member states. Let no one forget that the cost of the pandemic is gigantic, and that the debt will eventually need to be repaid.
So where does this leave us in terms of portfolio positioning and asset allocation? We argue that the cyclical recovery underway will continue with the ongoing support of fiscal and monetary policy. The recovery in China is robust. In France, we already see the positive impact on data from the recent opening of all retail stores. True, parts of the service sector (mainly entertainment/ travel/airlines) continue to suffer but business confidence and chunks of the industrial complex are recovering nicely (in part due to Chinese demand). Financial markets are forward looking and so have already discounted the current environment – focus is now on mid 2021 when we hope to have had a large vaccination campaign combined with an acceleration of activity leading to a stronger second half. Earnings growth should also accelerate supporting valuations.
In this context, we increased our overweight to equities and thus decreased our Fixed Income exposure to underweight with a slight overweight to cash.
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MANAGER’S REPORT (CONTINUED)
Outlook (Continued)
Within equities, we maintain an overweight to China/Hong Kong equities. The data continues to confirm a normalisation of Chinese economic activity both export oriented and domestic driven. The stabilisation of the virus in Asia and in particular in China, accompanied by an apparent normalisation of Chinese economy, should improve Japan’s external demand whilst the government’s extraordinary stimulus programme should support Japan’s domestic economy. As a result, we also maintained a slight Japanese equity overweight. The improving demand picture in Asia, led by China, lead us to also increase our slight overweight to Asia ex Japan. We maintain a close to neutral stance to US equities despite the expected positive economic reaction to both the Biden stimulus and the roll out of the vaccine with stronger economic growth expected in the second half but which is offset by the short-term impact of increasingly restrictive measures to contain the virus and that US equities remain expensive. In Europe, the even more stringent measures to contain the virus case load which will undoubtedly weigh on economic activity although the potential upside in the expected economic recovery in the 2nd half is thus even more pronounced. On both sides of the Atlantic fiscal policy supports have increased whilst monetary policy remains very accommodative.
With regards to bond markets, all major banks continue to embrace massive monetary policy initiatives to combat the economic and market dislocation provoked by the Covid-19 pandemic. The US Federal Reserve appears set to maintains its low interest rates and continue with its expanded massive QE at least until the domestic economy improves significantly. Nevertheless, a stronger economic recovery following President Biden’s stimulus plan may mean that tapering of QE could happen sooner rather than later. Meanwhile in Europe, the ECB continues to embrace multiple policy easing initiatives. Finally, the Bank of Japan increased its QE initiatives. The ongoing accommodative stance on the part of major central banks should continue to anchor all sovereign bond markets however the markets in 2021 are beginning to focus on when the Federal Reserve will begin to shift gears. In this environment, we should maintain an underweight to Fixed Income overall with a net preference for Asian Credit while continuing to underweight global sovereign bonds. Asian Credit should continue to benefit from a supportive macro backdrop. A key driver for Asian credit spreads to tighten further from current levels is the continued search for yield by global investors, which is becoming more challenging. However, despite ample liquidity in the banking system and bond markets, investors and banks are taking a cautious approach and becoming even more selective. As seen in the recent defaults in China’s onshore market, the country’s SOEs were not spared. Although some caution remains on the minds of local investors, an overall positive risk sentiment prevails. In this context, we would look selectively add high yield credit within our Asian Credit funds as the recent weakness of which offers some relative value and incrementally add unhedged local currency exposure (rates and/or credit).
Source: AXA Investment Managers, MSCI and Bloomberg.
AXA Investment Managers Asia Limited
27th April 2021
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PERFORMANCE TABLE (UNAUDITED) AS AT 31ST DECEMBER 2020
Net asset Total value per Net asset net asset “A” class value per Financial year ended value unit “I” class unit a 31st December 2018 US$16,610,294 US$21.15 US$21.67 31st December 2019 US$17,746,805 US$23.80 US$24.44 31st December 2020 US$15,091,826 US$26.08 US$26.83
HIGHEST OFFER / LOWEST BID PRICES
“A” class units “I” class units The highest The lowest The highest The lowest Financial year offer price bid price offer price bid price a 2011 US$18.88 US$16.39 US$19.05 US$16.56 2012 US$18.87 US$17.08 US$19.11 US$17.26 2013 US$20.42 US$18.67 US$20.71 US$18.92 2014 US$21.41 US$19.71 US$21.75 US$20.00 2015 US$23.01 US$19.66 US$23.40 US$20.01 2016 US$20.60 US$18.56 US$21.02 US$18.91 2017 US$23.36 US$19.69 US$23.89 US$20.09 2018 US$24.37 US$20.94 US$24.92 US$21.46 2019 US$23.85 US$20.99 US$24.49 US$21.51 2020 US$26.08 US$20.13 US$26.83 US$20.68 a
Note: As at 31st December 2020, no “M” class units were in issue.
- 8 - REPORT OF THE TRUSTEE TO THE UNITHOLDERS OF AXA CAPITAL GROWTH FUND
We hereby confirm that, in our opinion, the Manager of the Fund has, in all material respects, managed the Fund in accordance with the provisions of the Trust Deed dated 27th May 1997, as amended and supplemented from time to time (the “Trust Deed”), for the year ended 31st December 2020.
For and on behalf of HSBC Institutional Trust Services (Asia) Limited as the Trustee of the AXA Capital Growth Fund
Hong Kong, 27th April 2021
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STATEMENT OF RESPONSIBILITIES OF THE MANAGER AND THE TRUSTEE
Manager’s Responsibilities
The Manager of the Fund is required by the Code on Unit Trusts and Mutual Funds issued by the Securities and Futures Commission of Hong Kong (the “SFC Code”) and the Trust Deed to prepare financial statements for each annual accounting period which give a true and fair view of the financial position of the Fund at the end of that period and of the transactions for the period then ended. In preparing these financial statements, the Manager is required to:
-- select suitable accounting policies and then apply them consistently;
-- make judgments and estimates that are prudent and reasonable; and
-- prepare the financial statements on the basis that the Fund will continue in operation unless it is inappropriate to presume this.
The Manager is also required to manage the Fund in accordance with the Trust Deed and take reasonable steps for the prevention and detection of fraud and other irregularities.
Trustee’s Responsibilities
The Trustee of the Fund is required by the SFC Code and the Trust Deed to:
-- ensure that the Fund in all material respects is managed in accordance with the Trust Deed and that the investment and borrowing powers are complied with;
-- satisfy itself that sufficient accounting and other records have been maintained;
-- safeguard the property of the Fund and rights attaching thereto; and
-- report to the unitholders for each annual accounting period should the Manager not managing the Fund in accordance with the Trust Deed.
- 10 - INDEPENDENT AUDITOR’S REPORT TO THE UNITHOLDERS OF AXA CAPITAL GROWTH FUND
Report on the Audit of the Financial Statements
Opinion
What we have audited
The financial statements ofAXA Capital Growth Fund (the “Fund”) set out on pages 14 to 35, which comprise: •• the statement of net assets as at 31st December 2020; •• the statement of comprehensive income for the year then ended; •• the statement of changes in net assets attributable to unitholders for the year then ended; •• the statement of cash flows for theyear then ended; and •• the notes to the financial statements, which include a summary of significant accounting policies.
Our opinion
In our opinion, the financial statements give a true and fair view of the financial position of the Fund as at 31st December 2020, and of its financial transactions and cash flows for theyear then ended in accordance with Hong Kong Financial Reporting Standards (“HKFRSs”) issued by the Hong Kong Institute of Certified Public Accountants (“HKICPA”).
Basis for Opinion
We conducted our audit in accordance with Hong Kong Standards on Auditing (“HKSAs”) issued by the HKICPA. Our responsibilities under those standards are further described in the Auditor’s Responsibilities for the Audit of the Financial Statements section of our report.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.
Independence
We are independent of the Fund in accordance with the HKICPA’s Code of Ethics for Professional Accountants (the “Code”), and we have fulfilled our other ethical responsibilities in accordance with the Code.
Other Information
The Trustee and the Manager (the “Management”) of the Fund are responsible for the other information. The other information comprises all of the information included in the annual report other than the financial statements and our auditor’s report thereon.
Our opinion on the financial statements does not cover the other information and we do not express any form of assurance conclusion thereon.
In connection with our audit of the financial statements, our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the financial statements or our knowledge obtained in the audit or otherwise appears to be materially misstated.
If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report in this regard.
- 11 - INDEPENDENT AUDITOR’S REPORT TO THE UNITHOLDERS OF AXA CAPITAL GROWTH FUND (CONTINUED)
Responsibilities of the Management for the Financial Statements
The Management of the Fund is responsible for the preparation of the financial statements that give a true and fair view in accordance with HKFRSs issued by the HKICPA, and for such internal control as the Management determines is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error.
In preparing the financial statements, the Management of the Fund is responsible for assessing the Fund’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the Management either intends to liquidate the Fund or to cease operations, or has no realistic alternative but to do so.
In addition, the Management of the Fund is required to ensure that the financial statements have been properly prepared in accordance with the relevant disclosure provisions of the Trust Deed dated 27th May 1997, as amended (the “Trust Deed”) and Appendix E of the Code on Unit Trusts and Mutual Funds issued by the Hong Kong Securities and Futures Commission (the “SFC Code”).
Auditor’s Responsibilities for the Audit of the Financial Statements
Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. We report our opinion solely to you, as a body, and for no other purpose. We do not assume responsibility towards or accept liability to any other person for the contents of this report. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with HKSAs will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements. In addition, we are required to assess whether the financial statements of the Fund have been properly prepared, in all material respects, in accordance with the relevant disclosure provisions of the Trust Deed and Appendix E of the SFC Code.
As part of an audit in accordance with HKSAs, we exercise professional judgment and maintain professional scepticism throughout the audit. We also: •• Identify and assess the risks of material misstatement of the financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control. •• Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Fund’s internal control. •• Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by the Management. •• Conclude on the appropriateness of the Management’s use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Fund’s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor’s report to the related disclosures in the financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor’s report. However, future events or conditions may cause the Fund to cease to continue as a going concern.
- 12 - INDEPENDENT AUDITOR’S REPORT TO THE UNITHOLDERS OF AXA CAPITAL GROWTH FUND (CONTINUED)
Auditor’s Responsibilities for the Audit of the Financial Statements (Continued)
•• Evaluate the overall presentation, structure and content of the financial statements, including the disclosures, and whether the financial statements represent the underlying transactions and events in a manner that achieves fair presentation.
We communicate with the Management regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit.
Report on Matters under the Relevant Disclosure Provisions of the Trust Deed and Appendix E of the SFC Code
In our opinion, the financial statements have been properly prepared, in all material respects, in accordance with the relevant disclosure provisions of the Trust Deed and Appendix E of the SFC Code.
PricewaterhouseCoopers Certified Public Accountants
Hong Kong, 27th April 2021
- 13 - AXA CAPITAL GROWTH FUND
STATEMENT OF NET ASSETS AS AT 31ST DECEMBER 2020
2020 2019 Note US$ US$ Assets Current assets Investments 6(a), 6(g), 8 14,130,776 17,645,791 Interest receivable - 1 Amounts due from brokers 966,877 67,474 Other accounts receivable 1,143 1,360 Cash at bank 476,514 108,098
Total assets 15,575,310 17,822,724
Liabilities Current liabilities Amounts payable on redemption 456,809 - Other accounts payable and accrued expenses 26,675 75,919
Liabilities (excluding net assets attributable to unitholders) 483,484 75,919
a
Net assets attributable to unitholders 5 15,091,826 17,746,805
Signed for and on behalf of:
______as the Trustee HSBC Institutional Trust Services (Asia) Limited
______as the Manager AXA Investment Managers Asia Limited
The notes on pages 18 to 35 form part of these financial statements.
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STATEMENT OF COMPREHENSIVE INCOME FOR THE YEAR ENDED 31ST DECEMBER 2020
2020 2019 Note US$ US$ Income a Dividend income 177 2,795 Interest income 160 2,080 Net gains on investments 9 1,617,602 2,295,805 Net (losses)/gains on foreign exchange (9,907) 719 Other income 34,576 -
Total investment income 1,642,608 2,301,399 a Expenses a Management fee 4 104,118 108,177 Management fee rebate 4 (15,331) (14,821) Trustee’s fee 4 45,000 42,000 Custodian fee and bank charges 10 923 486 Auditor’s remuneration 6,831 5,781 Legal and professional fee 2,429 54,769 Transaction costs 7 432 268 Other operating expenses 10 9,384 9,556
Total operating expenses 153,786 206,216
Net operating profit before tax 1,488,822 2,095,183 a Withholding tax credit/(expense) on investment income 3 335 (100)
Increase in net assets attributable to unitholders 1,489,157 2,095,083 a a
The notes on pages 18 to 35 form part of these financial statements.
- 15 - AXA CAPITAL GROWTH FUND
STATEMENT OF CHANGES IN NET ASSETS ATTRIBUTABLE TO UNITHOLDERS FOR THE YEAR ENDED 31ST DECEMBER 2020
2020 2019 US$ US$ a Balance at the beginning of the year 17,746,805 16,610,294 a Allotment of units 852,238 915,880 a Redemption of units (4,996,374) (1,874,452)
Net redemption (4,144,136) (958,572) Increase in net assets attributable to unitholders 1,489,157 2,095,083
Balance at the end of the year 15,091,826 17,746,805
Number of units in issue 2020 2019 Units Units “A” class units a At the beginning of the year 81,862 76,883 Total allotments 2,059 4,979 Total redemptions (3,568) - At the end of the year 80,353 81,862 a “I” class units a At the beginning of the year 646,400 691,483 Total allotments 33,329 34,543 Total redemptions (195,290) (79,626) At the end of the year 484,439 646,400 a
The notes on pages 18 to 35 form part of these financial statements.
- 16 - AXA CAPITAL GROWTH FUND
STATEMENT OF CASH FLOWS FOR THE YEAR ENDED 31ST DECEMBER 2020
2020 2019 US$ US$ Cash flows from operating activities Increase in net assets attributable to unitholders 1,489,157 2,095,083 Adjustments for: Dividend income (177) (2,795) Interest income (160) (2,080) Withholding tax on investment income (335) 100 Decrease/(increase) in investments 3,515,015 (1,468,724) Increase in amounts due from brokers (899,403) (67,474) Decrease/(increase) in other accounts receivable 217 (185) (Decrease)/increase in other accounts payable and accrued expenses (49,244) 54,745 Dividend income received, net of withholding tax paid 512 2,695 Interest income received 161 2,081
Net cash inflow from operating activities 4,055,743 613,446 a Cash flows from financing activities Receipts on allotment of units 852,238 929,781 Payments on redemption of units (4,539,565) (1,874,452)
Net cash outflow from financing activities (3,687,327) (944,671) a Increase/(decrease) in cash and cash equivalents 368,416 (331,225) Cash and cash equivalents at the beginning of the year 108,098 439,323
Cash and cash equivalents at the end of the year 476,514 108,098 a Analysis of balances of cash and cash equivalents a Cash at bank 476,514 108,098
The notes on pages 18 to 35 form part of these financial statements.
- 17 - AXA CAPITAL GROWTH FUND
NOTES TO THE FINANCIAL STATEMENTS
1 The Fund
AXA Capital Growth Fund (the “Fund”) was originally established under the laws of the Cayman Islands by a Trust Deed dated 27th May 1997, as amended and supplemented from time to time (the “Trust Deed”). The proper law of the Fund was changed to the laws of Hong Kong pursuant to the Second Supplemental Trust Deed to the Deed of Substitution dated 21st July 2008. AXA Investment Managers Asia Limited has been appointed as Manager and HSBC Institutional Trust Services (Asia) Limited has been appointed as Trustee. AXA Investment Managers Paris has been appointed as Sub-Investment Manager of the Fund with effect from 1st January 2018.
The Fund’s objective is to offer investors the potential of long-term capital appreciation through investments in unit trusts and mutual funds primarily managed by the Manager or any associate of the Manager which are either authorized by the Securities and Futures Commission in Hong Kong or are eligible schemes (as specified by the Securities and Futures Commission in Hong Kong from time to time in the list of recognized jurisdictions).
The Fund invests principally in other collective investment schemes.
The Fund is authorized by the Securities and Futures Commission in Hong Kong under Section 104(1) of the Securities and Futures Ordinance and is required to comply with the SFC Code. The Fund currently offers 3 classes of units, as follows:
•• “A” class units are offered to all investors; •• “I” class units are offered only to institutional investors; and •• “M” class units are reserved for use by the Manager, its subsidiaries or associates in investment management mandates or dedicated funds for clients of an AXA Group entity. Investment in the “M” class units requires special approval by the Directors of the Manager.
2 Summary of significant accounting policies
The principal accounting policies applied in the preparation of these financial statements are set out below. These policies have been consistently applied to all the years presented, unless otherwise stated.
(a) Basis of preparation
The financial statements have been prepared in accordance with Hong Kong Financial Reporting Standards (“HKFRSs”) issued by the Hong Kong Institute of Certified Public Accountants (“HKICPA”). The financial statements have been prepared under the historical cost convention, as modified by the revaluation of financial assets and financial liabilities held at fair value through profit or loss.
The preparation of financial statements in conformity with HKFRSs requires the Manager to make judgments, estimates and assumptions that affect the application of policies and the reported amounts of assets and liabilities, income and expenses. The estimates and associated assumptions are based on historical experience and various other factors that are believed to be reasonable under the circumstances, the results of which form the basis of making the judgments about carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates.
- 18 - AXA CAPITAL GROWTH FUND
NOTES TO THE FINANCIAL STATEMENTS
2 Summary of significant accounting policies (Continued)
(a) Basis of preparation (Continued)
All references to net assets throughout the financial statements refer to net assets attributable to unitholders unless otherwise stated.
Standards and amendments to existing standards effective 1st January 2020
There are no standards, amendments to standards or interpretations that are effective for annual periods beginning on 1st January 2020 that have a material effect on the financial statements of the Fund.
New standards, amendments and interpretations effective after 1st January 2020 and have not been early adopted
A number of new standards, amendments to standards and interpretations are effective for annual periods beginning after 1st January 2020, and have not been early adopted in preparing these financial statements. None of these are expected to have a material effect on the financial statements of the Fund.
(b) Investments
(i) Classification
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. Consequently, all investments are measured at fair value through profit or loss.
The Fund’s policy requires the Manager and the Board of Directors to evaluate the information about these financial assets and liabilities on a fair value basis together with other related financial information.
(ii) Recognition, derecognition and measurement
Regular purchases and sales of investments are recognised on the trade date - the date on which the Fund commits to purchase or sell the investment. 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 comprehensive income.
Subsequent to initial recognition, all financial assets and financial liabilities at fair value through profit or loss are measured at fair value. Gains and losses arising from changes in the fair value of the “financial assets or financial liabilities at fair value through profit or loss” category are presented in the statement of comprehensive income within other net changes in fair value of financial assets and liabilities at fair value through profit or loss in the period in which they arise.
- 19 - AXA CAPITAL GROWTH FUND
NOTES TO THE FINANCIAL STATEMENTS
2 Summary of significant accounting policies (Continued)
(b) Investments (Continued)
(iii) Fair value estimation
Fair value is 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. The fair value of financial assets and liabilities traded in active markets (such as publicly traded derivatives and trading securities) are based on quoted market prices at the close of trading on the reporting date.
Investments that are listed or traded on an exchange are fair valued based on last traded prices.
Investments in quoted unlisted funds are valued at their net asset value per unit as provided by the administrators of such funds.
(iv) Transfers between levels of the fair value hierarchy
Transfers between levels of the fair value hierarchy are deemed to have occurred at the beginning of the reporting period.
(c) Offsetting financial instruments
Financial assets and liabilities are offset and the net amount reported in the statement of net assets when the Fund currently has a legally enforceable right to set-off the recognized amounts and there is an intention to settle on a net basis or realize the asset and settle the liability simultaneously.
(d) Structured entities
A structured entity is an entity that has been designed so that voting or similar rights are not the dominant factor in deciding who controls the entity, such as when any voting rights relate to administrative tasks only and the relevant activities are directed by means of contractual arrangements. A structured entity often has some or all of the following features or attributes: (a) restricted activities, (b) a narrow and well-defined objective, such as to provide investment opportunities for investors by passing on risks and rewards associated with the assets of the structured entity to investors, (c) insufficient equity to permit the structured entity to finance its activities without subordinated financial support and(d) financing in the form of multiple contractually linked instruments to investors that create concentrations of credit or other risks (tranches).
The Fund considers all of its investments in other funds (“lnvestee Funds”) to be investments in unconsolidated structured entities. The Fund invests in lnvestee Funds whose objectives range from achieving medium to long term capital growth and whose investment strategy does not include the use of leverage. The lnvestee Funds apply various investment strategies to accomplish their respective investment objectives. The lnvestee Funds finance their operations by issuing redeemable shares which are puttable at the holder’s option and entitles the holder to a proportional stake in the respective fund’s net assets. The Fund holds redeemable shares in each of its lnvestee Funds.
- 20 - AXA CAPITAL GROWTH FUND
NOTES TO THE FINANCIAL STATEMENTS
2 Summary of significant accounting policies (Continued)
(d) Structured entities (Continued)
The change in fair value of each lnvestee Fund is included in the statement of comprehensive income in “net gains/(losses) on investments”.
(e) Income
(i) Dividend income
Dividend income from financial assets at fair value through profit or loss is recognised in the statement of comprehensive income within dividend income when the Fund’s right to receive payments is established. Dividends are recognized on the ex- dividend dates with the corresponding withholding taxes recorded as an expense.
(ii) Interest income
Interest is recognised on a time-proportionate basis using the effective interest method. Interest income includes interest from cash and cash equivalents.
(iii) Other income
Other income is accounted for on an accrual basis.
(f) Translation of foreign currencies
(i) Functional and presentation currency
The performance of the Fund is measured and reported to the investors in United States dollar. The Manager considers the United States dollar as the currency that most faithfully represents the economic effect of the underlying transactions, events and conditions. The financial statements are presented in United States dollar, which is the Fund’s functional and presentation currency.
(ii) Transactions and balances
Foreign currency transactions are translated into functional currency using the exchange rates prevailing at the dates of the transactions. Foreign currency assets and liabilities are translated into the functional currency using the exchange rate prevailing at the year end date.
Foreign exchange gains and losses arising from translation are included in the statement of comprehensive income.
Foreign exchange gains and losses relating to cash and cash equivalents are presented in the statement of comprehensive income within “net gains/(losses) on foreign exchange”.
Foreign exchange gains and losses relating to the financial assets and liabilities carried at fair value through profit or loss are presented in the statement of comprehensive income within “net gains/(losses) on investments”.
- 21 - AXA CAPITAL GROWTH FUND
NOTES TO THE FINANCIAL STATEMENTS
2 Summary of significant accounting policies (Continued)
(g) Expenses
Expenses are accounted for on an accrual basis.
(h) Proceeds and payments on allotment and redemption of units
The net asset value per unit is computed for each dealing day. The price at which units are allotted or redeemed is calculated by reference to the net asset value per unit as at the close of business on the relevant dealing day. Units in the Fund are classified as a financial liability in the statement of net assets and are stated at fair value representing the price at which unitholders can redeem the units from the Fund.
(i) Cash and cash equivalents
Cash and cash equivalents includes cash at banks, deposits held at call with banks and other short-term investments in an active market with original maturities of three months or less and bank overdrafts. Bank overdrafts are shown in current liabilities in the statement of net assets.
(j) Amounts due from/to brokers
Amounts due from and to brokers represent receivables for securities sold and payables for securities purchased that have been contracted for but not yet settled or delivered on the reporting date respectively. The due from brokers 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 broker 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. If the credit risk increases to the point that it is considered to be credit impaired, interest income will be calculated based on the gross carrying amount adjusted for the loss allowance.
A significant increase in credit risk is defined by the Manager as any contractual payment which is more than 30 days past due. Any contractual payment which is more than 90 days past due is considered credit impaired.
(k) Transaction costs
Transaction costs are costs incurred to acquire/dispose financial assets or liabilities at fair value through profit or loss. They include fees and commissions paid to agents, brokers and dealers. Transaction costs are expensed as incurred in the statement of comprehensive income.
- 22 - AXA CAPITAL GROWTH FUND
NOTES TO THE FINANCIAL STATEMENTS
2 Summary of significant accounting policies (Continued)
(l) Taxation
The Fund may incur withholding taxes imposed by certain countries on investment income and capital gains. Such income or gains are recorded gross of withholding taxes in the statement of comprehensive income. Withholding taxes are included as taxation in the statement of comprehensive income.
(m) Changes to presentation and comparative information
When the presentation or classification of items in the financial statements is amended, comparative amounts have been updated to conform with the current year’s presentation or classification.
3 Taxation
No provision for Hong Kong profits tax has been made as the Fund was authorized as a collective investment scheme under Section 104 of the Hong Kong Securities and Futures Ordinance and is therefore exempt from profits tax under Section 26A(1A) of the Hong Kong Inland Revenue Ordinance.
Withholding tax was charged and credited on certain dividend income received during the years ended 31st December 2020 and 2019 respectively.
4 Fees
Management fee/management fee rebate
Management fee of 0.80% per annum of the net asset value for “A” class units and 0.60% per annum of the net asset value for “I” class units is calculated on each valuation day and payable monthly in arrears to AXA Investment Managers Asia Limited, the Manager. No management fee is charged in respect of “M” class units.
The Manager will bear the fees of AXA Investment Managers Paris, the Sub-Investment Manager.
When the Fund holds investments in other AXA funds, the Manager rebates part of the management fee paid in respect of the AXA funds to the Fund. The management fee and management fee rebate are stated in the statement of comprehensive income.
During the year ended 31st December 2020, total management fee for the year was US$104,118 (2019: US$108,177) and the management fee rebate was US$15,331 (2019: US$14,821), of which US$7,425 (2019: US$8,227) was outstanding as at end of the year.
- 23 - AXA CAPITAL GROWTH FUND
NOTES TO THE FINANCIAL STATEMENTS
4 Fees (Continued)
Trustee’s fee
Trustee’s fee of 0.0835% per annum of the net asset value of the Fund for the first US$50 million and 0.0585% per annum of the net asset value of the Fund for any amount thereafter, or a minimum fee of US$3,500 per month, whichever is higher. With effect from 1st April 2020, the Trustee charged an additional fixed fee of US$4,000 per annum. The aggregate fees payable to the Trustee shall not exceed the maximum of 0.40% per annum of the net asset value of the Fund. The trustee’s fee is calculated on each valuation day and payable monthly in arrears to HSBC Institutional Trust Services (Asia) Limited, the Trustee.
During the year ended 31st December 2020, total trustee’s fee was US$45,000 (2019: US$42,000) of which US$3,838 (2019: US$3,500) was outstanding as at end of the year.
5 Number of units in issue and net assets attributable to unitholders
The Fund’s capital is represented by the units in the Fund, and shown as “net assets attributable to unitholders” in the statement of net assets. Subscriptions and redemptions of units during the year are shown in the statement of changes in net assets attributable to unitholders. In order to achieve the investment objectives, the Fund endeavors to invest its capital in accordance with the investment policies as outlined in note 6.
Redemptions are met by disposals of investments where necessary. In the event of redemption requests being received in respect of more than 10% of the units in issue in a particular class, the Manager may, with a view to protecting the interests of unitholders, limit the number of units to be redeemed on any one day to 10% of the total number of units in issue.
Net assets attributable to unitholders
Net assets attributable to unitholders represent a liability in the statement of net assets, carried at the redemption amount that would be payable at the year end date if the unitholder exercised the right to redeem the units in the Fund.
Number of units in issue
2020 2019 Units Units a Number of units in issue at the end of the year - “A” class units 80,353 81,862 - “I” class units 484,439 646,400
- 24 - AXA CAPITAL GROWTH FUND
NOTES TO THE FINANCIAL STATEMENTS
5 Number of units in issue and net assets attributable to unitholders (Continued)
2020 2019 US$ US$ a Net assets attributable to unitholders - “A” class units 2,095,214 1,948,540 - “I” class units 12,996,612 15,798,265 a Net assets attributable to unitholders per unit - “A” class unit 26.08 23.80 - “I” class unit 26.83 24.44 a
6 Financial risk management
Strategy in using financial instruments
The Fund’s objective is to offer investors the potential for long-term capital appreciation through investments in unit trusts and mutual funds primarily managed by the Manager or any associate of the Manager which are either authorized by the Securities and Futures Commission in Hong Kong or are recognized jurisdiction schemes as defined in the SFC Code. The expected asset allocation is a debt/equity mix of around 50% / 50%. The expected asset allocation is for indication purposes only and may vary from time to time as the Manager and / or the Sub-Investment Manager deem appropriate. The Fund is exposed to market price risk, interest rate risk, credit and counterparty risk, liquidity risk and currency risk arising from the financial instruments it holds. The risk management policies employed by the Fund to manage these risks are summarized below.
(a) Market price risk
Market price risk is the risk that the value of a financial instrument will fluctuate as a result of changes in market prices, whether those changes are caused by factors specific to the individual instrument or factors affecting all instruments in the market.
The investments of the Fund are subject to market fluctuations and there can be no assurance that investments will appreciate in value, therefore presenting a risk of loss of capital. Due to the nature of the Fund’s investment objective, its key component of market risk is market price risk.
The Fund’s market price risk is managed through diversification of the investment portfolio with a proper mix of bond and equity funds whereby the Fund will invest in at least five investment funds and its holding in any particular funds will not exceed 30% of its total net asset value except 50% of its net asset value may be invested in a single bond unit trust/ mutual fund. Net assets of around 40% to 60% are invested in global equity funds with the remaining balance invested in fixed income funds and cash.
- 25 - AXA CAPITAL GROWTH FUND
NOTES TO THE FINANCIAL STATEMENTS
6 Financial risk management (Continued)
(a) Market price risk (Continued)
As at year end, the overall market exposures were as follows:
2020 2019 Listed/Quoted Number of Number of investment funds: Investee Fair value % of net Investee Fair value % of net Funds US$ assets Funds US$ assets Fixed income funds 3 5,952,632 39.45% 3 8,093,807 45.61% Global equity funds 6 8,178,144 54.18% 6 9,551,984 53.82% 14,130,776 93.63% 17,645,791 99.43%
Details of investments exceeding 10% of net assets of the Fund as at 31st December 2020 and/or 31st December 2019 were as follows:
2020 2019 Listed/Quoted investment funds Fair value % of net Fair value % of net US$ assets US$ assets AXA Fixed Income Fund - AXA USD- Hedged Global Bond Fund 3,515,737 23.30% 4,368,617 24.62% AXA Greater China Multi-Factor Advantage Fund M Class 2,398,239 15.89% 2,782,608 15.68% AXA World Funds - Asian Short Duration Bonds M Class 1,576,806 10.45% 2,586,248 14.57% AXA Rosenberg Pan-European Enhanced Index Equity Alpha Fund M Class# 1,569,300 10.40% 1,993,718 11.23% AXA Rosenberg All Country Asia Pacific Ex Japan Equity Alpha Fund M Class# 1,652,870 10.95% 1,814,238 10.22%
Investee Funds of US$13,964,656 (2019: US$17,465,704) held by the Fund are managed by AXA Investment Managers Asia Limited, the Manager of the Fund, or AXA Rosenberg Management Ireland Limited, a fellow subsidiary of the Manager, with the remaining managed by third party fund managers.
If the reference index1 of the Fund at 31st December 2020 had increased/decreased by 5%2 with all other variables held constant, net assets attributable to unitholders would have increased/decreased by approximately 4.62% or US$696,775 (2019: 4.71% or US$835,227).
The Manager has used their view of what would be a “reasonable possible shift” in each key market to estimate the change for use in the market sensitivity analysis above.
1 Reference index: 15%MSCI Zhong Hua + 10%MSCI AC Pacific ex.Japan + 7.5%TOPIX + 7.5%S&P500 + 3%MSCI UK + 7%MSCI Europe ex. UK + 45%Citigroup World Govt Bond (US Hedged) + 5% 6-month LIBID 2 This % can be revised annually depending on the Manager’s current view of market volatility and other relevant factors. # The investment funds are not authorized in Hong Kong and not available to the public in Hong Kong. - 26 - AXA CAPITAL GROWTH FUND
NOTES TO THE FINANCIAL STATEMENTS
6 Financial risk management (Continued)
(a) Market price risk (Continued)
Disclosures above are shown in absolute terms, changes and impacts could be positive or negative.
The Fund’s investments in lnvestee Funds are subject to the terms and conditions of the respective lnvestee Fund’s offering documentation and are susceptible to market price risk arising from uncertainties about future values of those lnvestee Funds. The Manager makes investment decisions after extensive due diligence of the underlying fund, its strategy and the overall quality of the underlying fund’s manager. All of the lnvestee Funds in the investment portfolio are managed by portfolio managers who are compensated by the respective lnvestee Funds for their services. Such compensation generally consists of an asset based fee and is reflected in the valuation of the Fund’s investments in each of the lnvestee Funds.
The right of the Fund to request redemption of its investments in Investee Funds is on every business day.
The exposure to investments in lnvestee Funds at fair value by strategy employed is disclosed in the above table. These investments are included in investments in the statement of net assets.
The Fund’s holding in a third party lnvestee Fund, as a percentage of the lnvestee Fund’s total net asset value, will vary from time to time dependent on the volume of subscriptions and redemptions at the lnvestee Fund level. It is possible that the Fund may, at any point in time, hold a majority of an lnvestee Fund’s total units in issue.
The Fund’s maximum exposure to loss from its interests in lnvestee Funds is equal to the total fair value of its investments in lnvestee Funds.
Once the Fund has disposed of its shares in an lnvestee Fund the Fund ceases to be exposed to any risk from that lnvestee Fund.
The Fund’s investment strategy entails trading in other funds on a regular basis. Total purchases in lnvestee Funds was US$2,477,892 (2019: US$1,627,686) and total sales in Investee Funds was US$7,610,076 (2019: US$2,454,500) during the year ended 31st December 2020, of which total purchases of US$2,008,437 (2019: US$1,453,654) and total sales of US$7,057,741 (2019: US$2,099,972) were in Investee Funds managed by AXA Investment Managers Asia Limited, the Manager of the Fund or AXA Rosenberg Management Ireland Limited, a fellow subsidiary of the Manager. The Fund intends to continue opportunistic trading in other funds. As at 31st December 2020 and 2019, there were no capital commitment obligations. There were no amounts due to lnvestee Funds for unsettled purchases as at 31st December 2020 and 2019.
During the year ended 31st December 2020, total net gains on investments in lnvestee Funds were US$1,617,602 (2019: net gains of US$2,295,805), of which US$1,548,256 (2019: US$2,230,466) were in Investee Funds managed by AXA Investment Managers Asia Limited, the Manager of the Fund or AXA Rosenberg Management Ireland Limited, a fellow subsidiary of the Manager.
- 27 - AXA CAPITAL GROWTH FUND
NOTES TO THE FINANCIAL STATEMENTS
6 Financial risk management (Continued)
(b) Interest rate risk
Interest rate risk is the risk that the value of financial instruments will fluctuate due to changes in market interest rates.
The majority of the Fund’s financial assets and liabilities are non-interest bearing, asa result, the Fund is not subject to significant risk due to fluctuations in the prevailing levels of market interest rates. The Fund however is indirectly exposed to interest rate risk in respect of the underlying fixed income funds for their fixed income investment portfolios. The sensitivity analysis of such impact is covered in the sensitivity analysis for market price risk. Refer to note 6(a) for details.
Any excess cash and cash equivalents are invested at short-term market interest rates. The Fund’s exposure to market interest rates on its cash deposits is considered minimal.
(c) Currency risk
Currency risk is the risk that the fair value of financial instruments will fluctuate due to changes in foreign exchange rates. The Fund holds assets and liabilities denominated in currencies other than its functional currency, United States dollar, and is therefore exposed to currency risk with respect to these currencies. The Manager considers there is no currency risk to the Hong Kong dollar which is a linked currency with the United States dollar.
Currency position is monitored by the Manager on a daily basis and reviewed on a weekly basis.
The table below summarizes the Fund’s net exposure to different major currencies except for Hong Kong dollar which is a linked currency with the United States dollar:
As at 31st December 2020 EUR JPY US$ US$ Monetary 47,718 150,874 Non-monetary 1,569,300 1,216,718
As at 31st December 2019 EUR JPY US$ US$ Non-monetary 1,993,718 1,451,774
The table below summarizes the impact of increase or decrease of key exchange rates on the exposures tabled above, to which the Fund is exposed. The analysis is based on the assumption that the exchange rates had increased/decreased by 5%3 with all other variables held constant.
3 5%: This % can be revised annually depending on the Manager’s current view of exchange rates volatility and other relevant factors. - 28 - AXA CAPITAL GROWTH FUND
NOTES TO THE FINANCIAL STATEMENTS
6 Financial risk management (Continued)
(c) Currency risk (Continued)
As at 31st December 2020 Impact on net assets Impact on net assets EUR JPY US$ US$ Monetary 2,386 7,544 Non-monetary 78,465 60,836
As at 31st December 2019 Impact on net assets Impact on net assets EUR JPY US$ US$ Non-monetary 99,686 72,589
The Manager has used their view of what would be a “reasonable possible shift” in the exchange rates to estimate the change for use in the currency risk sensitivity analysis above.
Disclosures above are shown in absolute terms, changes and impacts could be positive or negative.
(d) Credit and counterparty risk
Credit risk is the risk that an issuer or counterparty will be unable to pay amounts in full when due. The Fund invests only in unit trusts and Exchange Traded Funds (ETFs), and therefore the Fund is exposed to the credit risk to the custodian of the unit trusts and ETFs. All the custodians of the unit trusts and ETFs are reputable financial institutions.
The Fund minimizes concentration of counterparty risks by undertaking transactions with counterparties on recognized and reputable exchanges and by trading only a very small percentage of each fund’s portfolio at any time with any one approved broker.
All transactions in ETFs are settled on a delivery versus payment basis using approved brokers. The risk of default is considered minimal, as delivery of securities sold is only made when the Fund’s custodian bank has received payment. For a purchase, payment is made once the ETFs have been received by the Fund’s custodian bank. The trade will fail if either party fails to meet their obligation.
The Fund’s financial assets which are potentially subject to concentrations of credit risk consist principally of bank deposits and assets held with the custodian.
As at 31st December 2020 and 2019, all the cash at bank and investments are placed with The Hongkong and Shanghai Banking Corporation Limited and HSBC Institutional Trust Services (Asia) Limited respectively, which have the credit rating of AA- from Fitch.
- 29 - AXA CAPITAL GROWTH FUND
NOTES TO THE FINANCIAL STATEMENTS
6 Financial risk management (Continued)
(d) Credit and counterparty risk (Continued)
The Fund measures credit risk and expected credit losses using probability of default, exposure at default and loss given default. The Manager considers both historical analysis and forward looking information in determining any expected credit loss. At 31st December 2020 and 31st December 2019, all other accounts receivable, amounts due from brokers, and cash at bank are held with counterparties with a credit rating of AA- or higher and are due to be settled within 1 month. The Manager considers the probability of default to be close to zero as 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.
The maximum exposure to credit risk at year end is the carrying amount of the financial assets as shown on the statement of net assets.
None of the assets is impaired nor past due but not impaired.
(e) Offsetting and amounts subject to master netting arrangements and similar agreements
The Fund did not enter into any offsetting, enforceable master netting arrangements and similar agreements during the years ended 31st December 2020 and 31st December 2019.
No financial assets and liabilities of the Fund were subject to offsetting under the master netting arrangement as at 31st December 2020 and 31st December 2019.
(f) Liquidity risk
Liquidity risk is the risk that an enterprise will encounter difficulty in settling a liability, including a redemption request.
The Fund is exposed to redemptions activities on each dealing day. The Fund invests the majority of its assets in collective investment funds that can be readily disposed of subject to a maximum of 10% of the respective collective investment funds. Also the Manager is able, by the provisions in the offering document to defer settlement of redemptions of significant size to facilitate an orderly disposition of investments as is in the interests of the remaining unitholders.
The table below analyzes the Fund’s non-derivative financial liabilities into relevant maturity groupings based on the remaining period at the year end date to the contractual maturity date. The amounts disclosed in the table are the contractual undiscounted cash flows. Balances due within 12 months equal their carrying balances, as the impact of discounting is not significant.
- 30 - AXA CAPITAL GROWTH FUND
NOTES TO THE FINANCIAL STATEMENTS
6 Financial risk management (Continued)
(f) Liquidity risk (Continued)
Less than 1 month 1-3 months Over 3 months US$ US$ US$ a As at 31st December 2020 Amounts payable on redemption 456,809 - - Other accounts payable and accrued expenses 13,118 - 13,557 Net assets attributable to unitholders 15,091,826 - -
Total financial liabilities 15,561,753 - 13,557 a a As at 31st December 2019 Other accounts payable and accrued expenses 13,362 44,647 17,910 Net assets attributable to unitholders 17,746,805 - -
Total financial liabilities 17,760,167 44,647 17,910 a
Units are redeemed on demand at the holder’s option. However, the Manager does not envisage that the contractual maturity disclosed in the table above will be representative of the actual cash outflows, as the holders of these instruments typically retain them for the medium to long-term. As at 31st December 2020, there was 1 (2019: 1) unitholder holding over 10% of the total net assets.
As at 31st December 2020, the Fund held cash and cash equivalents of US$476,514 (2019: US$108,098) and other liquid assets of US$15,098,796 (2019: US$17,714,626) that are expected to readily generate cash inflows within 1 month for managing liquidity risk.
(g) Fair value estimation
The fair value of financial assets and liabilities traded in active markets are based on quoted market prices at the close of trading on the year end date. The Fund utilizes the last traded market price for both financial assets and liabilities.
An active market is a market in which transactions for the asset or liability take place with sufficient frequency and volume to provide pricing information on an ongoing basis.
A financial instrument is regarded as quoted in an active market if quoted prices are readily and regularly available from an exchange, dealer, broker, industry group, pricing service, or regulatory agency, and those prices represent actual and regularly occurring market transactions on an arm’s length basis.
The carrying value less impairment provision of other receivables and payables are assumed to approximate their fair values. The fair value of financial liabilities for disclosure purposes is estimated by discounting the future contractual cash flows at the current market interest rate that is available to the Fund for similar financial instruments. - 31 - AXA CAPITAL GROWTH FUND
NOTES TO THE FINANCIAL STATEMENTS
6 Financial risk management (Continued)
(g) Fair value estimation (Continued)
As at 31st December 2020, 100% (2019: 100%) of financial assets at fair value through profit or loss comprise investments in investment funds that have been fair valuedin accordance with the policies set out in note 2(b). The units of some of the investment funds are not publicly traded; redemption can only be made by the Fund on the redemption dates and subject to the required notice periods specified in the offering documents of these investment funds. The rights of the Fund to request redemption of its investments in these investment funds are daily redemptions. The Fund may be materially affected by the actions of other investors who have invested in these investment funds in which the Fund has invested.
Some of the investment funds are not traded in an active market, and their fair value is determined using valuation techniques. The value is primarily based on the latest available redemption price of these investment funds’ units as reported by the administrators of such investment funds. The Fund may make adjustments to the value based on considerations such as: liquidity of the investment fund or its underlying investments, the value date of the net asset value, provided any restrictions on redemptions and the basis of accounting.
HKFRS 13 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:
•• Quoted prices (unadjusted) in active markets for identical assets or liabilities that the entity can access at the measurement date (level 1).
•• 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 2).
•• Inputs for the asset or liability that are not based on observable market data (that is, unobservable inputs) (level 3).
The level in the fair value hierarchy within which the fair value measurement is categorized in its entirety is determined on the basis of the lowest level input that is significant to the fair value measurement in its entirety. For this purpose, the significance of an input is assessed against the fair value measurement in its entirety. If a fair value measurement uses observable inputs that require significant adjustment based on unobservable inputs, that measurement is a level 3 measurement. Assessing the significance of a particular input to the fair value measurement in its entirety requires judgment, considering factors specific to the asset or liability.
The determination of what constitutes ‘observable’ requires significant judgment by the Fund. The Fund considers observable data to be that market data that is readily available, regularly distributed or updated, reliable and verifiable, not proprietary, and provided by independent sources that are actively involved in the relevant market.
The following table analyzes within the fair value hierarchy the Fund’s investments (by class) measured at fair value at 31st December 2020 and 2019:
- 32 - AXA CAPITAL GROWTH FUND
NOTES TO THE FINANCIAL STATEMENTS
6 Financial risk management (Continued)
(g) Fair value estimation (Continued)
Level 1 Level 2 Level 3 Total US$ US$ US$ US$ Listed/Quoted Investments a As at 31st December 2020 Assets - Investment funds 14,130,776 - - 14,130,776 a – – – – a a As at 31st December 2019 Assets - Investment funds 17,645,791 - - 17,645,791 a – – – –
Investments whose values are based on quoted market prices in active markets, and therefore classified within level 1, include actively traded investment funds. The Fund does not adjust the quoted price for these instruments.
The investment funds that are classified in level 2 were fair valued using the net asset value of the investment funds, as reported by the respective investment funds’ administrators. For these investment funds, the Manager believes the Fund could have redeemed its investments at the net asset value per unit at the year end date.
Investments classified within level 3 have significant unobservable inputs, as they trade infrequently. The Fund did not hold any investments classified in level 3 as of31st December 2020 and 2019.
There is no transfer between levels for the years ended 31st December 2020 and 2019. Transfers between levels of the fair value hierarchy are deemed to have occurred at the beginning of the reporting period.
Assets and liabilities included in the statement of net assets, except for investments, are carried at amortized cost; their carrying values are a reasonable approximation of fair value as at 31st December 2020 and 2019.
(h) Capital risk management
The capital of the Fund is represented by the net assets attributable to unitholders. The amount of net assets attributable to unitholders can change significantly as the Fund is subject to subscriptions and redemptions on every business day 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.
- 33 - AXA CAPITAL GROWTH FUND
NOTES TO THE FINANCIAL STATEMENTS
6 Financial risk management (Continued)
(h) Capital risk management (Continued)
In order to maintain or adjust the capital structure, the Fund’s policy is to perform the following:
-- monitor the level of subscriptions and redemptions relative to the liquid assets; and
-- redeem and issue units in accordance with the Trust Deed of the Fund.
The Manager monitors capital on the basis of the value of net assets attributable to unitholders.
7 Transaction costs
Transaction costs are costs incurred to acquire/dispose financial assets or liabilities at fair value through profit or loss. They include fees and commissions paid to agents, advisers, brokers and dealers. The details of transaction costs are shown below:
2020 2019 US$ US$ Broker commission 401 264 Other transaction costs 31 4
432 268
8 Investments
As at 31st December 2020 and 2019, the Fund invested in the following investment type:
2020 2019 % of % of Fair value Cost net Fair value Cost net US$ US$ assets US$ US$ assets Listed/Quoted investment funds 14,130,776 10,278,222 93.63% 17,645,791 14,000,817 99.43%
9 Net gains on investments
2020 2019 US$ US$ a Realized gains on sales of investments 1,410,022 352,839 Change in unrealized gains/losses in value of investments 207,580 1,942,966
Net gains on investments 1,617,602 2,295,805
- 34 - AXA CAPITAL GROWTH FUND
NOTES TO THE FINANCIAL STATEMENTS
10 Transactions with related parties and connected persons
In addition to those disclosed in note 4, note 6(a) and note 6(d), the Fund had the following transactions with related parties and connected persons. Connected Persons of the Manager, the investment delegate, Trustee/Custodian, Directors of the Sub-Fund are those as defined in the Code on Unit Trusts and Mutual Funds issued by the Securities and Futures Commission of Hong Kong. All such transactions were entered into in the ordinary course of business and on normal commercial terms. To the best of Manager’s knowledge, the Fund did not have any other transactions with connected persons except for those disclosed:
(a) As at 31st December 2020 and 2019, the Fund placed bank deposits of US$476,514 (2019: US$108,098) with The Hongkong and Shanghai Banking Corporation Limited, the holding company of the Trustee as stated in the statement of net assets.
(b) During the years ended 31st December 2020 and 2019, the Fund earned interest income on bank deposits amounted to US$160 (2019: US$2,080) from The Hongkong and Shanghai Banking Corporation Limited, the holding company of the Trustee as stated in the statement of comprehensive income.
(c) During the years ended 31st December 2020 and 2019, the Fund had the following transactions with the Trustee:
2020 2019 US$ US$ a Custodian fee 58 56 Bank charges 865 430 Transaction handling fee 1,316 749 Transfer agent transaction fee 1,650 1,450 Out-of-pocket expenses 609 1,657 Taxation service charges 2,903 4,902 SFC reporting fee 2,100 -
Custodian fee relates to safekeeping of investments. Transaction handling fee relates to fee on purchases and sales of investments. Transfer agent transaction fee relates to processing of subscription, redemption, switching and transfer transactions. Taxation service charges relates to the payment made in relation to taxation services provided by the Trustee. The above fees were included in “custodian fee and bank charges” and “other operating expenses” in the statement of comprehensive income.
11 Soft commission arrangements
During the year, the Manager and its connected persons did not enter into any soft commission arrangements with brokers relating to dealing in the assets of the Fund (2019: Nil).
12 Approval of the financial statements
The financial statements were approved for issue by the Trustee and the Manager on 27th April 2021.
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INVESTMENT PORTFOLIO (UNAUDITED) AS AT 31ST DECEMBER 2020
Place of domicile/ Fair value % of net Holdings Listed/Quoted Investments incorporation US$ assets Investment funds
Asia Pacific excluding Japan (10.95%) 47,537 AXA Rosenberg All Country Asia Pacific Ex Japan Equity Alpha Fund M Class# Ireland 1,652,870 10.95%
China and Hong Kong (16.99%) 15,637 AXA Greater China Multi-Factor Advantage Fund M Class Hong Kong 2,398,239 15.89% 12,038 ICBC CSOP S&P New China Sectors ETF Hong Kong 166,120 1.10%
Continental Europe (10.40%) 48,326 AXA Rosenberg Pan-European Enhanced Index Equity Alpha Fund M Class# Ireland 1,569,300 10.40%
Global Bonds (39.45%) 154,803 AXA Fixed Income Fund - AXA USD-Hedged Global Bond Fund Hong Kong 3,515,737 23.30% 6,688 AXA World Funds - Asian High Yield Bonds M Class Luxembourg 860,089 5.70% 11,600 AXA World Funds - Asian Short Duration Bonds M Class Luxembourg 1,576,806 10.45%
Japan (8.06%) 92,434 AXA Rosenberg Japan Equity Alpha Fund M Class# Ireland 1,216,718 8.06%
United States (7.78%) 25,447 AXA Rosenberg US Equity Alpha Fund M Class# Ireland 1,174,897 7.78% a a a aa a Total investments 14,130,776 93.63% a a a aa a Total cost of investments 10,278,222
# The investment funds are not authorized in Hong Kong and not available to the public in Hong Kong.
- 36 - AXA CAPITAL GROWTH FUND
MOVEMENT IN INVESTMENT PORTFOLIO (UNAUDITED) FOR THE YEAR ENDED 31ST DECEMBER 2020
Holdings Holdings as at as at 31st 1st January December Listed/Quoted Investments 2020 Additions Disposals 2020 a a a a Investment funds
AXA Fixed Income Fund - AXA USD-Hedged Global Bond Fund 203,912 19,452 (68,561) 154,803 AXA Greater China Multi-Factor Advantage Fund M Class 21,990 - (6,353) 15,637 AXA Rosenberg All Country Asia Pacific Ex Japan Equity Alpha Fund M Class# 63,568 5,911 (21,942) 47,537 AXA Rosenberg Japan Equity Alpha Fund M Class# 118,211 11,753 (37,530) 92,434 AXA Rosenberg Pan-European Enhanced Index Equity Alpha Fund M Class# 64,074 23,410 (39,158) 48,326 AXA Rosenberg US Equity Alpha Fund M Class# 32,611 13,450 (20,614) 25,447 AXA World Funds - Asian High Yield Bonds M Class 9,401 - (2,713) 6,688 AXA World Funds - Asian Short Duration Bonds M Class 20,340 1,731 (10,471) 11,600 ICBC CSOP S&P New China Sectors ETF 18,975 12,038 (18,975) 12,038 SPDR Bloomberg Barclays 1-3 months - ETF# - 3,396 (3,396) - a
# The investment funds are not authorized in Hong Kong and not available to the public in Hong Kong.
- 37 - AXA CAPITAL GROWTH FUND
GENERAL INFORMATION
Manager
AXA Investment Managers Asia Limited Current address of the Manager (since 21st September 2020) Suites 3603-05, 36/F, One Taikoo Place, Taikoo Place, 979 King’s Road, Quarry Bay, Hong Kong
Old address of the Manager (until 20th September 2020) Suites 3603-06, 36/F, One Taikoo Place, Taikoo Place, 979 King’s Road, Quarry Bay, Hong Kong
Sub-Investment Manager
AXA Investment Managers Paris Tour Majunga, La Défense 9, 6, Place de la Pyramide, 92800 Puteaux, France
Directors of the Manager
AXA Investment Managers Asia Limited Bruno Guilloton Jean-Christophe Menioux Lam Chung Han, Terence Laurent Bilard Simon Geoffrey Lopez
Trustee and Registrar
HSBC Institutional Trust Services (Asia) Limited 1 Queen’s Road Central, Hong Kong
Auditor
PricewaterhouseCoopers 22nd Floor, Prince’s Building, Central, Hong Kong
Status of Fund
Authorized by the Securities and Futures Commission in Hong Kong. Investors should note that such authorization is not a recommendation or endorsement of the Fund nor does it guarantee the commercial merits of the Fund or its performance. It does not mean the Fund is suitable for all investors nor is it an endorsement of its suitability for any particular investor or class of investors. In addition, the price of units and the performance of investments may go down as well as up and that past performance may not be indicative of future performance.
Legal Adviser
Deacons 5th Floor, Alexandra House, 18 Chater Road, Central, Hong Kong
AXA Investment Managers Asia Limited
For further information on AXA Investment Managers Asia Limited, please contact customer service hotline at (852) 2285 2000.
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