FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES

The Fund is exposed to a variety of risks including market risk (which includes interest rate risk), credit risk and liquidity risk. Whilst these are the most important types of fi nancial risks inherent in each type of fi nancial instruments, the Manager and the Trustee would like to highlight that this list does not purport to constitute an exhaustive list of all the risks inherent in an investment in the Fund.

The Fund has an approved set of investment guidelines and policies as well as internal controls which sets out its overall business strategies to manage these risks to optimise returns and preserve capital for the unit holders, consistent with the long term objectives of the Fund.

a. Market risk

Market risk is the risk that the fair value or future cash fl ows of a fi nancial instrument will fl uctuate because of changes in market prices. Market risk includes interest rate risk.

2. FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES (CONTD.) a. Market risk (contd.)

Market risk arises when the value of the investments fl uctuates in response to the activities of individual companies, general market or economic conditions. It stems from the fact that there are economy-wide perils, which threaten all businesses.

Hence, investors are exposed to market uncertainties. Fluctuation in the investments’

prices caused by uncertainties in the economic, political and social environment will affect the NAV of the Fund.

The Manager manages the risk of unfavourable changes in prices by cautious review of the investments and continuous monitoring of their performance and risk profi les.

i. Interest rate risk

Interest rate risk refers to how the changes in the interest rate environment would affect the performance of Fund’s investments. Rate offered by the fi nancial institutions will fl uctuate according to the Overnight Policy Rate determined by Bank Negara Malaysia and this has direct correlation with the Fund’s investments in unlisted corporate bonds, unlisted quasi government bonds and short term deposits.

The Fund’s exposure to the interest rate risk is mainly confi ned to unlisted corporate bonds and unlisted quasi government bonds.

Interest rate risk sensitivity

The following table demonstrates the sensitivity of the Fund’s income for the fi nancial year to a reasonably possible change in interest rate, with all other variables held constant.

Effects on income Changes in rate for the fi nancial year Increase/(Decrease) (Loss)/Gain

Basis points RM

2021

Financial assets at FVTPL 5/(5) (12,268)/12,315 2020

Financial assets at FVTPL 5/(5) (13,867)/13,924 In practice, the actual trading results may differ from the sensitivity analysis above and the difference could be material.

25Kenanga Managed Growth Fund Annual Report 2. FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES (CONTD.) a. Market risk (contd.) i. Interest rate risk (contd.) Interest rate risk exposure The following table analyses the Fund’s interest rate risk exposure. The Fund’s fi nancial assets and fi nancial liabilities are disclosed at fair value and categorised by the earlier of contractual re-pricing or maturity dates. Weighted Non- average Above Above exposure to effective Up to 1 year 5 years interest rate interest 1 year - 5 years - 15 years movement Total rate* RM RM RM RM RM % 2021 Assets Financial assets at FVTPL80,703 4,443,369 670,765 8,001,164 13,196,001 4.2 Short term deposits 1,457,000 - - - 1,457,000 1.8 Other assets - - - 130,747 130,747 1,537,703 4,443,369 670,765 8,131,911 14,783,748 Liabilities Other liabilities - - - 152,660 152,660 Total interest rate sensitivity gap 1,537,703 4,443,369 670,765 7,979,251 14,631,088 * Calculated based on interest-bearing assets only.

26Kenanga Managed Growth Fund Annual Report

RISK MANAGEMENT OBJECTIVES AND POLICIES (CONTD.) Interest rate risk (contd.) Interest rate risk exposure (contd.) Weighted Non- average Above Above exposure to effective Up to 1 year 5 years interest rate interest 1 year - 5 years - 15 years movement Total rate* RM RM RM RM RM % 2020 Assets Financial assets at FVTPL241,925 4,783,639 722,605 5,683,016 11,431,185 4.5 Short term deposits 816,000 - - - 816,000 2.5 Other assets - - - 125,170 125,170 1,057,925 4,783,639 722,605 5,808,186 12,372,355 Liabilities Other liabilities - - - 14,108 14,108 Total interest rate sensitivity gap 1,057,925 4,783,639 722,605 5,794,078 12,358,247 * Calculated based on interest-bearing assets only.

2. FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES (CONTD.) a. Market risk (contd.)

ii. Price risk

Price risk is the risk of unfavourable changes in the fair values of listed equity securities, listed collective investment scheme and listed warrants. The Fund invests in listed equity securities, listed collective investment scheme and listed warrants which are exposed to price fl uctuations. This may then affect the NAV of the Fund.

Price risk sensitivity

The Manager’s best estimate of the effect on the income for the fi nancial year due to a reasonably possible change in investments in listed equity securities, listed collective investment scheme and listed warrants, with all other variables held constant is indicated in the table below:

Effects on income Changes in price for the fi nancial year Increase/(Decrease) Gain/(Loss)

Basis points RM

2021

Financial assets at FVTPL 5/(5) 3,970/(3,970) 2020

Financial assets at FVTPL 5/(5) 2,805/(2,805) In practice, the actual trading results may differ from the sensitivity analysis above and the difference could be material.

Price risk concentration

The following table sets out the Fund’s exposure and concentration to price risk based on its portfolio of fi nancial instruments as at the reporting date.

Fair value Percentage of NAV

2021 2020 2021 2020

RM RM % %

Financial assets at FVTPL 7,940,550 5,610,415 54.3 45.4

2. FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES (CONTD.) a. Market risk (contd.)

ii. Price risk (contd.)

Price risk concentration (contd.)

The Fund’s concentration of investment security price risk from the Fund’s listed equity securities, listed collective investment scheme and listed warrants analysed by sector is as follows:

Fair value Percentage of NAV

2021 2020 2021 2020

RM RM % %

Industrial Products

and Services 2,045,137 949,275 14.0 7.7

Technology 1,934,971 1,175,550 13.2 9.5

Financial Services 808,901 420,040 5.5 3.4

Energy 783,973 520,434 5.4 4.2

Consumer Products

and Services 748,674 521,732 5.1 4.2

Health Care 562,686 361,665 3.9 2.9

Construction 469,135 700,163 3.2 5.7

Utilities 355,972 480,076 2.4 3.9

Telecommunications

Credit risk is the risk that the counterparty to a fi nancial instrument will cause a fi nancial loss to the Fund by failing to discharge an obligation. The Manager manages the credit risk by undertaking credit evaluation to minimise such risk.

i. Credit risk exposure

As at the reporting date, the Fund’s maximum exposure to credit risk is represented by the carrying amount of each class of fi nancial asset recognised in the statement of fi nancial position.

2. FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES (CONTD.) b. Credit risk (contd.)

iii. Credit quality of fi nancial assets

The Fund invests only in unlisted corporate bonds and unlisted quasi government bonds with at least investment grade credit rating by a credit rating agency. The following table analyses the Fund’s portfolio of unlisted corporate bonds and unlisted quasi government bonds by rating category:

Unlisted bonds

Percentage of total

unlisted bonds Percentage of NAV

2021 2020 2021 2020

% % % %

Rating

AAA 22.9 28.5 8.3 13.4

AA2/AA 23.4 24.3 8.4 11.4

AA3/AA- 9.4 - 3.4 -

A1/A+ 31.4 27.6 11.3 13.0

A2/A 10.8 12.5 3.9 5.8

A3/A- - 7.1 - 3.3

C1/C2/C3/C* 2.1 - 0.7 -

100.0 100.0 36.0 46.9

* Refers to a corporate bond which was purchased at an investment grade credit rating prior to the current fi nancial year. The said bond was subsequently downgraded by the rating agency to BB during the current fi nancial year:

The Fund invests in deposits with fi nancial institutions licensed under the Financial Services Act 2013 and Islamic Financial Services Act 2013. The following table analyses the licensed fi nancial institutions by rating category:

Short term deposits

Percentage of total

short term deposits Percentage of NAV

2021 2020 2021 2020

% % % %

Rating

P1 100.0 100.0 10.0 6.6

2. FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES (CONTD.) b. Credit risk (contd.)

iv. Credit risk concentration

Concentration risk is monitored and managed based on sectoral distribution. The table below analyses the Fund’s portfolio of unlisted corporate bonds and unlisted quasi government bonds by sectoral distribution:

Percentage of total

unlisted bonds Percentage of NAV

2021 2020 2021 2020

% % % %

Infrastructure and Utilities 36.4 25.5 13.1 12.0

Diversifi ed Holdings 22.5 19.7 8.1 9.2

Properties 21.1 25.7 7.6 12.1

Finance 20.0 29.1 7.2 13.6

100.0 100.0 36.0 46.9

c. Liquidity risk

Liquidity risk is defi ned as the risk that the Fund will encounter diffi culty in meeting obligations associated with fi nancial liabilities that are to be settled by delivering cash or another fi nancial asset. Exposure to liquidity risk arises because of the possibility that the Fund could be required to pay its liabilities or cancel its units earlier than expected.

The Fund is exposed to cancellation of its units on a regular basis. Units sold to unit holders by the Manager are cancellable at the unit holders’ option based on the Fund’s NAV per unit at the time of cancellation calculated in accordance with the Deed.

The liquid assets comprise cash, short term deposits with licensed fi nancial institutions and other instruments, which are capable of being converted into cash within 7 days.

2. FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES (CONTD.) c. Liquidity risk (contd.)

The following table analyses the maturity profi le of the Fund’s fi nancial assets and fi nancial liabilities in order to provide a complete view of the Fund’s contractual commitments and liquidity.

Above Above

Up to 1 year 5 years