The Fund seeks to achieve its objective by investing in local and/or foreign diversified portfolio of primarily fixed income instruments, as well as money market instruments and equities.
At least 80% of the Fund’s NAV will be invested in fixed income instruments (which have a minimum rating of BBB3 or P2 by RAM or an equivalent rating by MARC) and money market instruments, of which a minimum 20% of the Fund’s NAV will be invested in money market instruments. Notwithstanding, the Fund may invest up to 5% of its NAV in unrated fixed income instruments.
The Fund may invest a maximum of 20% of the Fund’s NAV in equities, of which up to 10% of the Fund’s NAV in L&I (leveraged and inverse exchange-traded) funds.
The Fund may also invest in collective investment schemes as permitted under the Deed and Guidelines.
The Fund will employ both top-down and bottom-up approach to evaluate its investments in equities and fixed income instruments. In the top-down approach, the fund manager will evaluate the global growth and economic outlook in Malaysia. In the bottom-up strategy, the fund manager will rely on fundamental research where the financial health, industry prospects, management quality and past track records of the companies are considered.
The trading of both the equities and fixed income instruments will be based on the market conditions and also the judgement of the fund manager and also guided by the internal policies of the PRS Provider and the investment committee of the PRS Provider.
Other Investment Strategies
In addition to the investment strategies discussed above, the PRS Provider may invest up to 10% of the Fund’s NAV in L&I Funds. Through the L&I Funds, the PRS Provider would be able to hedge against a bearish market or mitigate a panic market sell-down by investing in an inverse exchange-traded fund. On the other note, the PRS Provider may take advantage of a market uptrend by investing in a leveraged exchange-traded fund to enhance the performance of the Fund.
Utilising L&I Funds, like all investments, involves a certain degree of risk. Though L&I Funds are supposedly designed to track the performance of the index, there are bound to be tracking errors between the performances of the L&I Funds and the tracked index. The market prices of L&I Funds will generally fluctuate in accordance with the supply of and demand for the units of the L&I Funds, whereby the trading prices of L&I Funds may also differ from the L&I Funds’ net asset value. Therefore, the ease with which L&I Funds can be sold at or near their fair value depends very much on the volume traded on the market. In essence, investing into widely recognised and tradable L&I Funds will eventually lead to more efficient portfolio management. If the fund manager inadvertently makes a wrong investment decision to invest in a leveraged exchange-traded fund during a market downtrend or if the fund manager inadvertently makes a wrong investment decision to invest in an inverse exchange-traded fund during a market uptrend, the NAV of the Fund will be adversely affected. As such, taking a position in L&I Funds poses a risk if markets move in an opposite direction, or an opportunity if the positions are correct. However, any gains or losses in the portfolio is limited to the nominal exposure of the L&I Funds it partakes in.
As part of KIB’s risk management strategy and policy, KIB will be managing the investments into L&I Funds in accordance with its in-house investment rules. In addition, KIB’s risk management team monitors and has oversight over the investment activities undertaken by the Fund. Risk management reports are submitted to the investment committee on a quarterly basis.
Note: Investment into one or more collective investment schemes is permitted in the following circumstances:
(a) from launch of the Scheme, the value of a Fund’s investment in any of a collective investment scheme must not exceed 95% of the Fund’s NAV
(b) upon reaching RM200 million NAV, the value of a Fund’s investment in any of the collective investment scheme must not exceed 40% of the Fund’s NAV; and
(c) that the investment objective of the collective investment scheme is similar to the Fund.