Fund Performance Reviews
Unit Trust of Pakistan (UTP)
UTP - Income Fund
UTP - Islamic Fund
UTP - Aggressive Asset Allocation Fund
page 3
page 3
page 3
page 3
Economic Snapshots
page 2
Economy..................In brief…
Financial Markets - Review August 2005
Market Outlook
page 4
page 4
Others..........
Glossary of Investment & Financial Terms
page 2
SECP body to study capital market
The Securities and Exchange Commission of Pakistan has formed a
committee to conduct the feasibility of introduction of exchangetraded derivatives market in Pakistan.
The committee has been given the mandate to identify the needs
that led to the emergence of exchange-traded derivatives in the
international (developed and emerging) marketplace and what
benefits these markets gained as a result.
The committee will study and recommend whether trading of
exchange-traded derivatives is suitable for Pakistani capital markets
in its present form. It will cover aspects, such as market
infrastructure, systems, risks, investor interest and education, users
of derivatives products and other related key matters.
The likely benefits of the exchange-traded derivatives to the
Pakistani capital markets, including suitability of exchange-traded
derivatives as an alternative to badla financing, will also be covered
in the study of the committee. The committee would devise and
recommend a plan to enable successful introduction of exchangetraded derivatives in Pakistan.
It is authorized to add other ancillary items associated with the key
objectives mandated by the SECP and may also co-opt such
members as it may deem fit. The committee would submit its
report within 60 working days from the date of its first meeting.
NAV Variation
Fund
UTP
UTP - IF
UTP - ISF
UTP - AAAF
Jul '05
7,098
513.25
586.75
51.32
Aug '05
7,406
517.00
621.25
56.38
MoM Change (%)
+4.33
+0.73
+5.88
+9.86
BBF
ASMF
ACF
AGF
ACoF
13.72
16.38
14.83
32.34
10.33
14.17
17.19
15.61
33.83
10.88
+3.27
+4.95
+5.26
+4.74
+5.33
Issue: Sept '05
ABAMCO Investor
CFS Replaces COT...
The continuous funding system (CFS) took off at the Karachi Stock
Exchange on Monday, August 22, 2005 with enthusiastic investor's
response, as the KSE-100 index gained 279 points. According to
analysts, the CFS rate on Monday stood at 16.9 per cent with the
level of investment at Rs16.3 billion.
KSE Chairman Yasin Lakhani told journalists that the new system
would fulfil the immediate liquidity need of the market and would
create stability and restore confidence. He also said that the CFS
would eliminate shortcomings in the badla system.
After months of negotiations between the government, bankers, the
SECP and the bourses, an agreement on the introduction of the
continuous funding system was agreed upon which replaces the
controversial COT or badla system. That was made possible only
when at the end of the last week, the stock market, drained of
liquidity, saw a three-year low turnover and the prime minister
himself had to step in to 'sort out' the issue after discussions with
the parties concerned.
The Continuous Funding System Regulations, 2005 have come into
force from Monday, August 22, 2005. Some analysts thought that
the CFS was a variant of the badla system, but majority of traders
and market watchers pointed to some features of the system that
were quite different from the 55-year old badla system. In the CFS
system, a cap on investment under the CFS has been raised from
Rs12 to Rs25 billion; the number of scrips eligible for the CFS is 14,
which are twice those under the badla system; and the scrips
included in the system would be reviewed every six months.
A notice issued to the members by the KSE on August 22, 2005
stated: "Pursuant to the meeting of the board of directors and
senior members with the prime minister and the adviser to the PM
on finance, Continuous Funding System Regulations, 2005 have
been approved by the SECP and the KSE board."
The KSE also notified that scrips - PTCL, OGDC, NBP, FFC, D.G
Khan Cement, PSO, Pakistan PTA, POL, PPL, SNGPL, BoP, MCB,
Fauji Cement and Hubco - would be in the CFS system. The CFS
facility would be available for a 30-day period against 10 days in the
COT system, which traders believed would give stability to the
market. Where the borrower opts to pay back and clear his position
within the 30 days, the financier can utilize the sum again in the
market.
Some of the major differences between the CFS and badla are that
the CFS market will be available for the entire trading period against
COT sessions, which takes place after the closure of the regular
market. The CFS market will run parallel to the ready market and
transactions will take place through the Karachi Automated Trading.
And above all, the striking difference between the COT and CFS is
that the financier shall keep the continuous funding system financed
securities in a separate account maintained with the Central
Depository Company of Pakistan Limited in order to ensure that
these securities are not used for loaning against blank and short
selling.
1
ABAMCO Investor
Other Stories...
Rs38bn withdrawn from NSS in FY05...
Net withdrawals from National Saving Schemes (NSS) stood at Rs38.46
billion in the last fiscal year despite the fact that two tailor-made
schemes generated more than Rs78 billion worth of fresh savings.
Ten-year Bahbood (Welfare) Saving Certificates (BSCs) attracted fresh
investment of Rs60.6 billion whereas Pensioners Benefit Accounts
(PBAs) of the same maturity raised Rs17.7 billion during fiscal year 2005
ending in June. But despite that net withdrawals during the year totalled
Rs38.46 billion as depicted by data released by the State Bank of
Pakistan.
The reason why withdrawals exceeded fresh investment was that oncepopular 10-year Defence Saving Certificates (DSCs) and five-year
Regular Income Certificates (RICs) lost their charm in the last fiscal year
due to dwindling returns. Three-year Special Saving Certificates (SSCs)
became totally unwanted as investors made net withdrawals of Rs83.16
billion from this scheme; they also divested Rs8.7 billion worth of DSCs
and Rs40.45 billion worth of RICs.
Economic Indicators
Indicator
GDP Growth
Industrial growth
Agricultural growth
Services sector growth
Fiscal Deficit (% of GDP)
Investment to GDP ratio
Unemployment rate
Per capita income (USD)
Average bank lending rate
SBP Discount Rate
FX Reserves (USD bn)
Total external debt (USD bn)
Total internal debt (PKR bn)
CPI Inflation
Position
8.4%
13.4%
2.6%
5.2%
3.3%
18.1%
8.3%
652.00
9.0%
9.0%
12.24
35.83
2,149.80
9.9%
Updated
Aug 8 '05
Apr 12 '05
Aug 27 '05
Aug 13 '05
Aug 13, '05
Glossary of Investment & Financial Terms
Debt security: another term for a bond.
The rates of return on DSCs, RICs and SSCs stood at 8.15pc, 6.84pc
and 6.95 per cent respectively in the last fiscal year - in each case lower
than the annual average inflation of 9.28 per cent. But the rate of return
on BSCs and PBAs was substantially higher at 10.08 per cent.
Defined benefit plan: a tax-deferred company retirement plan, such
as a pension, in which the benefit to participants is defined in advance,
based on criteria such as salary history and years of service, and in
which the employer bears the investment risk.
That explains why people made a huge investment of more than Rs78
billion in BSCs and PBAs in the last fiscal year whereas they divested
heavily the stocks of DSCs, RICs and SSCs.
Deflation: a decline in prices, often caused by a reduction in the supply
of money or credit. The opposite of inflation.
FUTURE OUTLOOK: As the government has increased the rates of
return on NSS for July-December 2005, chances are that the pace of
withdrawals would slow down in case of DSCs, RICs and SSCs and
BSCs and PBAs would attract still larger investments.
Developing markets: also known as emerging markets, developing
markets are generally defined as having a per-capita income below
$9,265, and as countries in the process of developing existing or newly
created market-based economies.
Those who invest in NSS between July 1 and December 31 this year
would earn 8.88pc and 8.6 per cent return on RICs and SSCs and
9.46pc return on DSCs. They will get even higher return i.e. 11.04 per
cent on BSCs and PBAs.
Director: a group of individuals elected by the shareholders of a mutual
fund empowered to carry out certain tasks defined in the fund's charter,
such as appointing senior management, issuing additional shares and
declaring dividends. Also called board of trustees.
The government has set inflation target at eight per cent for the current
fiscal year - and data released on Monday showed that July inflation was
around 9pc. So, if inflation during the first half of this fiscal year i.e.
between July-December 2005 remains anywhere between eight and
nine per cent, the rates of return on DSCs, RICs and SSCs would be
just too little.
Discount rate: the interest rate charged by the State Bank of Pakistan
for loans to member banks.
However, the rates of return on BSCs and PBAs, investment in which is
allowed only by senior citizens of 60 years or more, widows and
pensioners, would be above inflation. And that should not only
encourage the targeted class of investors to invest more in the two
instruments but also enable the government to once again rely on NSS
as a source of borrowing.
Diversification: an investment strategy designed to reduce exposure
to risk by combining a variety of investments, such as local and
international stocks, bonds and cash, which are unlikely to all move in
the same direction. Holding mutual funds with different objectives can
help investors achieve diversification through the broad range of
investments held in fund portfolios.
Acting MD KSE appointed...
Dividend: a distribution of investment income to shareholders. The
amount of a mutual fund dividend is authorized by the fund's or its
management company's board of directors.
Muhammad Yacoob Memon was appointed as Acting Managing
Director of the Karachi Stock Exchange from August 26, 2005 by the
Board of Directors of KSE at a meeting held on Monday.
A press release issued by the bourse on Thursday said that the acting
MD had been vested with all powers, functions and privileges available
to the managing director under the Articles of Association and Rules &
Regulations of the Exchange.
The board was also said to have accepted the request of Managing
Director Moin M. Fudda for leave preparatory to his 3 years term
ending on September 19, 2005.
"The board extended its heartiest congratulations to Mr Fudda on
award of Sitara-e-Imtiaz by President Pervez Musharraf and recorded
its appreciation for the services rendered by him during last 3 years",
the KSE press release stated.
Distribution: the payment of a dividend or capital gain realized by a
mutual fund. Also, the payment of funds from a retirement or pension
plan.
Earnings: the single most important factor in determining a stock's
price, earnings represent a company's revenues minus cost of sales,
operating expenses and taxes. Earnings per share are the portion of a
company's profit allocated to each outstanding ordinary share.
Equity: a security representing shares of ownership in a corporation,
unlike a bond, which represents a loan to the issuer.
Equity-income fund: a mutual fund that invests in a mixture of
dividend-paying stocks and bonds to provide shareholders with current
income and, as a secondary goal, growth of capital. These are
commonly known as Balanced Funds. Unit Trust of Pakistan (UTP)
being a prime example.
2
ABAMCO Investor
Unit Trust of Pakistan
Performance Review
UTP-Islamic Fund
Performance Review
During August 2005, the NAV per unit of UTP appreciated by 4.34%
as against the 8.61% rise in the KSE-100. The market recovered
during the month with healthy volumes from its earlier whipsaw trend
with the introduction of the CFS facility that helped improve the share
financing capacity of the market as a whole. During the month, we
sold shares that hit our target price and switched to alternatives with
more upside. Likewise, as we aim to position our equity portfolio to
capture the general market performance trend, we will look forward
for opportunities in growth sectors at reasonable prices.
The fund increased in value by 5.88% versus the 8.61% rise in the KSE100 during the month of August 2005. The reason the market is moving
up is largely being cited as the pattern underneath the market has
improved, and that's courtesy of the increased level of liquidity made
available to the market. Similarly, there have been very few earnings
disappointments on the corporate front. Volume is higher on the upside
than it is on the downside and while the pullbacks are brief, these are
being used as opportunities to buy dips. Overall, the market's internal
dynamics suggest that a cyclical bull move is likely to carry into the next
quarter of FY2006.
As the cap on financing was raised to PKR 25bn under CFS from the
previous PkR 12bn, we increased our exposure in fixed income
market from this end, while keeping the weightage in other debt
instruments unchanged from the previous month's level. Our asset
allocation as of August 31, 2005 was 57% equities, 23% cash and
20% debt.
During the month, we reduced the portfolio allocation in Closed end
funds, Power, Textiles and Chemical sectors, while at the same time
increased weightage in Oil and Gas upstream and downstream sectors,
where we believe strong international oil prices will continue to drive
FY06 earnings growth. Other than that, we also added more Fertilizer
and Cement picks in the portfolio. On a month-on-month basis, we
reduced our exposure in equities to 70% from 83% on July 29th.
UTP : Change in Equities by Sector, August 31, 2005
UTP-ISF : Change in Equities by Sector, August 31, 2005
20%
20%
29-Jul-05
29-Jul-05
31-Aug-05
% of NAV
15%
10%
5%
10%
We would like to reiterate that the positive sentiments combined with
inflows of liquidity could carry the upturn further with normal setbacks
along the way. In this regard, experience also shows that it's always
appealing to take a positive view of things; however, the question that
remains is whether a bullish view is actually warranted. Don't miss out
the inflation factor! Therefore, we think that this is a time when we
should neither overemphasize the positives nor ignore the negatives.
Chemical
Refineries
Power Gen &
Dist
Tech & Comm
Fertilizer
Textile
Cement
Mutual Funds
Oil & Gas
Marktg
Oil & Gas Explr
UTP-Income Fund
Performance Review
Aug '05 saw erratic COT volumes until COT was replaced with CFS
(Aug 22, 200%) with an upward cap of PKR 25 billion. This pushed
avg. rates to increase from a low of 10.50% to average 15.50% at
month end. We have increased our overall exposure to COT and
spread transactions after assessing the overall risk framework, which
has resulted in giving a higher single digit return.
Outlook - Given the announcements from the institutions, we believe
that spread transactions will increase given the dividend components
and increased market volumes after the introduction of CFS. We
expect a double digit return for Sept '05.
Average COT Rate & Badla Volume
18%
130
16%
125
14%
120
12%
10%
115
8%
110
6%
105
Share Vol. in Mn.
The fund's NAV appreciated by 9.86%, while it outperformed the KSE100 by 125 bps during the month. The fund increased sector holdings of
Banking and Telecom, whereas it initiated investments in Oil and Gas
marketing, Refineries and Power sectors to name a few besides select
growth picks in other sectors. On a month-on-basis, we increased
exposure in equities to 91% from 28% on July 29th.
0%
COT Rate
UTP-Aggressive Asset Allocation Fund
Performance Review
Pharmaceutical
Tech & Comm
Auto Assem
Insurance
Engineering
Fertilizer
Oil & Gas
Marktg
Power Gen &
Dist
Paper & Board
Cement
Textile
Mutual Funds
Oil & Gas Explr
0%
31-Aug-05
5%
Comm. Banks
% of NAV
15%
4%
100
2%
95
0%
1
4
5
6
Volume
7
8
11
12
13
14
15
18
19
20
21
22
25
26
27
28
29
COT Rate
3
ABAMCO Investor
Financial Markets Review - August 2005
KSE 100 Index Across August 2005
8000
7800
7600
Index
Equity Market: While remaining considerably volatile during the first
three weeks of August, the stock market witnessed a strong positive
rally with the introduction of CFS in the last week of the month. The
KSE-100 Index gained a significant 618 points (8.61%) during August,
which came on the back of improved liquidity situation in the market
and strong corporate results, especially by the banking sector. Along
with the banking sector, which remained the top pick of investors, the
Oil & Gas sector also performed well with consistently rising oil & gas
prices. Volumes remained cramped until the introduction of CFS, and
reached a record low of a mere 36.2mn on August 17, 2005.
However, the volumes revived substantially with the introduction of
CFS leading the average daily volumes for August to rise by 57% over
the previous month to 224mn. PTC, OGDC and NBP stood as the
volume leaders with average daily turnover of 55mn, 36mn and 18mn
shares respectively, constituting almost 49% of the total volumes at
the KSE.
7400
7200
7000
6800
01/08/2005
08/08/2005
15/08/2005
31-Jul-05
9.75
30-Jun-05
9.42
9.50
9.32
9.12
9.25
8.95
8.98
9.19
9.10
9.00
8.76
8.75
8.50
8.86
8.20
8.07
8.25
8.00
11.50%
11.25%
11.00%
10.75%
10.50%
10.25%
10.00%
9.75%
9.50%
9.25%
9.00%
8.75%
8.50%
8.25%
8.00%
7.75%
7.50%
7.25%
7.00%
6.75%
6.50%
6.25%
6.00%
Close
PKR Yield Curve
Yield
9.00
Outlook - With YoY inflation again rising, international oil prices
rallying upwards above US$ 67 a barrel on supply concerns, we
forecast inflation to be 9.00% for FY'06, with a further increase of
100bps in SBP discount rate quite likely in September '05.
29/08/2005
Low
High
Weeks
Money Market: Headline inflation or CPI rose in Aug '05 to 8.99%
YoY (Jul '05 8.74% YoY) mainly due to increase in transport and fuel
costs passed on to consumers by the government. However, Core
inflation (non-food & non-oil) has come down slightly to 8.86% (Jul '05
8.91%). SBP increased the cut-off yields marginally to 7.91%, 8.13%
and 8.79% (7.69%, 7.98% & 8.69%) for 3, 6 & 12 M tenors
respectively. Almost negligible activity was seen in the benchmark
10Year bond and yields remained subdued at levels of 9.15 - 9.25%.
22/08/2005
8.38
8.42
3-years
4-years
8.58
8.58
8.61
8.58
6-years
7-years
8-years
9-years
8.48
8.27
7.75
Inflation July '04 - Jul '05
7.89
7.50
7.25
7.53
Core
7.00
CPI
Jul-04
Aug-04
Sep-04
Oct-04
Nov-04
Dec-04
Jan-05
Feb-05
Mar-05
Apr-05
May-05
Jun-05
Jul-05
Foreign Exchange Market: With oil prices rising, the pressure on
rupee in the currency markets slightly increased during August.
Nevertheless, the pressure was somewhat offset by regular inflows of
exports proceeds. The currency traded within a range of 59.62-60.15,
with an average of 59.68/USD as against an average of 59.63/USD
during July. The rupee is expected to undergo slight depreciation as
rising oil prices continue to create an imbalance between import and
export exchanges.
90-days
180-days
365-days
5-years
10-years
Future Outlook: With the market reacting positively to the
introduction of CFS and corporations showing healthy results, the
stage has been set for the market to rally on a consistent uptrend.
Going forward, the volumes are expected to remain high - at least
until the CFS limits are exhausted. As the fundamentals remain strong
and many undervalued stocks reach levels close to their fair values,
some selling pressure and profit-taking might be seen. Significant
positive moves in the market can, therefore, be followed by
immediate corrections. The sound banking results, rising oil & gas
prices, and increasing local demand for urea and autos, and world
demand for textile products, will tend to bode well for the sector
stocks. In addition, news relating to the privatization of NIT is
expected to positively impact the banking sector, while further
privatization related rallies in the stock market may be lead by market
leaders such as OGDC, PPL and PSO.
Credits: Editor: Imtiaz Noor Mohammad (imtiaz.noor@abamco.com) Market Reviews: Ammar Ali (ammar.ali@abamco.com) Fund Management Reports: Syed
Hussain Haider (hussain.haider@abamco.com) & Nabil Daudur Rahman (nabil.rahman@abamco.com). For circulation queries, please contact the editor.
Head Office:
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Contact:
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Website: www.abamco.com
E-mail: info@abamco.com
Disclaimer: This newsletter is for informational purposes only. The correctness of information in this newsletter cannot be guaranteed, however, the publishers
have made their best attempt to keep the information provided here as correct as possible. ABAMCO Limited cannot be held responsible for any losses or gains
arising upon actions, opinions and views created by this newsletter.
All investments in mutual funds are subject to market risks. The NAV based prices of units and any dividends /returns thereon are dependent on forces and factors
affecting the capital markets. These may go up or down based on market conditions. Past performance is not necessarily indicative of future results. Please read the
"Risk" & "Disclaimer" clauses of the respective funds' offering document and consult your investment /legal adviser for understanding the investment policies and risks
involved.
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