ALFALAH GHP VALUE FUND
‘Alfalah GHP Value
Fund’ is an open-ended mutual fund managed by Alfalah GHP Investment Management
Ltd. The units of Alfalah GHP Value Fund are on sale daily and can
be purchased from various selected branches of Bank Alfalah Limited and selected
third party distributors. Fund units can be purchased on each business day at
the announced Offer Price. Detailed information on Alfalah GHP Value Fund can be
obtained from its Trust Deed and Offering Document.
Investment
Objectives
Alfalah GHP Value Fund (AGV)
being an Asset Allocation Fund will aim to invest in a broad range of asset
classes so as to diversify Fund risk and to optimize potential
returns. The
Fund shall invest up to a maximum limit of 80% of its NAV in equity securities
or debt / money market securities with per company and per sector limitations as
prescribed in the NBFC Rules. Out of the total investment minimum 50% of assets
shall remain invested in the listed securities.
Within each asset class the
Fund will seek to realize value in its investments by trying to identify
undervalued securities, taking advantage of arbitrage opportunities, taking
advantage of mis-pricing of various assets, taking opportunistic exposure in
various securities to take advantage of trends and business cycles and to
generally invest and profit from any investment opportunity that may arise and
which in the opinion of the Fund presents an attractive profitable opportunity
to increase and realize value for the benefit of the Fund and its Unit Holders.
Investment in the Fund will
provide investors with a means to access the capital markets of the country by
utilizing the professional fund management expertise available with Alfalah GHP
Investment Management Limited (AGIM).
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Investable Asset Classes
Broadly speaking the various asset classes that the Fund may seek to invest in are as follows:
1. Cash and Bank deposits
At least 5% of the Fund NAV will be kept in cash and / or bank deposits of liquid nature.
2. Equity
As mentioned above the Fund may invest a maximum of up to 80% of NAV in equity securities.
The Karachi Stock Exchange
was up 112%, 66% and 39% in calendar years 2002, 2003 and 2004 respectively.
Hence, stock market investments have provided attractive returns to investors in
the recent past. Going forward, the privatization process of the Government of
Pakistan will lead to fresh listings of new companies in the Stock Exchange(s)
of the country through IPOs and government divestments; this is expected to
further provide attractive long term equity investment opportunities to
investors of the Fund.
The Fund may also enter into
transactions aimed at earning a spread in the price of shares resulting from the
timing difference between ready and future settlements.
3. Debt / Fixed Income
Instruments including money market investments such as Reverse REPOS etc.
As mentioned above the Fund
may invest a maximum of up to 80% of NAV in debt / fixed income instruments and
/ or money market investments.
With interest rates rising
there may arise attractive investment opportunities of buying into high yielding
paper of blue chip companies and / or companies with strong and reputable
sponsors and promoters or of companies with government / semi – government
ownership etc. Investments in money market instruments also serve a useful
purpose of parking excess funds for short periods of time until viable and
attractive investment opportunities emerge elsewhere.
4. Continuous Funding
System (CFS).
The Fund may invest a
maximum of up to 25% of NAV in the Continuous Funding System (CFS) with no more
than 20% of CFS amount in any one scrip at the time of such investment.
The CFS presents an
attractive opportunity to provide financing to the weak equity holders in the
Stock Exchange(s) at attractive returns to the Fund. Such transactions normally
involve providing financing against delivery of shares to the Fund and then the
reversal of this transaction whereby the money plus profit is earned by the
Fund.
5. Warrants, options
(including financial options and contracts), derivatives and contracts.
The investment in this asset
class shall be for hedging purposes only and on such other terms and conditions
as may be specified by the SECP from time to time.
6. Other asset classes
a. Subject to the Rules
and any other applicable law, the Management Company may through Trustee
on behalf of the Fund write call options on any of the securities held
in the portfolio, if there is a market based exit mechanism from options
so written.
b. Subject to
applicable laws, the Management Company may, with such regulatory
permissions that may be required, alter the investment policy to include
in the
portfolio, Pakistan origin investments issued, traded or listed
outside Pakistan.
Furthermore, subject to SECP
and other regulatory approvals the Fund may seek to invest in foreign securities
issued, listed and traded outside Pakistan on such terms, guidelines and
directions as may be issued by SECP and the State Bank of Pakistan from time to
time.
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Flexible
Asset Allocation
The Fund will seek to
enhance Unit Holder returns by actively switching between asset classes so as to
avoid or reduce risk and improve returns. The flexible asset allocation is
based on the following parameters:
- The Fund can invest upto
a maximum of 80% of NAV in equity securities or in debt / money market
securities with per company and per sector limitations as prescribed in the NBFC Rules. Out of the total investment minimum of 50% of assets shall
remain invested in the listed securities.
- The Fund shall invest up
to a maximum of 25% of its NAV in the Continuous Funding System (CFS) with
not more than 20% of CFS amount in any one scrip at the time of such
investment.
- The Fund will also seek
to keep at least 5% of NAV in cash and or deposits of liquid nature in order
to meet any potential redemption requests by Unit Holders.
Within the investment
parameters mentioned above, the Investment allocations of each asset class is
subject to change from time to time at the direction of the Investment Committee
of the Fund.
Besides following an active asset allocation strategy between various asset classes AGV will also look to
actively switch within each asset class into different sub classes within each asset category. For e.g., within the asset class category of Equities the Fund
can have investments in various sub classes such as in the cement sector, oil sector, banking sector etc.
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Investment Policy
AGV will follow a flexible asset allocation strategy as it believes that bulk of the investor returns are
generated by having investments in the right asset classes or by avoiding those asset classes which are likely to generate relatively poorer returns. These
asset allocations have to be changed from time to time in order to maximize investor returns and manage risk; AGV will aim to do this for its investors with
a view to generating superior returns over a period of time.
The investment policies for key asset classes are as follows:
1. Equity
For equity investments the following broad parameters will be used by the Fund:
a)
Value Stocks
Such stocks are of those companies which are undervalued and their intrinsic share value is higher than
the market quoted price of such shares
b)
Growth Stocks
Such stocks are of those companies which are expected to see high growth in sales and profits in the
coming few years
c)
Dividend Stocks
Such stocks are of those companies which regularly pay out high dividends from their earnings and as such
provide regular income stream to the Fund
The Fund will aim to have a
mix of the above stock categories but if it feels that any one stock category
offers higher returns than the other categories then the Fund may even have all
its equity investments in that one category.
2. Debt / Fixed Income
Instruments including money market investments such as Reverse REPOS etc
Investments into debt and fixed income instruments will be made keeping in mind the following key broad
parameters:
a) Sponsor of the issue
Investments will be made keeping in mind the market reputation and past track record of the issuing
entity and its main sponsors.
b) Strength of financials and ability to repay
The strength and stability of the issuing company’s earnings will be taken into consideration and special
focus will be made on its cash flows and the resultant ability to repay the
debt.
c) Rate of return offered
Attempt will be made to invest in those securities that offer competitive returns vis-à-vis other similar investments in the market.
d) Industry fundamentals and future outlook
Industry outlook and its future potential will also be looked into at the time of investing in any
company’s debt and fixed income instruments.
The Fund will seek to invest
in those debt and fixed income instruments that offer attractive market returns
and are issued by sponsors with strong financials and ability to repay.
3. Continuous Funding
System (CFS)
For CFS investments the Fund
will seek to invest in CFS eligible stocks / scrips that offer attractive
returns.
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Risk Disclosure
Investors into AGV must realize that all investments in mutual funds and
securities are subject to market risks. Our target return / dividend range
cannot be guaranteed and it should be clearly understood that the portfolio of
Alfalah GHP Value Fund is subject to market fluctuations and risks inherent in
all such investments. The risk emanates from various factors that include, but
are not limited to:
1. Credit Risk
Credit risk is comprised of default risk, credit
spread risk and downgrade risk. Each can have a negative impact on the value of
a fixed-income security including money market instruments.
a) Default risk
is the risk that the issuer will not be able to pay the obligation, either on time or at all.
b) Credit spread risk
is the risk that
there will be an increase in the difference between the return/mark up rate of
an issuer's bond and the return/mark up rate of a bond that is considered to
have little associated risk (such as a government guaranteed bond or treasury
bill). The difference between this return/mark up rates is called a ''credit
spread.'' Credit spreads are based on macroeconomic events in the domestic or
global financial markets. An increase in credit spread will decrease the value
of fixed income securities including money market instruments.
c)
Downgrade risk
is the risk that a credit rating agency, such as PACRA
or JCRVIS, will reduce the credit rating of an issuer's securities. Downgrades
in credit rating will decrease the value of those fixed income securities
including money market instruments.
2.
Derivative Risk
Derivatives may be used to limit or hedge potential losses associated with stock markets and
return/mark-up rates. This process is called "hedging". Derivatives may also be
used for non-hedging purposes - to reduce transaction costs, achieve greater
liquidity, create effective exposure to financial markets or increase speed and
flexibility in making portfolio changes. Any use of derivatives has risks,
including:
a) The hedging strategy may not be effective.
b) There is no guarantee that a market will exist when a Fund
wants to buy or sell the derivative contract.
c) A large percentage of the assets of a Fund may be placed on
deposit with one or more counter parties, which exposes the Fund to the credit
risk of those counterparties.
d) There is no guarantee that an acceptable counterpart will be
willing to enter into the derivative contract.
e) The counter-party to the derivative contract may not be able
to meet its obligations.
f) The Exchanges on which the derivative contracts are traded
may set daily trading limits, preventing a Fund from closing out a particular
contract.
g) If an Exchange halts trading in any particular derivative
contract, a Fund may not be able to close out its position in that contract.
h) The price of a derivative may not accurately reflect the
value of the underlying security or index.
3. Concentration Risk
The fund may concentrate its investments in a relatively small number of securities, certain
sectors or specific regions. This may result in higher volatility as the value
of the portfolio will vary more in response to changes in the market of these
securities, sectors or regions.
4.
Return/Mark-up Rate Risk
Fixed income securities including money market instruments, which include treasury bills and
commercial paper, pay fixed rate of return/mark-up. The value of the fund, due
to its holdings in fixed income securities including money market instruments,
will rise and fall as return/mark-up rates change. For example, when
return/mark-up rates fall, the value of an existing bond will rise because the
coupon rate on that bond is greater than prevailing return/mark-up rates and
vice versa.
5. Equity Risk
Companies issue equities, or stocks, to help finance
their operations and future growth. The company's performance outlook, market
activity and the larger economic picture influence the price of a stock. When
the economy is expanding, the outlook for many companies will be good and the
value of their stocks should rise. The opposite is also true. Usually, the
greater the potential reward, the greater the risk.
For small companies, start-ups, resource companies and
companies in emerging sectors, the risks and potential rewards are usually
greater. Some of the products and services offered by technology companies, for
example, can become obsolete as science and technology advance.
6. Government Regulation Risk
Government policies or regulations are more prevalent in some sectors than in others. Funds
that invest in these sectors may be affected due to change in these regulations
or policies, which directly or indirectly affect the earnings and/or the cash
flows and/or any governmental or court orders restraining payment of capital,
principal or income.
7.
Voluminous Purchase/Redemption of Fund Units Risk
Any significant transaction made by any investor could significantly impact a
Fund's cash flow. If the third party buys large amounts of shares or Units of a
Fund, the Fund could temporarily have a high cash balance. Conversely, if the
third party redeems large amounts of shares or Units of a Fund, the Fund may be
required to fund the redemption by selling securities at an inopportune time.
This unexpected sale may have a negative impact on the performance of your
investment.
8.
Liquidity Risk
Some companies
have limited market float of their issued shares and hence are not actively
traded in the stock market or they may generally have very few total shares
issued and outstanding. Securities issued by such companies may be difficult to
buy or sell, which may cause the value of the Funds that buy these securities to
rise and fall substantially because any buying or selling of such company shares
may have a great impact on that company’s share price.
9. Repurchase and Reverse Repurchase Transactions
and Securities Lending Risk
The risks with these types of
transactions are that the other party may default under the agreement or go
bankrupt. In a reverse repurchase transaction, the Fund may be left holding the
security and may not be able to sell it at the same price it paid for it, plus
return/mark-up, if the market value of the security has dropped. In the case of
a repurchase or a securities lending transaction, the Fund could incur a loss if
the value of the security sold or loaned has increased more than the value of
the cash or collateral held.
10. Market Risk
This risk involves volatility in stock prices resulting from their dependence
on market sentiment, speculative activity, supply and demand for the securities
and liquidity in the market. The volatility in securities prices results in
volatility in the NAV based price of the Unit of the Fund.
11. Other Risks Involved:
a) Mismanagement of the investee company, third party liability
whether through class action or otherwise or occurrence of other events such as
strikes, fraud etc., in the company in which the investment is made.
b) Break down of law and order, war, terrorist activity, natural disasters etc.
c) Senior rights of creditors over the shareholders in the event of winding up.
Investment in this Fund is suitable for investors who have the ability to take the risks
associated with financial and capital market investments. Capital invested in
the financial and capital markets could in extreme circumstances lose its entire
value. However, diversification of the investment into a number of highly liquid
equities, fixed income securities including money market instruments and
repurchase transactions tends to reduce the risk substantially. The historical
performance of this Fund, the financial and capital markets or that of any one
security or transaction included in the Fund's portfolio does not indicate
future performance.
Prices of Units of he Fund and income from them may go up or down.
Under exceptional (extraordinary) circumstances, the Management Company may declare suspension of
redemptions, invoke a queue system or announce winding up - in such events the
investor will probably have to wait for payment beyond the normal period and the
redemption amount so determined may be lower than the price at the time the
redemption request is lodged. Investors are advised to read the relevant clauses
of the Fund’s Trust Deed for more detailed information regarding this clause.
DISCLAIMER
The Units of the
Trust are not bank deposits and are neither issued by, insured by, obligations
of, nor otherwise supported by the SECP, any Government agency, the Trustee
(except to the extent specifically stated in this document and the Trust Deed)
or any of the shareholders of the Management Company or any of the Core
Investors or any other bank or financial institution.
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