Taiwan has recovered strongly from the global economic downturn with a growth of 10.8% in 2010. According to Global Economic Prospects, January 2011 by World Bank, Taiwan’s gross domestic product is tipped to grow 5% in 2011. Taiwan is a beneficiary of Asia’s growth, in particular that of China’s. Following the liberalization policies of Taiwan’s new administration towards China, Taiwan’s economy has become increasingly linked with China’s.
Foreseeing a significant growth prospects for Taiwan in the next few years, OSK-UOB has therefore established a Fund that is structured to benefit from these potential opportunities through a swap agreement which will provide exposure to Taiwan’s capital markets as represented by the Taiwan Taiex Index (“TWSE”). This Fund will provide investors with an opportunity to participate in the potential benefits from this outlook on the Taiwan economy in the next three years.
This is a 3 year close-ended growth fund which aims to achieve medium term capital appreciation. It seeks to achieve its investment objective by investing 90% of its NAV into fixed income instruments and the remaining 10% as capital payment for exposure to an over the over-the-counter (OTC) derivative instrument in the form of a swap agreement.
The Fund's potential returns will principally be derived from the swap agreement through its exposure to the performance of TWSE over a 3 year period and also from an enhanced payout if certain criteria are met at the maturity of the Fund. As such, the Swap Counter-party will charge a swap fee of 1% per annum of the notional amount.
How to calculate the return, which consists of Enhanced return?
Investors are entitled to the enhanced return at maturity, if the following conditions are fulfilled:
- the final average level of TWSE is greater than the initial reference level, and
- the lowest level is below the initial reference level of TWSE
What is the downside risk?
First, this is NOT a capital protected or guaranteed fund, although 90% of its NAV is in fixed income instruments. The Fund may lose all its assets under the swap agreement (limited to investor's investment amount only) if:
- the TWSE declines 100% from its initial reference level determined, or
- the TWSE declines close to 100% from its initial reference level determined and USD appreciates against RM.
Source: OSK-UOB Investment Management Berhad