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The Ceybank Century Growth Fund performed considerably well in the initial phase of the market recovery and the net asset value per unit of the Fund recorded an appreciation of 44.42% out-performing the all Share Index by 5.74% during the six months ending September 2002. The unit price more than doubled, recording a growth of 123.5% during the one year period ending September 30, 2002, said B. M. Amarasekara, Chairman, The Unit Trust, Management Co. (Pvt) Ltd.

The net asset value per unit of Ceybank Century Growth Fund amounted to Rs. 13.97 on September 30, 2002. The Fund also continued to maintain its rank as number one in terms of performance and the largest in terms of size among the competitive growth funds in the Unit Trust Industry, he said in a report. Capital Market Performance

The market witnessed the long awaited recovery with the indices bottoming out almost a year ago in August 2001, with the All Share Index reaching an 11-year low of 383.4 in the aftermath of the terrorist attack on the Colombo Airport. The activity in the bourse recovered fast with a few high net worth individuals entering the market to build up portfolios at low prices and this trend continued till the later part of 2001 up to the changes in the political climate. The up trend continued in 2002 with the signing of MoU between the Government and LTTE, on cessation of hostilities in February.

The fresh interest created by non-resident Sri Lankans on large stakes of selected stocks during the beginning of the six-month period of review, ascended the indices, despite a minor lull during the customary Sinhalese and Tamil New Year season in April. The battle for control at Richard Pieris and Asia Capital and the demand for substantial volumes of NDB, DFCC and Commercial Bank mainly accounted for the index movement.

Nevertheless July and August were sluggish due to the uncertainty created by the degree of cohabitation between President Chandrika Bandaranaike Kumaratunga and the ruling UNF Government. However, the confirmation of commitment to peace with setting of dates for the first round of peace talks, Prime Minister Ranil Wickremesinghe's mission to USA and the smooth conclusion of the Thailand talks took the market to a new high. The rally reached dizzy heights with new high net-worth individuals joining the band wagon creating interest in low valued counters and the retailers following suit.

The All Share Index (ASI) opened at 617.6 in April and closed at 856.5 after reaching a five year high of 860.3 on September 26, 2002. The Milanka Price Index (MPI) too appreciated 45.3% to close at 1463.9 while the market price earnings multiple improved from 7.8 to 12.5 on historical earnings. The net foreign inflows during the first nine months of 2002 amounted to Rs. 2.7 billion against an outflow of Rs. 1 billion during 2001.

The interest rates dipped in tandem with the reduction of overnight repo rates and were at a lower band than the corresponding period of the previous year. The overnight repo, three month Treasury Bill and 12 month Treasury Bill rate closed at 10.50%, 10.88% and 11.33% respectively.

Fund Performance

The net asset value per unit of the Fund appreciated 44.42% during the period ended September 30, 2002 out-performing the ASI increase of 38.68% and performing in line with the MPI rise of 45.3%. The equity exposure of the Fund was maintained at the high end during the period in the light of the positive market sentiment at 87% by the close of the period as against 81% at the beginning of the period of review.

The realised capital gains of the Fund increased to Rs. 8.4 million in comparison to a capital loss of Rs. 0.84 million in the previous period. The equity portfolio also appreciated by Rs. 36.4 million against a marginal decline of Rs. 0.35 million in the corresponding period. The active portfolio management strategy adopted by the Fund manager coupled with the better performance of equity portfolio enabled your Fund to record a significant growth, despite a decline in net dividend and interest income during the period. The expenses too increased mainly due to the higher management fee resulting from portfolio growth.

The equity portfolio is mainly diversified across Banking, Diversified and Manufacturing sectors in the Colombo Stock Exchange. The exposure to the plantation sector has been pruned down significantly and the weight to Hotel sector has been increased in view of the improved outlook for local tourism. The sector allocation of the portfolio is depicted in the bar chart. The asset allocation across individual stocks have been marginally shifted from the focus on blue chips to fairly liquid fundamentally strong undervalued securities in the second tier, in anticipation of a correction of valuations during upmarket phases.

Future Outlook

The market underwent a correction in the light of the Supreme Court decisions on the proposed Constitutional amendments and minor incidents in the East Coast, which negated the developments on the peace front. The conflict among SLMC members, which could affect the slender majority of the ruling party in Parliament, negated the positive sentiment in the market.

The short-term trend of the market is likely to fluctuate with the developments in the political climate, speculation of a general election and the cohabitation between the President and the ruling party. We are nevertheless optimistic about the equity performance in the future on the backdrop of the expected recovery of corporate earnings from a low base, improved GDP growth of 3.5% for 2002 and the progress on the peace initiative.

As mentioned in the last Annual Report we reiterate that the current environment induces the best opportunities to remain optimistic. The Fund has been well poised with a high allocation to equities in a mix of high market cap liquid blue chip stocks and fundamentally strong undervalued companies.

We are optimistic if the existing trend is sustained that the unit holders who remain in the Fund would reap the upside potential of the Colombo Bourse, despite few minor interim setbacks and achieve substantial benefits in the short to medium term.

Budget Highlights 2003

The Finance Minister, in his Budget proposals for the year 2003 said, "For Unit Trusts and Mutual Funds, we shall limit their tax liability to a 10 per cent withholding tax on dividend and interest income with effect from April 1, 2003, if they invest in specified areas. Otherwise a tax of 20 per cent will be applied. Unit Trust holders will not be taxed again on this same income."

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Copyright 2001 The Associated Newspapers of Ceylon Ltd.
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