The Employees Provident Fund (EPF) is turning to asset class related to natural resources to ensure stable and consistent returns, as uncertainties continue to cloud earnings from the fund’s traditional income generators.
The country’s largest pension fund was severely hit last year due to global and local economic events, including a tattering equity market.
Corporate earnings from the key invester companies nosedived due to the challenging business environment. EPF dividends distribution to over 11 million members slipped from 6.75% in 2014 to 5.7% last year.
He said such companies had proven to provide steady returns to the pension fund, compared to other firms within the natural resources asset class.
“The appetite for global pension funds is the natural resources sector...within that, mineral and energy are unlikely because of high level of volatility,” he told a media briefing in Kuala Lumpur yesterday.
“We are bracing ourselves for another challenging year in terms of market performance, given the volatility of the global markets and the unrealised implications of Brexit.
“Possible growing US isolationism and other geopolitical uncertainties will likely result in further volatility moving forward,” he said.
EPF already has stakes in natural resources companies like Kuala Lumpur Kepong Bhd, IJM Plantations Bhd, United Plantations Bhd and Genting Plantations Bhd.
However, in December last year, the fund announced it had divested all its shareholdings in Felda Global Ventures Holdings Bhd (FGVH).
It was reported that the pension fund had incurred an investment loss of RM203.18 million as at August last year for its stake in the world’s largest producer of crude palm oil. EPF was one of FGVH’s cornerstone investors for the latter’s initial public offering in 2012.
“Although there was volatility in the crude palm oil price, our palm oil businesses provided stable returns in the last few years,” he said, adding that planters in Bursa Malaysia’s top 200 companies by market capitalisation, would be of interest to the fund.
Besides natural resources, Shahril Ridza said EPF was committed to long-term investments in infrastructure, real estate and private equity.
On dividend rates, Shahril Ridza said the better stock market performance this year would stem the drop in profit distribution since 2014.
“For the first-quarter, Bursa performed fairly well compared to last year. If the stock exchange continues this trend, (I’m) sure we will do well too.
“I think the downtrend in dividend would turn around this year not only due to the stock market, but also a recovery in our home market (Malaysia),” he said.
Shahril Ridza said the country’s economy was recovering in tandem with the global economic rebound.
“We are seeing a better economy for Malaysia this year and major markets that we have assets in. While this is improving, the only risk that we see is the political risk where elections are looming in France, the UK and Germany this year,” he said.
The pension fund yesterday also released its 2016 Annual Report. The report revealed a 2.68% rise in annual contributions to RM61.59 billion against the total annual amount withdrawn of RM46.8 billion — resulting in net inflows of RM14.79 billion.
EPF also recorded a 6.81% increase in total investment assets to RM731.11 billion last year from RM684.53 billion in 2015. It ended last year with RM46.56 billion in total gross investment income and a gross return on investment of 7.12%, which was 36 basis points lower compared to 7.48% in 2015.
On the Shariah savings scheme which was introduced last year, Shahril Ridza said upon the close of registration on Dec 23, 2016, a total of 635,037 members had switched their conventional savings to the Shariah-compliant retirement scheme.
“The 635,037 members who switched to Shariah scheme represent RM59.03 billion from the initial RM100 billion allocation that was set.
“We are not expecting very high number of members converting their savings to the Shariah-compliant scheme this year, but the numbers will surely jump in 2018 when we announce the first sets of dividend for the Shariah scheme,” said Shahril Ridza.