Where did EPF invest in securities?

Industry experts are anticipating 2018’s returns to be lower than that of 2017, given the challenging geopolitical and financial landscape

By NG MIN SHEN / Pic By TMR

The Employees Provident Fund (EPF) is Malaysia’s largest institutional fund with over RM730 billion in investment assets. It is also the fifth-biggest national pension fund in Asia and the seventh-largest globally.

The pension fund is set to declare its dividend and financial performance for 2018 next month. Industry experts are anticipating 2018’s returns to be lower than that of 2017, given the challenging geopolitical and financial landscape.

Samsudin says the fund’s dividend payout for 2018 will be based on domestic and regional market conditions (Pic by Ismail Che Rus/TMR)

EPF chairman Tan Sri Samsudin Osman has also said the fund’s dividend payout for 2018 will be based on domestic and regional market conditions. These markets had a bruising year in 2018.

The pension fund declared a 6.9% dividend rate for conventional savings for 2017 — the highest since 1996 — while the Shariah-compliant portion of the fund announced a 6.4% profit-sharing for 2017.

Here’s a look at some of the EPF’s most significant investments in the local equities market.

The fund, as at Jan 25 this year, has total current equity assets of US$38.4 billion (approximately RM158.82 billion) under management invested in 278 securities, according to Bloomberg data.

Equities contributed 60.8% of the fund’s total investment income of RM14.6 billion registered during the third quarter of 2018 (3Q18).

Currently, the fund’s largest equity exposures are in the financials sector, with 41.2% of its portfolio invested in financials, followed by consumer staples with 15.1%. The largest five-year increase is in the consumer staples sector, while the largest five-year decrease is in the energy sector.

By geographic region, the fund’s largest current exposures are in Asia Pacific (emerging) with 96% and Western Europe (3.9%). Its largest five- year increase is in Western Europe and largest five-year decrease in Asia Pacific (developed).

Meanwhile, by market capitalisation, the fund’s largest current exposures are in large-cap stocks (42.9%) and mid-cap stocks (39.6%).

Forty-one percent of the institutional fund’s portfolio is invested in financials across 58 securities, with a market value of US$15.8 billion that has increased by US$691.5 million since the previous quarter.

The EPF’s second-largest sectorial investment is in consumer staples at 15.1% of its total portfolio. The investment in 40 securities, valued at US$5.8 billion, has grown US$310.9 million quarter-on-quarter (QoQ).

Communications comprise 12% of the fund’s portfolio, valued at US$4.6 billion. Held across 13 securities, the investment is up US$125.1 million since the preceding quarter.

Industrial stocks make up 7.5% of the fund’s profile, with a market value of US$2.9 billion in 53 equities that has expanded by US$131.6 million QoQ.

The EPF’s fifth-largest equities investment is in the utilities sector at 7.3% of its portfolio, valued at US$2.8 billion. Held in six securities, the investment is up US$29.9 million since the past quarter.

Materials constitute 4.8% of the fund’s total equity holdings, invested in 27 securities. Notably, its market capitalisation of US$1.8 billion has slipped by US$165.7 million since the previous quarter.

The fund’s 4.7% portfolio holding in the energy industry is also down by US$23.7 million QoQ at US$1.8 billion, spanning 20 securities.

Healthcare constitutes 3.7% of the EPF’s profile, valued at US$1.4 billion invested in nine stocks. The market value has increased US$336.3 million from the past quarter.

Three percent of the fund’s equity allocation is in consumer discretionary, held in 38 securities. Valued at US$1.3 billion, the investment has gained US$143.9 million QoQ.

In 10th place is the technology sector, with 0.4% of the fund’s portfolio held in 14 securities, and a market value that has fallen by US$40.8 million QoQ to US$168.5 million currently.

For comparison, the benchmark FTSE Bursa Malaysia KLCI fell 5.9% in 2018, versus a 9.4% increase in 2017.

By market capitalisation, the EPF’s most expensive holding is in Malayan Banking Bhd (Maybank), presently worth US$3.3 billion. The 12.99% stake, which constitutes 8.61% of the fund’s total portfolio, saw its value drop from US$3.1 billion in 4Q17 to US$3.3 billion in 4Q18.

The EPF’s second-most valuable stake is a 12.09% holding in Public Bank Bhd worth US$2.8 billion that constitutes 7.32% of the fund’s portfolio. As at 4Q18, the value of the stake was unchanged at US$2.9 billion from a year ago.

In third place is a 12.83% stake in Tenaga Nasional Bhd worth US$2.4 billion, comprising 6.22% of the fund’s portfolio. At US$2.4 billion, the value of the stake remains flat from 4Q18 and 4Q17.

The EPF is also the majority share- holder of RHB Bank Bhd with a 40.62% stake currently worth US$2.2 billion, ma- king up 5.63% of its total investor portfolio. The stock gained some ground to end 4Q18 at US$2.1 billion, versus US$1.9 billion as at 4Q17.

The fund’s 13.99% stake in CIMB Group Holdings Bhd is currently worth US$1.8 billion, constituting 4.77% of its total portfolio. As at 4Q18, the stake was worth US$1.9 billion, down from US$2.1 billion in 4Q17.

In Axiata Group Bhd, the EPF holds 15.7% of the telecommunications company (telco), a stake now worth US$1.4 billion. Year-on-year (YoY), the stake has dropped in value from US$2 billion as at end-2017 to US$1.4 billion as at 4Q18.

The pension fund’s 8.23% stake in Petronas Chemicals Group Bhd, now worth US$1.3 billion, expanded YoY from a market capitalisation of US$1.2 billion in 4Q17 to US$1.5 billion in 4Q18.

Its 12.62% stake in Hong Leong Bank Bhd worth US$1.3 billion rose in market value from US$1.1 billion as at 4Q17 to US$1.3 billion in 4Q18.

At DiGi.Com Bhd, the institutional fund’s 14.54% stake, which is valued at US$1.2 billion currently, as well as in 4Q18, was previously worth US$1.4 billion in 4Q17.

Its 11.25% holding in rival telco Maxis Bhd — now worth US$1.2 billion and in 4Q18 — dropped slightly in market value from US$1.3 billion in 4Q17.

By shareholding size the EPF’s largest stake is in Malaysia Building Society Bhd (MBSB) at 63.77% worth US$969.63 million. The stake has also gained US$190.4 million since the last filing. MBSB is the parent com- pany of Malaysia’s second-largest Islamic lender, MBSB Bank Bhd, formed just last year as a result of MBSB’s acquisition of Asian Finance Bank Bhd.

In second place is the fund’s stake in RHB, followed by Malaysian Resources Corp Bhd (MRCB) at 35.45% worth US$1.6 billion, and succeeded by Maybank, Axiata, CIMB and DiGi. The fund’s 14.02% stake in Sime Darby Plantation Bhd follows next with a market value worth US$1.2 billion, while its holding in Maxis comes after.

The EPF’s five largest stakeholdings as at end-3Q18 were in MBSB, RHB, MRCB, Telekom Malaysia Bhd and Axiata.

These companies’ shares declined 8.9%, 2%, 15.3%, 17.4% and 13.2% respectively during the last three months of 2018, which resulted in a combined RM9.3 billion loss in mar- ket value over 4Q18.

The fund needs to deliver an investment value amounting to about RM13 billion for 4Q18 to match 2017’s record investment revenue. It would be a challenge for the fund, especially with the local market performance and dividends from local securities having continued to raise questions.