by MARK RAO/TMR PIC
Employees Provident Fund’s (EPF) total income fell 25% year-on-year (YoY) for the first quarter ended March 31 this year (1Q19) on the continued rout of domestic equities and challenging external picture
Malaysia’s largest pension fund recorded RM9.66 billion in income for the quarter, significantly lower than the RM12.88 billion managed in 1Q18, with income from both conventional and Shariah savings down YoY by 24.8% and 26.7% respectively.
This was due to EPF’s high exposure to equities which comprised 39% of total investments and contributed to RM4.16 billion or 43% of total investment income.
EPF deputy CEO for investment Datuk Mohamad Nasir Ab Latif said the 1Q19 performance was commendable given the current global and domestic picture, while adding that equity investments remain a key contributor to the fund.
“Despite its volatile nature, this asset class has higher long term expected returns. Equities will continue to play a pivotal role in enhancing returns and ensuring that we are able to declare dividends of at least 2% above inflation,” he said in a statement today.
Nonetheless, he said the global market will continue to be marked by heightened volatility on the ongoing US-China trade war, while rising geo-political risks and uncertainty over major central banks’ policies will add further pressure on the global economy.
“As with other businesses, the EPF’s investments will be affected by these global risks, but we have our Strategic Asset Allocation to guide us,” he said.
“We will focus on meeting the 10% allocation for real estate and infrastructure as part of our diversification plan, and we will deploy more cash into alternative assets to maximise returns.”
Meanwhile, Bank Negara Malaysia’s decision to cut the overnight policy rate earlier this month should bolster the domestic economy and help offset any downside to be incurred, Mohamad Nasir said.
He said EPF is confident of delivering a real dividend of at least 2% over a three year basis for 2019 while it aims to invest in fundamentally strong stocks at attractive prices during the market downturn.
The fund declared a 6.15% dividend for its conventional savings for a total RM43 billion payout and 5.9% for its Shariah savings (RM4.32 billion payout) for 2018.
Despite the volatility of its equities investments, EPF’s earnings in 1Q19 were cushioned by more stable asset groups including fixed income.
Half of EPF’s investments are in the fixed income market which contributed to RM4.85 billion or 50% of total income that quarter.
Income from Malaysian Government Securities and equivalents was RM2.52 billion while loans and bonds generated RM2.33 billion in income.
Meanwhile, real estate and infrastructure investment recorded RM171.6 million in income while money market instruments, representing 6% of total investments, brought in RM469.86 million.
Investments in the latter asset class, which includes fixed and time deposits, helps the fund meet short-term liquidity needs.
Net contributions for EPF came in at RM5.97 billion in 1Q19 with RM19.24 billion in contributions and RM13.27 billion in withdrawals.