KUALA LUMPUR: The Employees Provident Fund’s (EPF) investment income for the third quarter of financial year 2014 ended Sept 30 (3QFY14) rose 2.1% to RM10.32 billion from RM10.11 billion a year ago, driven mainly by equity investments which contributed 61% of the total. This contribution was up from 56.5% in 3QFY13.

Investment income from equities for 3QFY14 amounted to RM6.34 billion — equally contributed by both domestic and global portfolios, compared with RM5.71 billion in 3QFY13.

“Apart from the steady stream of dividend income received in 3Q14, both [the domestic and global] portfolios also benefited from the better market conditions, allowing fund managers to realise higher trading income,” EPF said in a statement yesterday.

EPF chief executive officer Datuk Shahril Ridza Ridzuan said the equity portfolio continued to deliver a strong performance for two consecutive quarters.

However, he noted that both the domestic and global equity markets have started to show signs of greater volatility, particularly with the FBM KLCI reaching its current year low, below the 1,800-point level in October.

“The International Monetary Fund has also downgraded its 2015 outlook for global economic growth, which is reflective of the more difficult conditions surrounding markets in the current fourth quarter for 2014,” Shahril said.

“We foresee challenges in the financial years ahead and we will continue to uphold our long-term investment strategy focusing on the fund’s objective of ensuring sustainable and stable real returns for our members,” he added.

Within the EPF’s investment portfolio, loans and bonds were the only asset class that saw a year-on-year (y-o-y) drop in investment income in 3QFY14.

Loans’ and bonds’ income stood 24.7% lower at RM1.71 billion in 3QFY14, compared with RM2.27 billion in 3QFY13, which the EPF attributed to “reinvesting of maturing assets at the current low interest rate environment.”

Meanwhile, Malaysian Government Securities and equivalents recorded a 4.1% increase in income to RM1.62 billion, from RM1.56 billion in 3QFY13.

Money market instruments’ income also rose 35.7% to RM197 million from RM145.23 million while real estate and infrastructure’s income rose marginally 2.1% y-o-y to RM439.09 million in 3QFY14.

The EPF’s total investment assets grew 9.7% to RM622.78 billion — of which equities accounted for 43% — from RM568.04 billion in 3QFY13.

Geographically, the EPF said its total overseas exposure in over 30 countries constituted 23% of its total investment assets, of which 18% were invested in global equities, 3% in bonds and the remaining in real assets and private equity.

“As the custodian of retirement savings for 14 million members, the EPF aims to provide at least a return of 2% above inflation over a three-year rolling period in line with the fund”s objectives to preserve and add value to members’ savings,” it said.

Shahril also said from next year onwards, the EPF will be adopting the environmental, social and governance principles starting with fixed income instruments, and followed by other asset classes in line with its ethical, responsible and diversified long-term investment strategy.

He emphasised that the EPF adhered strictly to the strategic asset allocation, which is designed according to the fund’s risk-return profile and more importantly, the EPF adopted ethical investment practices in all of its investments to ensure consistent returns over the long term.

This article first appeared in The Edge Financial Daily, on November 25, 2014.