Friday 29 Mar 2024
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This article first appeared in The Edge Financial Daily, on May 25, 2016.

KUALA LUMPUR: The Employees Provident Fund’s (EPF) investment income declined to RM6.78 billion for the first quarter ended March 31, 2016 (1QFY16), down 36.2% against RM10.63 million a year ago — the lowest level since 1QFY13.

EPF chief executive officer Datuk Shahril Ridza Ridzuan warns that the provident fund is bracing for a difficult year in global and domestic markets, and stressed that it is critical that the EPF continues to be disciplined in its multi-asset class and diversified approach to meet its strategic objectives.

Shahril attributed the contraction in its investment income to the weak global equity markets.

“The first quarter of this year had almost all global equity markets, including the FBM KLCI, recording declines leading to lower income contribution from our total equity portfolio.

“Accordingly, the contribution of global assets to total income decreased to about 22%, compared with 47% last year, due to lower capital and foreign-exchange gains,” explained Shahril in a statement yesterday.

Equities, which made up 41.43% of the EPF’s total investment assets, contributed RM2.55 billion, or 37.6%, to its total income.

The contribution was 60% lower compared with RM6.36 billion recorded in the previous corresponding quarter last year.

Income derived from dividend payouts has been stable and consistent with 1QFY15, but a drop in share prices globally and domestically has led to fewer opportunities for the EPF to realise trading income during 1QFY16.

As at end-March, “fixed income instruments” represented 51.72% of the EPF’s total investment size and emerged as the main income contributor for 1QFY16. The asset class contributed a total of RM3.74 billion of investment income, equivalent to 55.15% of the quarterly income.

Meanwhile, Malaysian Government Securities generated RM1.87 billion in income, up 9.8% from RM1.7 billion in 1QFY15. “Loans and bonds” recorded an investment income of RM1.87 billion, compared with RM2.03 billion in 1QFY15.

The EPF’s investment in “money market instruments”, which currently stands at a healthy RM22.58 billion, contributed RM110.25 million of income, while real estate and infrastructure, which made up 3.54% of total investment assets, yielded a total income of RM377.84 million in 1QFY16, following income received from rentals and income recognised by its associate companies.

“Our real estate exposure is relatively small at this point of time at less than 4%, but it is the fastest-growing part of our business. The goal is for inflation-linked assets to reach about 10% of the total fund size in five to seven years,” said Shahril.

He reiterated its focus on sustainable long-term returns by targeting 2% real dividends over a three-year rolling period.

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