MEMBERS of the Employees Provident Fund (EPF) will soon have an overseas investment option, following the pension fund’s announcement that it will remove the existing 30% foreign fund exposure cap on investments undertaken by members. Beginning Aug 1, there will be 42 new unit trust funds with overseas exposure available under the EPF’s Members Investment Scheme (EPF-MIS).
The move is welcomed by investment advisers as this will give members more investment options. This will allow them to diversify their investments while seeking higher returns on their retirement savings.
“The majority of EPF investments and mandate is currently in local assets, which means members are exposed to a single country’s risk. Therefore, the cap removal is a strategic decision to allow members to have geographical diversification to reduce our reliance on stock market risk in Malaysia,” says Kevin Neoh, financial planner at VKA Wealth Planners Sdn Bhd.
Robert Foo, managing director of MyFP Services Sdn Bhd, says this will give members better latitude when it comes to investing. “The Malaysian economy is only 2% to 3% of the world’s market capitalisation. Therefore, it is good that they are given more options.”
Lim Yan Chang, a licensed investment adviser representative with Standard Financial Adviser Sdn Bhd, says that although it is a good move, members are advised to be cautious of global market volatility and not be hasty when it comes to selecting these funds.
It does not mean members will automatically get higher returns. “The international market gives you more options, but not necessarily higher returns. For example, those who invested in China funds a few years ago did not get a very good return as they did not perform very well,” says Lim.
Neoh concurs, saying members may be picking up additional risk as well. “There are two sides of the coin. You may potentially receive a higher return. But there may also be higher risk of losing your capital. One of the reasons is you are not living in the country that your investment fund has exposure to; you may not know what is happening there.”
To get good returns, members will have to depend on the expertise of the fund manager. So, the quality of the fund manager is important, says Lim.
MyFP’s Foo says since the EPF-approved unit trust funds are managed by local providers, there is a limit to how diversified the members’ investments are. “You may have diversification in foreign fund exposure, but these funds are still managed by local unit trust companies in terms of their management skill and ability to get returns. So, I would say it is a step towards diversification, but not a total one yet.”
He adds that the current problem with the EPF-MIS is that members may only invest in one unit trust fund at a time, thus diversification is “slow”. “I think what the EPF should have done was to allow members to invest in multiple funds in one go, rather than just one and wait for a certain amount of time before investing in another. For example, if I could draw RM10,000 to invest in five unit trusts at a time, it would give me better diversification immediately.”
Lim says members who are interested in investing in the newly approved funds should have some knowledge about investing in overseas funds. Their investment horizon should also be factored into their decision.
“If you are younger and have more years to contribute, then maybe you can try it out. However, if you are nearing retirement age, unless you are very investment savvy, you have to be careful since you may not have sufficient information to monitor the performance,” he adds.
Foo says members with a shorter investment horizon are not advised to invest in funds with foreign exposure, unless they are in line with their risk profile. “If members are not able to weather the volatility of the market, then they must take lower risk. However, if it matches their investment objective, then it is alright even for older members to invest in these funds.”
According to the EPF, the list of new funds will be announced on Aug 1.