EPF's 2017 investment income tops RM53b on improved market conditions

PETALING JAYA: The Employees Provident Fund (EPF) saw investment income hit RM53.14 billion in 2017, driven by improved market conditions across both global and domestic markets in 2017, leading it to declare a dividend rate of 6.9% for the conventional scheme, its highest since the 1990s, and 6.4% for its maiden payout under the syariah scheme.

Of the amount, a total of RM4.60 billion was attributed to the syariah scheme, proportionate to its share of total syariah assets while RM48.54 billion was attributed to the conventional scheme.

As at Dec 31 2017, total members savings amounted to RM768.51 billion, of which RM67.76 billion was under syariah and RM700.75 billion under conventional.

Captains of industry Malayan Banking Bhd group president and CEO Datuk Abdul Farid Alias and CIMB group chief executive Tengku Datuk Seri Zafrul Aziz both lauded the above-par performance by the EPF.

Farid said the performance was especially noteworthy considering that global interest rates are still below what is considered to be a "normal" interest rate environment. He also opined that the difference in dividend rate between the conventional and the syariah accounts will narrow with time and the availability of more syariah-compliant investment instruments.

During the year under review, equities, which made up 42.23% of the EPF’s total investment assets, remained the largest contributor to the investment income at RM31.47 billion, representing 59.23% of total income. This was mainly driven by the strong rally in the global listed equities, particularly in developed markets such as the US and North Asia. Non-syariah stocks, especially conventional banking stocks, delivered higher returns, driven by both major global and domestic banks, which have been the outperformers during the year.

Conversely, higher listed equity impairments from syariah-compliant stocks, particularly the oil and gas, and telecommunication counters, lowered the income of the EPF’s syariah portfolio. Impairment recognition is in accordance with the Malaysian Financial Reporting Standard (MFRS) 139 adopted since 2010.

The EPF’s equity portfolio has been delivering a one, three, and five-year annualised return on investment (ROI) of 11.46, 10.90, and 11.06% respectively. This is a premium of 6.77, 5.90 and 6.15% over other asset classes respectively, and has been one of the main factors that enable the EPF to continuously provide healthy spread towards the country’s inflation rate and over the market yield of fixed income instruments.

The EPF’s investments in fixed-income instruments, comprising Malaysian Government Securities and equivalent, and loans and bonds, in total contributed 32.84%, or RM17.45 billion, of the RM53.14 billion investment income for the year. Real estate and infrastructure contributed RM2.97 billion in investment income in 2017 with an annual growth of 19.62%, compared with 2016; while money market Instruments contributed RM1.24 billion.

The EPF said its prudent approach to managing expenses is indicated by the consistency in its key financial ratios, including the cost to asset under management (AUM). In 2017, the cost to AUM was at 0.26% (2016: 0.25%), cost to gross income of 2.53% (2016: 2.56%) and cost to total asset of 0.17% (2016: 0.16%).

The pension fund’s overseas investments, which made up about 28% of total investment assets as at Dec 31, 2017, contributed about 41.45% to its gross investment income for the year, thus enhancing the overall returns to the EPF’s investment portfolio by 1.22%.

The diversification into global assets in various countries and currencies has enabled the EPF to realise sizeable gains from different markets and asset classes, which help to boost overall performance. Its overseas portfolio has been recording a one, three and five-year annualised ROI of 10.83, 11.14, and 10.43% respectively.