EPF investment income for Q3 rises 29%

PETALING JAYA: The Employees Provident Fund (EPF) saw a 29.21% growth in investment income for the third quarter ended Sept 30, 2016 (Q3 2016), helped by contributions from equity investments, which jumped almost 50% from a year ago.

Investment income for the quarter stood at RM12.32 billion, compared with RM9.54 billion a year ago.

Investment assets recorded an increase of 4.09% to RM712.50 billion from RM684.52 billion as at Dec 31, 2015.

“Given the overall poor performance in the third quarter of 2015, the improved year-on-year performance in Q3 2016 is accentuated by a low base. Nonetheless, most equity markets recorded an improvement resulting in outperformance in the third quarter this year compared with the corresponding quarter last year,” EPF CEO Datuk Shahril Ridza Ridzuan said in a statement yesterday.

He, however, said the EPF remains cautious as uncertainties, further exacerbated by the outcome of the US presidential election, loom large over the performance of global and regional markets as well as against emerging market currencies.

“Although this is likely to result in foreign exchange gains in the current year for the EPF’s investments, moving forward, the EPF’s cost for overseas investment will increase as investments will be at higher foreign exchange rates,” said Shahril.

He said the low interest rate environment will also continue to reduce the return from its fixed-income investment as maturing higher yielding bonds will be reinvested at the prevailing low interest rate.

“Given the decline in investment income in the first half of the year and the uncertainties that are expected to remain for the rest of the financial year, it would be a challenge for the EPF to sustain previous years’ returns,” he added.

Shahril said the EPF will continue to be guided by its long-term investment strategy through the Strategic Asset Allocation, which has factored in short- to medium-term volatility in the market such as the US presidential election outcome. The pension fund also remains focused on delivering real dividend target of at least 2% above inflation over a three-year rolling period.

In a review of its performance for the quarter, the EPF said non-cash impairments stood at RM349.59 million, an improvement from the RM1.02 billion reported a year ago.

Equities, which made up 41.24% of the EPF’s total investment assets, contributed RM7.02 billion in Q3 2016, representing 56.96% of total investment income for the quarter, a 49.02% growth from the RM4.71 billion recorded a year ago.

Shahril attributed the increase in income to the improvements in equity prices mainly in the North Asian and developed markets, which provided opportunities for the EPF to realise higher trading income.

As at September 2016, a total of 49.76% of the EPF’s investment assets were in fixed-income instruments. Fixed-income investments generated RM4.52 billion during the quarter, equivalent to 36.65% of the quarterly investment income.

In Q3 2016, income from Malaysian Government Securities and equivalent rose 7.21% to RM1.95 billion from RM1.82 billion a year ago while loans and bonds generated an investment income of RM2.56 billion compared with RM2.54 billion a year ago.

Investments in Money Market Instruments, which represented 5.19% of total investment assets, contributed investment income of RM295.66 million during the quarter.

Meanwhile, investments in real estates and infrastructure, which represented 3.8% of total investment assets, contributed investment income of RM478.22 million during the quarter. This asset class provides the EPF with inflation-linked returns in order to achieve real dividend target of 2% above inflation.