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EPF’s investment income falls 36% in Q1, braces for tough year

The Star

KUALA LUMPUR: The Employees Provident Fund (EPF) recorded an investment income of RM6.78bil for its fiscal first quarter (Q1) ended March 31, 2016, a 36.21% decline year-on-year compared with RM10.63bil in Q1 2015.

Chief executive officer Datuk Shahril Ridza Ridzuan said in a statement: “The investment climate in this quarter was significantly different from the first quarter last year which benefited from better returns from our global investment, particularly from developed equity markets, which compensated for the weak domestic equity market.

“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.”

During the quarter under review, equities, which made up 41.43% of the EPF’s total investment asset, contributed RM2.55bil, representing 37.56% of the total income.

The income generated was 59.98% lower compared to RM6.36bil recorded in the same corresponding period in 2015.

While income deriving from dividend payouts has been stable and consistent with last year’s first quarter, the drop in share prices globally and domestically has led to fewer opportunities for the EPF to realise trading income during Q1 2016.

“The lower returns from our equity investments was mitigated by the income from our fixed income and inflation assets which remained resilient and stable throughout the quarter. Our strategic asset allocation, which allocates more than half of our investment asset in fixed income, played its role in providing sustainable long term returns for our investment,” added Shahril.

As at end March 2016, fixed income instruments represented 51.72% of the EPF’s total investment size emerged as the main contributor of income for Q1 2016. The asset class contributed a total of RM3.74bil of investment income or equivalent to 55.15% of the quarterly income.

Malaysian Government Securities generated RM1.87bil in income during the quarter under review, up 9.80% or RM166.74mil, compared with RM1.70bil in Q1 2015. Meanwhile, loans and bonds recorded an investment income of RM1.87bil compared with RM2.03bil in Q1 2015.

The EPF’s investment in money narket instruments, which currently stands at a healthy RM22.58bil, contributed RM110.25mil of income while real estate & infrastructure, which made up 3.54% of the total investment asset, yielded a total income of RM377.84mil in Q1 2016 following income received from rentals and income recognised by its associate companies.

“We are bracing for a difficult year in global and domestic markets given the ongoing investment climate and poor corporate results. The uncertainties in the world economy, following prolonged slower growth in major economies and high volatility in the equity markets and commodity prices, are expected to remain throughout the year.  It is critical for us to continue to be disciplined in our multi-asset class and diversified approach to meet our strategic objectives,” Shahril said.

According to him, the current economic condition presents some opportunities for the country’s biggest retiremenht fund to rebalance portfolios and simultaneously increase exposure to inflation asset classes, including real estate and infrastructure, which potentially are able to provide stable and continuous stream of income.

“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 per cent of the total fund size in five to seven years,” said Shahril.

Contrary to focusing on short term returns, the EPF, as a retirement savings fund, has always been focusing on sustainable long term returns by targeting a 2% real dividend over a three-year rolling period, it said. This is in line with the EPF’s investment objective of not only preserving but also enhancing the value of members’ savings.