Fund keeping fixed income assets at 50pc for steady earnings

KUALA LUMPUR: The Employees Provident Fund (EPF) is maintaining about 50 per cent of its investment assets in fixed income to ensure a steady stream of income.

Deputy chief executive officer of investment Datuk Mohamad Nasir Ab Latif said the investment strategy was in line with EPF’s objective of preserving members’ savings.

“It is natural for the fund’s performance to be skewed towards fixed-income returns. Considering the prolonged low interest rate environment globally, it is crucial for us to diversify our investments into other asset classes, namely equity, real estate and infrastructure,” he told NST Business recently.

He said the EPF’s assets had been growing at about 10 per cent annually, much faster than the domestic capital market growth four to five per cent.

“To achieve the investment objectives as well as to mitigate concentration risk in the domestic market, the fund has continuously diversified its investments in foreign markets through various asset classes.”

Nasir said overseas markets provided greater opportunity for highquality, mature investments and greater liquidity, given their size and depth, for the fund to execute its strategies.

“Therefore, it is likely EPF will increase its allocation for overseas investments. However, this is subject to the Strategic Asset Allocation (SAA) review that is done every three years.”

Nasir said EPF’s investment diversification was important to meet its real dividend target of two per cent above the inflation rate on a three-year rolling period.

“As at December last year, the diversification has enhanced the threeyear annualised return on investment (ROI) of EPF by 7.28 per cent, compared with fixedincome instruments of 4.9 per cent.”

Nasir said its dividends had consistently been more than two per cent over the inflation rate in the past five years.

On whether EPF would give a higher dividend payout for this year, Nasir said: “We still have

Three-year annualised return on investment on EPF’s overseas portfolio as at

December last year one more quarter before the year-end. We are confident that our diversification into various asset classes will enable us to meet our real dividend target of at least two per cent above inflation over a three-year rolling period, for both Simpanan Shariah and conventional savings.”

Last year, EPF declared a dividend of 5.7 per cent, with a total payout of RM37.08 billion.

As at the end of last year, EPF delivered a three-year rolling return of 3.83 per cent above inflation, a significant premium over its two per cent above inflation strategic target.

“Thus, this is ensuring that members’ savings are not only preserved but also enhanced.”

Nasir said the outperformance was mainly driven by EPF’s overseas portfolios, which recorded a three-year annualised ROI of 11.09 per cent as at December last year.

“The EPF’s current allocation for real estate and infrastructure is at 4.16 per cent, lower than the median allocation of 10 per cent set out in the SAA.

“The depth of overseas markets offers EPF more opportunities, especially in real estate and infrastructure.”

Nasir said the inflation hedge of real estate and infrastructure had delivered competitive returns with lower risk, compared with equities, in the medium to long term.

“Despite recording significant annualised ROI of 8.91 per cent over the past three financial years, the contribution of income from real estate and infrastructure remains small as the exposure to the asset class is significantly lower than the targeted asset allocation,” he said. Ayisy Yusof