Equity portfolio largest contributor to 2017 income

The Employees Provident Fund (EPF) says its equity portfolio, which made up 42.23 per cent of its total investment assets, was the largest contributor at RM31.47 billion or 59.23 per cent to the total income last year.

This was mainly driven by the strong rally in global listed equities, particularly in developed markets, such as the United States and North Asia, EPF said.

Non-syariah stocks, especially conventional banking stocks, delivered higher returns driven by major global and domestic banks, which had been the outperformers during the year.

“Conversely, higher listed equity impairments from syariahcompliant stocks, particularly oil and gas, and telecommunication counters, lowered the income of EPF’s syariah portfolio.

“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 per cent respectively.

“This is a premium of 6.77, 5.90 and 6.15 per cent over other asset classes respectively, and has been one of the main factors that enable EPF to continuously provide a healthy spread towards the country’s inflation rate and over the market yield of fixed-income instruments,” it said.

The fund’s investments in fixed income instruments, comprising government securities and equivalent, as well as loans and bonds, contributed 32.84 per cent, 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 per cent, compared with 2016, while money market instruments contributed RM1.24 billion of income during the year.

Overseas investments, which made up about 28 per cent of total investment assets up to Dec 31 last year, contributed 41.45 per cent to EPF’s gross investment income for the year, thus boosting the overall returns to its investment portfolio by 1.22 per cent.

EPF’s prudent approach to managing expenses is indicated by the consistency in its key financial ratios, including the cost to asset under management (AUM).

Last year, the cost to AUM was at 0.26 per cent compared with 0.25 per cent in 2016, cost-togross income of 2.53 per cent against 2.56 per cent in 2015 and cost to total asset of 0.17 per cent compared to 0.16 per cent in 2014.

EPF’s diversification into global assets in various countries and currencies has enabled it to realise sizeable gains from different markets and asset classes, which boosted overall performance.

Its overseas portfolio recorded a one-, three- and five-year annualised ROI of 10.83, 11.14, and 10.43 per cent, respectively.

Last year, EPF said it saw improved market conditions across global and domestic markets with the two rate hikes by the US Central Bank and anticipation of tax reform in the US fuelled the global market indices rally as it signalled investors’ positive outlook on the economy and increasing corporate profits going forward.

Other factors that played a key role included increasing oil prices and strengthening of the ringgit.