A challenge to sustain momentum through fourth quarter
KUALA LUMPUR, 19 December 2018: The Employees Provident Fund (EPF) today reported total investment income of RM14.61 billion for the third quarter ended 30 September 2018 (Q3 2018), a year-on-year increase of 12.82 per cent from RM12.95 billion recorded during the same period last year.
EPF Deputy Chief Executive Officer (Investment) Dato’ Mohamad Nasir Ab Latif said, “Q3 2018 saw us navigating a volatile market condition, which has been fuelled by the trade tensions between China and the United States. However, we have been able to record an improvement in income as Malaysia and ASEAN equities recovered in Q3 2018 from the market downturn experienced in previous quarters, while developed market equities continued to record positive growth from previous quarter.
“Volatility is increasingly felt across the region, in which we saw a decline in regional equity markets in the fourth quarter of 2018. This will certainly pose a huge challenge to the EPF to sustain the same income momentum for the fourth quarter.”
In Q3 2018, Equities, which made up 40.67 per cent of the EPF’s total investment assets, have continued to be the main revenue driver, contributing RM8.89 billion, which is equivalent to 60.81 per cent of total investment income, for the quarter. During the quarter under review, dividend income has enhanced the performance of the domestic equity portfolios.
A total of 50.72 per cent of EPF’s investment assets were in fixed income instruments, which continue to provide consistent and stable income, reduce overall risk and protect against volatility of the EPF’s portfolio, in line with the EPF being a balanced fund. The third quarter saw fixed income investments recording an income of RM4.73 billion, equivalent to 32.40 per cent of the quarterly investment income. Income from Malaysian Government Securities (MGS) & Equivalent in Q3 2018 increased to RM2.50 billion. Loans and Bonds generated an investment income of RM2.24 billion.
During the quarter under review, Real Estate & Infrastructure recorded RM726.23 million in investment income, an increase from RM91.73 million during the same quarter last year. The marked increase was due to higher dividend income, compared with the same period last year.
Investments in Money Market Instruments, which represent 3.92 per cent of the total investment assets, contributed RM265.39 million to the investment income. Investment in this asset class, which includes treasury bills, commercial papers, short-term certificates of deposit, repurchase agreements, etc., provides regular income payments and is vital in meeting the EPF’s short-term liquidity needs.
In accordance with the implementation of the Malaysian Financial Reporting Standards 9 (MFRS 9), which came into effect beginning 1 January 2018, capital gains on disposal of equity amounting to RM5.17 billion for the Q3 2018 will flow directly to Retained Earnings from the Statement of Other Comprehensive Income, instead of the Statement of Profit and Loss as under the previous MFRS 139. In addition, under MFRS 9, the EPF would no longer recognise any impairment on its equity holdings.
A total of RM1.33 billion out of the RM14.61 billion gross investment income, was generated for Simpanan Shariah and RM13.28 billion for Simpanan Konvensional. Simpanan Shariah derives its income solely from its portion of the Shariah portfolio while income for Simpanan Konvensional is generated by its share of both Shariah and conventional portfolios.
Commenting on the outlook for the rest the year, Dato’ Mohamad Nasir said, “Going forward, we remain cautious of the uncertain external environment such as the continued US-China trade tensions, weaker commodity prices and the US interest rate hike as well as the challenging domestic equities market.
“Meanwhile, we are grateful for the support of the Ministry of Finance and Bank Negara Malaysia towards the EPF’s long-term global diversification efforts, which will greatly assist the EPF towards delivering its strategic targets of at least 2.5 per cent nominal dividend and 2.0 per cent real dividend on a rolling three-year basis.”
The Employees Provident Fund (EPF) is Malaysia’s premier retirement savings fund to help its members achieve adequate savings for a comfortable retirement. This is in line with EPF’s vision to help members achieve a better future and the mission to safeguard members’ savings and deliver excellent services. The EPF has evolved significantly from transaction-centric to a professional fund management organisation with a strong focus on retirement security. The EPF is guided by a robust and professional governance framework when making investment decisions. It continues to play a catalytic role in the nation’s economic growth and seeks to cultivate a savings and investment culture among its members to improve the country’s financial literacy level.