The EPF’s overall investment assets grew to RM1.04 trillion at the end of the first quarter 2023.
KUALA LUMPUR: The call by the government for the Employees Provident Fund (EPF) to increase its domestic investments to 70% from 64% presently may affect its dividend outlook to its members.
This as recent statistics showed that despite having 37% of its investments parked in overseas based assets, this segment had generated RM7.04bil in income, which represented almost half or 46% of the total investment income recorded for the recent first quarter.
The provident fund noted recently that its overseas investments are primarily invested into equity asset class.
The EPF’s overall investment assets grew to RM1.04 trillion at the end of the first quarter 2023.
Economists said the EPF has had a good track record in dividend returns and has historically outperformed its industry peers.
Despite the current economic challenges and higher rate of withdrawals in recent times, the EPF declared a 5.35% dividend for 2022 and 6.1% for 2021, for the conventional account.
This compares to the overnight policy rate at the time the EPF dividend was announced which was at 2.75% for 2022 and 1.75% for 2021.
The expectations are high for it to continue on delivering given its recent track record and maintaining these expectations would also go a long way to help the fund attract more depositors and grow its portfolio even further.
“I think the EPF should be allowed its own independence to ascertain its investments given that it is a provident fund and has to put the interest of its members first,” Lee Heng Guie, executive director at the Socio Economic Research Centre, told StarBiz.
Lee noted that future returns from any investment would also depend on which asset class the fund invested into, and the risk to reward ratio was different for the various asset classes.
“Whatever investment strategy they take, their priority should be to take care of the interest of their contributor members welfare first, and this includes any investment strategy they adopt should not see the dividend outlook to contributors being affected negatively,” he added.
Meanwhile, Professor of economics at Sunway University Dr Yeah Kim Leng said the new call to increase domestic investments needs to be realistic and in line with the EPF’s investment goals.
The fund must be given its own freedom and independence to determine their investment portfolios so it can achieve and outperform its investment goals, he noted.
“The bottomline is that EPF has a highly commendable track record in managing its trillion ringgit fund. It is therefore better positioned to make investment calls and not be tied down by rules or calls that may be out of sync with market direction and performance of individual asset classes,” Yeah told StarBiz.
He said the EPF’s track record is backed up by their historical dividend delivery and hopes this would continue on for the good of its members.
“Most would be satisfied if EPF can sustain its dividend performance as in previous years, generating returns superior to many unit trusts and other assets, including property investment,” Yeah said.
“Although the call (by the government) is laudable given that higher domestic investment will boost the local economy, its portfolio reallocation decision should be driven by market trends, growth prospects and foreign versus local returns of specific asset classes,” Yeah added.
All factors being equal, he also points out the elevated growth uncertainites in the developed markets at the moment.
“And given Malaysia’s higher gross domestic product (GDP) growth that is expected this year, the EPF may be able to achieve higher returns with domestic investments (for now). The ringgit, if it strengthens as anticipated towards the second half will also boost total returns performance relative to foreign assets,” Yeah said.
“While the EPF has generally outperformed expectations thus far, contributors should be realistic in their expectations given the high uncertainties buffeting the global economy and financial markets,” he added.
Commenting on this matter, Rakuten Trade head of equity sales Vincent Lau said notwithstanding the government’s recent call to the EPF, it might be able to capitalise on the relatively lower price-to-earnings valuations for stocks on the local bourse at the moment.
“With the EPF’s reputation that has been built up over the years, they can potentially attract more depositors which would help it then rebalance its portfolio in an orderly way as well,” Lau said.
“All things being equal, I don’t think this would impact its returns if it is done in an orderly way well as they also have their internal team to decide on investments, and this should solely be determined by the risk to reward ratio to the fund,” he added.
