Malaysian pension fund, the Employees Provident Fund (EPF) has recorded an investment income of MYR6.78 billion for its fiscal first quarter (Q1 2016) ended 31 March 2016, which saw a year-on-year decline of 36.21 per cent compared with MYR10.63 billion in Q1 2015.
EPF chief executive officer Shahril Ridza Ridzuan said in a press statement that the investment climate in this quarter is significantly different from the first quarter last year which benefited from better returns from the fund’s 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 per cent compared with 47 per cent last year due to lower capital and foreign exchange gains,” he added.
During the quarter under review, equities, which made up 41.43 per cent of the EPF’s total investment asset, contributed MYR2.55 billion, representing 37.56 per cent of the total income.
The income generated was 59.98 per cent lower compared to MYR6.36 billion 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,” Shahril explained.
As at end March 2016, fixed income instruments represented 51.72 per cent of the EPF’s total investment size emerged as the main contributor of income for Q1 2016.
The asset class contributed a total of MYR3.74 billion of investment income or equivalent to 55.15 per cent of the quarterly income.
Malaysian Government Securities generated MYR1.87 billion in income during the quarter under review, up 9.80 per cent or MYR166.74 million, compared with MYR1.70 billion in Q1 2015.
Meanwhile, loans and bonds recorded an investment income of MYR1.87 billion compared with MYR2.03 billion in Q1 2015.
The EPF’s investment in Money Market Instruments, which currently stands at a healthy MYR22.58 billion, contributed MYR110.25 million of income while real estate and infrastructure, which made up 3.54 per cent of the total investment asset, yielded a total income of MYR377.84 million in Q1 2016 following income received from rentals and income recognised by its associate companies.
While Shahril noted that the fund is bracing for a difficult year in global and domestic markets given the ongoing investment climate and poor corporate results, the current economic condition also presents some opportunities for the EPF 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 four per cent, 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,” he said.