PETALING JAYA: A new race has begun to get the attention of the Employees Provident Fund (EPF) as a shareholder after the pension fund declared it was looking to put money into some 40 mid-cap stocks.
“The market has perked up to this news. Every company wants the EPF to be its shareholder,” quipped one investment bank's head of equity capital markets (ECM).
To recap, EPF chief executive officer Datuk Shahril Ridza Ridzuan said this week that it was looking at making investments in 40 mid-cap stocks, adding that the fund was already invested in a number of mid-sized companies.
Shahril said the EPF was happy to support companies that fulfilled its investment criteria, which include having ample liquidity, the ability to generate cash flows and dividends, and having good corporate governance practices in place.
A head of dealing said that the EPF used to invest more actively in mid-caps some 10 years ago.
“Those were the go-go days. In the last few years, with interest mainly in the big-caps, there has been less focus on mid-caps, despite some of these companies delivering good earnings.”
On the definition of “mid-cap” stocks, industry players said there was no hard and fast rule to it. “These are stocks which aren't quite blue chips and are yet not considered small-caps,” said one fund manager.
Mid-caps can be loosely classified as companies that lie in the middle of the pack between large- and small-cap companies. Mid-caps generally have a market capitalisation of between RM100mil and RM1bil.
For a company to make the cut, the ECM head reckons that it would have to be fundamentally sound with good earnings before it passed the test of the EPF investment panel.
Companies will also need to market themselves via roadshows and investor briefings.
The said companies would also probably have to be on the buy list of a few research houses before they got on the radar of the EPF, said one fund manager.
Earlier this month, the pension fund had emerged as a substantial shareholder in Prestariang Bhd with a 5.2% stake. Prestariang is an up-and-coming provider of information and communications technology training, certification and software licence management and distribution. Apart from good dividend yields, the company looks set to deliver strong earnings growth based on the contracts it has bagged.
Shahril said the fund was looking at sectors that were robust and not so dependent on economic cycles.
He said the EPF was already investing 20% of its funds in mid-cap stocks, with plans to increase this to 30%.
He said the healthcare and industrial sectors were some of the fastest-growing sectors at the moment.
Shahril was commenting on Prime Minister Datuk Seri Najib Razak's call last week for government-linked investment companies, especially the EPF, to play a more prominent role and increase market vibrancy by investing in good quality mid-cap stocks.
The EPF manages assets worth more than RM556bil, of which some 60% are invested in fixed income, 16% in the stock market and 2% in property.