KUALA LUMPUR: The Employees Provident Fund (EPF) reported a 9.2% increase in quarterly total investment income of RM12.88bil for the first quarter ended March 31, 2018, with equities accounting for nearly 62% but it remained cautious for the year due to increased global trade tensions, weaknesses in key emerging countries
It said on Friday the investment income was an improvement from the RM11.79bil a year ago.
In Q1 2018, equities accounted for 41.59% of the EPF’s total investment assets and contributed RM7.93bill, representing 61.58% of total investment income for the quarter.
EPF chief executive officer Datuk Shahril Ridza Ridzuan said: “Despite developed markets experiencing a decline in the first quarter, following higher-than-anticipated inflation in the US, the EPF has managed to record consistent performance in the quarter, driven by domestic and Asean markets, which recorded positive growth.
“Coupled with diversification into various markets, geographies and sectors, we have been able to cushion the decline in developed market equities, and this has resulted in consistent performance to our overall portfolio with domestic equities emerging as an outperformer.”
A total of 50.53% of EPF’s investment assets were in fixed income instruments, which continue to provide consistent and stable income.
The first quarter saw fixed income investments record an income of RM4.76bil, equivalent to 36.99% of the quarterly investment income.
Income from Malaysian Government Securities (MGS) & Equivalent in Q1 2018 increased to RM2.24bil.
Loans and Bonds generated an investment income of RM2.5bil while investments in Money Market Instruments, which represented 2.91% of the total investment assets, contributed RM292.91mil to the investment income.
However, real estate & infrastructure recorded negative investment income at RM107.38mil.
The EPF said this was primarily caused by the weakening of US dollar against other major currencies, including the Ringgit, which impacted valuations on the investment.
The negative investment income recorded for the asset class is, however, expected to be offset by inflow of investment income in the coming quarters.
The value of EPF investment assets reached RM814.38bil, a 0.53% or RM4.25bil increase, from Dec 31, 2017.
Out of the total investment asset, RM321.05bil, or 39.42 per cent, were in Shariah-compliant investment while the balance were invested in the conventional portfolio.
“A total of RM1.22bil out of the RM12.88bil total gross investment income was generated for Simpanan Shariah while RM11.65bil for Simpanan Konvensional,” it said.
The EPF said Simpanan Shariah derives its income solely from its portion of the Shariah assets while income for Simpanan Konvensional is generated by its share of both Shariah and conventional assets.
In accordance with the implementation of the Malaysian Financial Reporting Standards 9 (MFRS 9), which came into effect beginning Jan 1, 2018, there will be some changes in the EPF’s financial reporting.
Shahril said capital gains on disposal of equity amounting to RM6.19bil will now flow directly to retained earnings from the Statement of Other Comprehensive Income as opposed to the Statement of Profit or Loss under the previous MFRS 139.
“Nonetheless, we expect the impact of MFRS 9 on our financials to be minimal.”
In addition, under MFRS 9, the EPF would no longer recognise any impairment on its equity holdings.
As at end March 2018, the EPF’s overseas investments, which accounted for 27.30% of its total investment asset, contributed 33.60% to the total investment income during the quarter under review.
“The performance of the global market in the current quarter and for the rest of the year remains uncertain and we will continue to exercise caution amidst the aggressive pace of rate hikes by the US Federal Reserve,” Shahril said.
“Increased global trade tensions and weaknesses in key emerging countries present real threats to all markets and we are cautious of the overall outlook for returns this year.
“On the domestic front, we maintain a long term positive outlook as Malaysian fundamentals remain strong despite some short term volatility after the recent elections.”