EPF global outreach bears dividends

THE announcement was eagerly awaited and certainly did not disappoint. There was plenty to cheer for Malaysians when the Employees Provident Fund (EPF) announced its headline dividend of 6.1% for its conventional fund and 5.65% for the syariah fund.

The dividend, given that the world was mired in a pandemic last year, was pleasant news for every EPF member, especially since Bursa Malaysia has almost perennially let down most investors in recent years.

The EPF, being a “balanced fund” with investments in bonds, shares, real estate and private equity, among others, certainly outperformed a vast number of private unit trusts in the market.

The latest dividend rate was the highest over the past two years and punching above 6% was a good job by the people managing our money within the EPF.

The return of 6.1% also smashed the 12-month fixed deposit rate offered by banks, which hovers at around 1.85%.

It also beats the profit distribution from Tabung Haji which was at 3.1% and pips the return by Permodalan Nasional Bhd’s flagship fund of 5% to its unit holders.

The EPF in recent times has beaten what those two other huge funds have managed to do and that is really down to the EPF investing abroad.

In short, the EPF has matched our growing expectations and its performance will give members ground to pause and wonder if keeping their funds in the EPF or even depositing more spare money there is a good way of beating inflation.

The bulk of people’s retirement funds will not thus succumb to the whittling effects of price increases.

In the world of investing, they always say that the more money a fund has, the harder it is to generate a strong return.

The EPF knows that if it puts all its money in the local market, it would distort the price discovery process and inflate the true value of stocks on Bursa Malaysia.

Overall, the investment assets of the EPF grew 0.8% to RM1.01 trillion from RM1 trillion in 2020.

It said the number of members it has at the end of last year grew by 2% to 15.2 million, while the number of employers registered with the EPF was 553,000.

The EPF also said that as at Dec 31, 2021, it recorded a 6% increase in total gross investment income to RM67.06bil from RM63.45bil in 2020, driven by the progressive recovery of the equity markets and most asset classes amid the global rebound.

Its investment abroad, despite being only 37% of its assets, was the one that generated 56% of the RM67.06bil. That works out to a return of RM37.55bil.

It is the money invested abroad, as part of its asset allocation strategy, that really brought in the returns that enabled such high dividends.

PNB is also increasing its investments in markets overseas to bring in higher returns to its unit holders.

The EPF’s investments abroad have consistently been delivering strong returns to the provident fund and there will need to be questions on whether the amount of money that the EPF has in domestic equities, which amounts to 15% of the market value of stocks in the FBM KLCI, should actually remain.

The EPF has no plans to slash its investments in local companies but there are going to be hard questions asked in the near future whether it should seek more profitable pastures.

The EPF is also planning to have all of its investments in environmental, society and governance (ESG) compliant stocks by the end of this decade.

If Malaysian companies do not follow in terms of being ESG-compliant, then their status of eligibility for investing by EPF will be lost.

There needs to be a rush towards being ESG-ready as there are only 80 companies in that FTSE4Good Bursa Malaysia index out of the 970 listed companies on Bursa Malaysia.

That is less than 10% and Malaysian listed companies must buck up.

The FTSE4Good Bursa Malaysia index is seen as the “ESG” index for stocks on Bursa Malaysia.

There is also a benefit of being ESG-compliant.

It can inflate the value of such stocks on Bursa Malaysia and that can mean an end to the disappointing lower endings we have seen in recent times.

Of course, the more important thing is: it will benefit the EPF members.

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Employees Provident Fund , EPF , dividend


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