KUALA LUMPUR: The Employees Provident Fund (EPF) says its equity portfolio, which made up 42.23 per cent of its total investment assets, was the largest contributor at RM31.47 billion or 59.23 per cent to the total income last year.
This was mainly driven by the strong rally in the global listed equities, particularly in developed markets such as the US and North Asia, the EPF said.
The non-syariah stocks, especially conventional banking stocks, delivered higher return driven by both major global and domestic banks, which had been the outperformers during the year.
"Conversely, higher listed equity impairments from Syariah-compliant stocks, particularly the oil and gas, and telecommunication counters, lowered the income of the EPF’s Shariah portfolio.
“The EPF’s equity portfolio has been delivering a one, three and five-year annualised return on investment (ROI) of 11.46, 10.90, and 11.06 per cent respectively. This is a premium of 6.77, 5.90 and 6.15 per cent over other asset classes respectively, and has been one of the main factors that enable the EPF to continuously provide healthy spread towards the country’s inflation rate and over the market yield of fixed income instruments,” it explained.
The fund's investments in fixed income instruments, comprising Malaysian government securities and equivalent and loans and bonds, in total contributed 32.84 per cent, or RM17.45 billion of the RM53.14 billion investment income for the year.
Real estate and infrastructure contributed RM2.97 billion in investment income in 2017 with an annual growth of 19.62 per cent, compared with 2016; while money market instruments contributed RM1.24 billion of income during the year.
Overseas investments, which made up about 28 per cent of total investment assets as at December 31 2017, contributed about 41.45 per cent to the EPF’s gross investment income for the year, thus enhancing the overall returns to its investment portfolio by 1.22 per cent.
EPF’s prudent approach to managing expenses is indicated by the consistency in its key financial ratios, including the cost to asset under management (AUM).
In 2017, the cost to AUM was at 0.26 per cent compared to 0.25 per cent in 2016, cost-to-gross income of 2.53 per cent against 2.56 per cent the previous year and cost to total asset of 0.17 per cent compared to 0.16 per cent the year before.
The diversification into global assets in various countries and currencies has enabled the EPF to realise sizeable gains from different markets and asset classes, which help to boost overall performance.
The EPF’s overseas portfolio recorded a one, three and five-year annualised ROI of 10.83, 11.14, and 10.43 per cent, respectively.
In 2017, EPF said it saw improved market conditions across both global and domestic markets with the two rate hikes by the US central bank and anticipation of tax reform in the US fueled the global market indices rally as it signaled investors’ positive outlook on the economy and increasing corporate profits going forward.
Other factors that played a key role included increasing oil prices and strengthening of the ringgit.