KUALA LUMPUR: The Employees' Provident Fund (EPF) has cautioned that the investment climate will remain challenging after announcing lower investment income and dividends for 2022.
EPF announced a dividend of 5.35 per cent for Simpanan Konvensional with a total payout of RM45.44 billion, and 4.75 per cent for Simpanan Shariah with a total payout of RM5.7 billion.
This brings the total payout for the year ended Dec 31, 2022, to RM51.14 billion, down from RM68.89 billion in 2021.
The dividends are slower than the 2021 rates, with EPF declaring 6.1 per cent for conventional savings and 5.65 per cent for shariah savings for the latter year.
But the 2022 rates beat the dividends of 5.2 per cent for conventional and 4.9 per cent for shariah for 2020.
EPF chief executive officer Datuk Seri Amir Hamzah Azizan attributed the performance to high market volatility and lower valuations across equity and fixed income markets.
He said EPF posted a lower total gross investment income of RM55.33 billion, down from RM68.89 billion in 2021.
Amir said despite the persistent global market downturn in 2022, EPF's investment portfolio maintained its resilience and responded with minimal impact.
This was largely due to its overarching strategy that emphasised long-term sustainability of investments and returns, in line with EPF's strategic asset allocation.
"We anticipate that the 2023 investment climate will continue to be challenging in the short and medium term," EPF chief executive officer Datuk Seri Amir Hamzah Azizan said at a briefing on the EPF's performance in 2022 and dividend announcement here today.
Despite the numerous macroeconomic challenges and the pandemic-related withdrawals totalling RM145 billion, EPF's investment assets remained intact and closed at RM1,003 billion in 2022.
As at December last year, foreign investment made up about 36 per cent of EPF's investment assets and contributed 45 per cent of its total gross investment income.
EPF said managing the withdrawals was a difficult challenge given the need to ensure sufficient liquidity.
"Even as EPF successfully navigated through the situation, the cash outflow limited EPF's ability to take advantage of investment and profit opportunities for the benefit of all members," it added.
EPF said its well-diversified portfolio and healthy liquidity helped to reduce risk and enabled it to maintain investment assets at above RM1 trillion and deliver respectable dividend rates for 2022.
The EPF said the RM51.14 billion dividend payout would benefit more than 15 million members including those from the informal sector registered under i-Saraan, an incentive-based voluntary contribution programme.
"We believe that our members' retirement savings will benefit from the dividend and our consistent performance, especially when viewed from a long-term perspective.
"Notwithstanding the economic situation, we will continue to prioritise the long-term success of our investment portfolio and the rebuilding of our members' retirement savings," Amir said.
EPF said 2022 was marked by both slower global growth and high inflation rates, compounded by the tightening of monetary policies by major central banks to reel in inflationary pressure.
Fixed income markets did not fare well as bond indices posted negative returns for the year, largely attributed to elevated yields following continued United States Federal Reserve rate hikes.
Geopolitical instability was also a major factor in driving market gyrations, with the Russian invasion of Ukraine causing a major dislocation in commodity prices, compounded by sabre rattling between the US and China.
The year also saw major global equity benchmark indices wrapping up their worst annual performance since 2008, falling between 20 per cent and over 30 per cent during the year.
On the domestic front, Bursa Malaysia's benchmark index FBM KLCI closed the year five per cent lower year-on-year at around the 1,495-point level.
"The bearish market performance had weighed on EPF's earnings generation from equities, which continued to be the EPF's main income contributor," it said.
However, not all sectors were affected as some, such as energy, plantation, financial services and consumer staples, fared reasonably well compared to other sectors.
EPF said its diversification strategy across different sectors and geographies had been effective in capitalising on profit opportunities and generating returns.
For 2022, EPF's equities asset class contributed RM30.54 billion or 55 per cent of its total gross income, down from RM41.06 billion recorded in 2021.
Foreign listed equities, which yielded a return on investment (ROl) of 9.27 per cent, continued to be the driver of returns for this asset class.
The private equity portfolio also demonstrated strong performance, recording an ROl of 13.65 per cent.
This portfolio generated lower gross investment income compared to 2021, largely due to lower valuations of the underlying assets, apart from lower distributions received for the year.
EPF said it had taken a prudent measure of writing down RM3.43 billion of its listed equity portfolio last year, higher than the RM1.15 billion write-down recorded in 2021, in line with the volatility in the equity markets.
A total of 74 per cent of the total amount came from Shariah-compliant counters that underperformed, which in turn impacted EPF's Simpanan Shariah performance for the year.
With almost half of EPF's total asset allocation in fixed income instruments, comprising Malaysian Government Securities and equivalent, as well as loans and bonds, the retirement fund was able to maintain steady returns.
Income from the portfolio contributed RM18.19 billion, or 33 per cent of the EPF's total gross income. This lower amount than 2021 can be attributed to lower capital gains driven by increasing yields.
The real estate and infrastructure portfolio's income of RM5.56 billion continued to play a role as a hedge against inflation, recording an ROl of 10.5 per cent, a spread of 6.13 per cent above the ROl for fixed income instruments of 4.37 per cent.
Income from money market instruments came in at RM1.04 billion with an ROl of 3.48 per cent.
EPF said its diversification into foreign assets and currencies allowed it to realise additional gains with profits from non-ringgit sources and added value to its overall return.