EPF BOOKS SHOCK RM8.17BIL LOSS DUE TO PLUNGING SHARE MARKET

KUALA LUMPUR – The Employees Provident Fund (EPF), which declared a dividend rate of 5.70 per cent for 2016, had recognised net impairment amounting to RM8.17bil, compared with RM3.0bil in 2015 due to weaker equities market and slump in crude oil prices.

In a statement issued on Saturday, it said that in accordance with the Malaysian Financial Reporting Standards (MFRS 139), the net impairment was to reflect the lower equity prices, particularly in the domestic banking sector and oil & gas sectors in both the domestic and foreign markets.

EPF chairman Tan Sri Samsudin Osman said: “The FTSE Bursa Malaysia KLCI, which has almost 33% exposure to the banking sector, yielded negative return for the third consecutive year, closing the year with -3% in return.

“This affected valuations of listed assets held by the EPF as more than 70 per cent of our total investment asset is invested domestically. On the global front, the crude oil prices tumbled to as low as US$30 per barrel, affecting the valuation of oil & gas listed companies.

“Therefore, as a prudent retirement savings fund, it is imperative to factor in such mark-to-market losses on our income statement.”

Samsudin said in accordance with MFRS 139, the EPF is required to recognise net impairment amounting to RM8.17bil to reflect the lower equity prices, particularly in the domestic banking sector and oil & gas sectors in both the domestic and foreign markets.

“Nonetheless, the EPF’s investment assets stood at RM731.11bil as at  Dec 31, 2016 while total members’ savings was RM704.27bil, indicating the healthiness of EPF’s investment portfolio,” it said.

Outlining the EPF’s strategy due to the market volatility ahead, Samsudin said the EPF would invest more in alternative investment, particularly in real estate and infrastructure.

On the economic climate for 2017, Samsudin said “market volatility remains a concern as the real implications of Brexit and clear policy direction from the Trump-led administration have yet to unfold”.

“Our diversification strategy has proved to serve us well throughout the years, especially during difficult times, and moving forward we will continue to increase our exposure to alternative investment, particularly in Real Estate and Infrastructure, in line with our objective as a long-term investor to provide consistent returns for our members.

“This asset class also serves as a natural hedge against inflation,” Samsudin said.

Below is the statement issued by the EPF:

EPF declares 5.70% dividend for 2016

Sustained fund performance amid volatile market environment

KUALA LUMPUR, 18 February 2017: The Employees Provident Fund (EPF), with the approval of the Minister of Finance, today declared a dividend rate of 5.70 per cent for 2016, with a total payout amounting to RM37.08 billion.

Chairman Tan Sri Samsudin Osman said, “We are pleased that we have been able to consistently exceed our two strategic investment targets of at least 2.5 per cent nominal dividend on a yearly basis and at least 2.0 per cent real dividend on a rolling three-year basis. As a retirement savings fund, the EPF always emphasises on sustainability of returns over the long term horizon as opposed to short term gains.”

The EPF recorded RM46.56 billion in gross investment income in 2016, an increase of 5.25 per cent compared with the RM44.23 billion recorded in 2015. This is the highest gross investment income ever recorded since the establishment of the EPF in 1951 and the amount has been growing annually at 11.1 per cent since 2001.

This is a commendable achievement in view of the much tougher market environment. For 2016, the rolling three-year real dividend was 3.83 per cent, 183 basis points above the target.

During the year, the EPF faced challenging investment climate due to unsettling events such as Brexit and the US Presidential elections. In retrospect, the EPF was operating on the back of slower global growth while navigating between changes in the monetary policies in major economies, the slump in crude oil prices, weaker domestic currency, and large-scale outflow of capital from emerging market economies to developed economies and safe haven currencies.

“As the majority of the world markets declined at the beginning of the year, the EPF’s performance was also affected. However, we ramped up our profit-taking activities in the second quarter (Q2 2016) onwards to ensure that we meet our strategic targets,” Tan Sri Samsudin said.

During the year under review, Equities continued to be the main contributor of income with 57.68 per cent amounting to RM26.85 billion, up 3.23 per cent compared with RM26.01 billion in 2015.

The EPF’s investments in fixed income instruments comprising Malaysian Government Securities & Equivalent and Loans & Bonds in total contributed 34.87 per cent, or RM16.23 billion, of the RM46.56 billion investment income for the year.

Real Estate & Infrastructure asset class contributed RM2.49 billion in investment income in 2016 with annual growth of 46.04 per cent compared with 2015, while Money Market Instruments contributed RM982.28 million of income during the year.

At a time when the local bonds and equities market underperformed, the EPF’s diversification into global assets and currencies has allowed it to realise profits from different markets over the past year, which helped to boost performance.

Overseas investment, which made up about 29 per cent of total investment assets, contributed 39 per cent of the EPF’s gross investment income throughout the year, thus enhancing the overall returns of EPF’s investment portfolio.

Tan Sri Samsudin said, “The FTSE Bursa Malaysia KLCI, which has almost 33 per cent exposure to the banking sector, yielded negative return for the third consecutive year, closing the year with -3.00 per cent in return. This affected valuations of listed assets held by the EPF as more than 70 per cent of our total investment asset is invested domestically. On the global front, the crude oil prices tumbled to as low as USD30 per barrel, affecting the valuation of oil & gas listed companies.  Therefore, as a prudent retirement savings fund, it is imperative to factor in such mark-to-market losses on our income statement.”
In accordance with the Malaysian Financial Reporting Standards (MFRS 139), the EPF is required to recognise net impairment amounting to RM8.17 billion, compared with RM3.07 billion in 2015 to reflect the lower equity prices, particularly in the domestic banking sector and oil & gas sectors in both the domestic and foreign markets.

Nonetheless, the EPF’s investment assets stood at RM731.11 billion as at 31 December 2016 while total members’ savings was RM704.27 billion, indicating the healthiness of EPF’s investment portfolio.

As at 31 December 2016, a total of 48.58 per cent of the EPF investment asset was invested in fixed income instruments and 42.33 per cent in Equities, while the remaining 4.03 per cent and 5.06 per cent were in Real Estate & Infrastructure and Money Market Instruments respectively. Therefore, it is natural that the EPF’s investment performance to be skewed towards fixed income returns.

The dividend payout for 2016 is higher than the payout amount in 2014 even though the dividend rate declared in 2014 was higher at 6.75 per cent.  This is following the payout amount required for one (1) per cent dividend in 2016 was RM6.51 billion, higher compared with RM5.43 billion in 2014. The payout amount required for every one (1) per cent dividend rate has been growing at 9.5 per cent annually since 2001 in tandem with the growth of members’ savings balance for the same period.

“It is worth mentioning that after the 2008 global financial crisis, the EPF has distributed RM236.07 billion in dividend to its members,” Tan Sri Samsudin said.

The dividend payout was derived from total realised income after deducting the net impairment on financial assets, unrealised losses due to foreign exchange rate and derivative prices, investment expenses, operating expenditures, statutory charges as well as dividend on withdrawals.

Meanwhile, the EPF remains prudent in its expenses as indicated by the consistency in its key financial ratios, including the cost to asset under management (AUM) of 0.25 per cent (2015: 0.26 per cent), cost to gross income of 2.56 per cent (2015: 2.68 per cent) and cost to total asset of 0.16 per cent (2015: 0.17 per cent).

Commenting on the economic climate in 2017, Tan Sri Samsudin said market volatility remains a concern as the real implications of Brexit and clear policy direction from the Trump-led administration have yet to unfold.

“Our diversification strategy has proved to serve us well throughout the years, especially during difficult times, and moving forward we will continue to increase our exposure to alternative investment, particularly in Real Estate and Infrastructure, in line with our objective as a long-term investor to provide consistent returns for our members. This asset class also serves as a natural hedge against inflation.”

Beginning 2017, the EPF’s performance results will be broken down by Simpanan Konvensional and Simpanan Shariah for the quarterly and annual results announcement. As at 23 December 2016, a total of 635,037 members have switched to Simpanan Shariah, with RM59.03 billion of the initial RM100 billion fund allocation taken up.

Members can check their EPF account statement for the crediting of the 2016 dividend starting Sunday, 19 February 2017, through i-Akaun via the myEPF website at http://www.kwsp.gov.my/portal/ms/web/kwsp/homeAlternatively, members can also obtain their statement at EPF kiosks or visit any EPF branches nationwide.

– ANN