EPF returns on the slide

TheStar

Difficult to sustain payouts above 5% in coming years

PETALING JAYA: Employees Provident Fund (EPF) contributors may have to be contented with lower returns in the coming years as the country’s biggest pension fund struggles to boost income amid steep falls in interest rates and a weak equity market.

Analysts said given the pension fund’s size and strict mandate, it would be very difficult to sustain payouts of above 5% in the coming years.

The 4.5% dividend declared for 2008 on Monday was generally well received, despite coming in lower than the 5.8% in 2007.


There were calls for a review from various parties demanding a higher payout, but some quarters said the pension fund had done well in safeguarding the nation’s retirement savings amid the current economic crisis.

The question now is how will EPF fare in 2009 and beyond?

Already the fund has warned that this year’s payout would be less than that for 2008.

Weak equity markets will continue to hurt EPF in the near term, but in the longer term, the fund’s performance will also be determined by the returns it gets from investing in low-risk assets such as government bonds.

The EPF had allocated a quarter of its RM342bil investment funds for higher yielding government papers. But as these higher yielding notes expire, the fund must purchase new issues which will now come with lower returns.

Malaysian Government Securities (MGS) debt papers maturing in three and five years are currently yielding less than 4% at today’s prices.

In comparison, MGS five-year notes yielded more than 5% a decade ago and above 7% during the 1997/98 Asian financial crisis.

Another big chunk of EPF holdings is in highly rated corporate bonds and low-risk guaranteed loans.

However, the global economic turmoil has cut the supply of new bonds coming into the market.

Cheaper lending rates had also reduced interest income from loans given out.

Investment in bonds and loans made up 40% of EPF’s total investments as at the end of last year.

Dwindling yields from these asset classes have been a drag on EPF’s income for the past couple of years.

That the EPF was able to fork out steady dividends of above 5% between 2004 and 2007 was mainly due to gains from investments in equities.

The collapse in global equities last year, however, had eroded the value of EPF’s shareholdings, forcing it to make a provision of RM4.69bil to account for the lower value of its shares, both domestically and abroad.

The KL Composite Index fell 40% in 2008 and was down 3.3% so far this year at yesterday’s closing of 847.96 points.

Also, the economic slowdown has dragged down corporate profits. This, in turn, has impaired their ability to pay out dividends to shareholders, further reducing the return on investments for EPF.

The EPF has stakes in more than 100 companies listed on Bursa Malaysia, as well as smaller stakes in a number of big listed firms overseas.

Income from equities accounted for 35%, or RM6.67bil, of EPF’s total gross investment income last year.

Just how bad EPF’s dividend payouts will be affected by the current market situation remains to be seen.

It is worth noting that under the law, EPF has to maintain a dividend rate of at least 2.5% annually. The dividend must come from income generated from its investments.

Disclaimer: Reading materials in this site are obtained from its respective website and it is for information purposes only. It is not Malaysia Unit Trusts - administrator view and it is not to be used against Malaysia Unit Trusts - administrator.

EPF Q3 income dips 60%

TheStar

PETALING JAYA: The Employees Provident Fund’s (EPF) total investment income for the third quarter (Q3) fell 60.4% to RM2.06bil from RM5.2bil in the previous quarter (Q2) as its investments, especially equities, were affected by the global economic uncertainty.

The EPF said in a statement yesterday income from equities in the June to September period fell by more than half to RM1.26bil from RM2.54bil in the preceding quarter.

In line with accounting best practices and as a conservative provisioning policy, the EPF also made allowances amounting to RM2.29bil for diminution in the value of equity investments due to the deterioration in market value compared with RM416.7mil in Q2.

“The outlook in the fourth quarter is likely to reflect the full-scale impact of the global meltdown, although there is still hope for the Malaysian equity market to bounce back,” chief executive officer Datuk Azlan Zainol said yesterday.

Azlan believed Malaysia’s competitive edge would help sustain the economy during these difficult times.

The EPF said due to the current global economic uncertainty, stock markets across the globe had fallen significantly, including the local equity market.

Bursa Malaysia’s market capitalisation during Q3 shrank by about RM200bil to RM770bil.

In the same period, the KL Composite Index fell 243.81 points, or 19.3%, to 1,018.68.

On the investment income of RM2.06bil in Q3, the EPF said it was predominantly driven by Malaysian government securities (MGS) and loans and bonds.

In the quarter under review, the EPF received 3.1% higher returns from loans and bonds, raising income to RM1.71bil which was an increase of 3.14% or RM52.05mil from Q2’s RM1.66bil.

Its investment income in MGS rose 1.38% to RM1.217bil against the preceding quarter’s RM1.2bil.

EPF said the most of Q3 investments were in the trade and services sector and the finance sector comprising 38% and 33.9% of total equity investments respectively.

The next largest Q3 equity investment was in the plantations sector, representing 8.5% of total equity investments.

Money market instruments provided an income of RM142.25mil, down 49.21% from RM191.46mil in Q2.

Investments in properties yielded returns of RM21.53mil, down from RM22.66mil in Q2.

“The EPF will always maintain a policy of low-risk investment decisions. As a national premier pension fund, we cannot afford to take on high risk investments,” Azlan said.

Disclaimer: Reading materials in this site are obtained from its respective website and it is for information purposes only. It is not Malaysia Unit Trusts - administrator view and it is not to be used against Malaysia Unit Trusts - administrator.

EPF better than stock market

TheStar

It never gives negative returns

IN general, most people have the impression that the money placed in the Employees Provident Fund (EPF) always generates lower returns compared with the returns from their own investments.

In this article, we will look into the returns from EPF versus returns from the KL Composite Index (KLCI). We assume that investors are able to generate their own returns equivalent to the returns from the KLCI.

Based on our 23 years of data compilation, it is generally true that the average returns generated from EPF are lower than KLCI returns. From 1986 to 2008, the average return of EPF was 6.7%, 2.3 percentage points lower than the average return of 9% from the KLCI (see table).

However, most people do not understand the risks they need to undertake when they invest by themselves. The standard deviation of EPF is only 1.5%, 22.2 percentage points lower than the standard deviation of 23.7% from the KLCI.

We use standard deviation to measure risks. Most investors only look at how to generate the extra 2.3 percentage point returns, forgetting that they need to undertake a much higher risk to generate the extra returns. The extra return is unable to compensate for the extra risks that investors need to take.

Let’s assume one investor invested RM10,000 in the EPF and the KLCI respectively at the beginning of 1986. Logically with the average KLCI return higher than the average EPF return, the fund in KLCI should be higher than the fund in EPF in most periods.

However, as the table shows, by the end of 2008 (we assume that EPF will only be able to generate a return of 4.25%), the fund placed in KLCI would have reached RM40,000 versus RM43,946 generated by EPF, a shortfall of RM3,946.

The main reason behind this shortfall is that the EPF never gives negative returns whereas the KLCI generated negative returns eight times over the past 23 years.


There is a market saying that out of 10 people who invest in the stock market, only one can make money, the others will lose money. Warren Buffett says if you want to win, you don’t lose. Hence, we disagree with some people who advise others not to place money in EPF because it generates lower returns.

In most periods, the money in EPF gets lower return than the money placed in KLCI. However, the main reason for the lower fund value in KLCI by the end of 2008 was the market crash during 1998.

The money in KLCI dropped by 47.1% to RM18,105 in 1998 from RM34,246 in 1997 whereas the money placed in EPF increased further to RM26,594 in 1998 from RM24,924 in 1997. After 1998, it took nine years for KLCI to catch up with the fund value in EPF.

Last year the fund value in KLCI (RM46,000) finally surpassed the fund value in EPF (RM42,154). However, as a result of the recent market crashes, we are anticipating the fund value in EPF to overtake KLCI again this year.

It will take a few years from now for the KLCI to catch up with the EPF again. Unless investors are constantly monitoring their own investments and are able to avoid most of the negative returns, we think it is safer to put money in the EPF rather than withdraw it for their own investments.

Ooi Kok Hwa is an investment adviser and managing partner of MRR Consulting

Disclaimer: Reading materials in this site are obtained from its respective website and it is for information purposes only. It is not Malaysia Unit Trusts - administrator view and it is not to be used against Malaysia Unit Trusts - administrator.

EPF is the eighth largest fund in the world

TheStar

PETALING JAYA: Malaysia’s national pension fund, the Employees Provident Fund (EPF), was ranked the eight largest fund of its kind in the world with US$94.66bil.

This is according to the latest Watson Wyatt Global 300 survey conducted with Pensions & Investments, a US investment newspaper.

The list included the country’s Pension Trust Fund (KWAP), at 22nd spot with US$14.55bil.

Watson Wyatt Asia-Pacific investment consulting head Naomi Denning said in a statement that Asia-Pacific sovereign pension funds grew by about 20% to US$1.8 trillion in 2007.

“Sovereign pension funds in this region have seen tremendous growth in recent years, along with the rapid growth in assets of sovereign wealth funds,” she said.

She added that strong equity returns last year contributed to the boost in asset growth.

Denning said that among sovereign pension funds ex-Japan, funds that enjoyed growth of more than 30% from the previous year included China’s National Social Security Fund (up to 38th position from 69th), India’s Employees Provident Fund(from 88th to 68th), Singapore’s Central Provident Fund (from 32nd to 22nd) and Thailand’s Government Pension Fund (from 285th to 241st).

Disclaimer: Reading materials in this site are obtained from its respective website and it is for information purposes only. It is not Malaysia Unit Trusts - administrator view and it is not to be used against Malaysia Unit Trusts - administrator.

EPF to adopt cautious stance

BusinessTimes

The retirement fund wants to invest properly in the next six months, says its CEO, adding that the market has gone south since the first quarter

THE Employees Provident Fund (EPF) will adopt a cautious stance in equity investment for the rest of the year, its chief executive officer Datuk Azlan Zainol said.

The retirement fund, Malaysia's largest institutional investor, nevertheless hopes to give a reasonably good dividend this year. It paid out 5.6 per cent dividend to contributors last year.

"We are a bit cautious now as far as equities are concerned, and we want to invest properly in the next six months," Azlan said.

In the first quarter of the year, the EPF achieved investment income of about RM4.11 billion. It made the most (about RM1.06 billion) out of investing in equities.

Income from equities rose 51.2 per cent from the preceding quarter's.

Azlan said the market has gone south since then, adding that it has also been the trend worldwide.

"So when it comes to investing overseas, we are making some investments through our fund managers, but we have to ensure that the timing and markets are right."

Azlan said that up till last month, the EPF had only invested US$2.6 billion (RM8.5 billion) out of the US$8 billion (RM26.2 billion) approved for investment abroad.

Azlan was speaking to reporters after the opening of the International Social Security Association (ISSA) Southeast Asia liaison office in Kuala Lumpur by Deputy Finance Minister Datuk Ahmad Husni Mohamad Hanadziah.

A memorandum of understanding was signed between the EPF and ISSA. The liaison office is located at the EPF's headquarters in Jalan Raja Laut.

It will carry out planned activities guided by the general direction and coordination of the Geneva, Switzerland-based ISSA.

EPF chairman Tan Sri Samsudin Osman said the liaison office will pave the way for it to work with other pension funds in the region on training, exchange of research and ideas for further social security development.

Also present yesterday were ISSA president Corazon S de la Paz and secretary-general Hans-Horst Konkolewsky.

De la Paz said ISSA decided to locate the office here because of Malaysia's strong social security development. It is also one of the most advanced countries in the region and has spearheaded several innovations.

"In the area of investments, at the end of 2006, the EPF was Asia's fourth largest state-run pension fund", after those in Japan, South Korea and Taiwan.

The EPF's investments rose to RM318 billion and it made investment income of RM17.3 billion last year, de la Paz noted.

Disclaimer: Reading materials in this site are obtained from its respective website and it is for information purposes only. It is not Malaysia Unit Trusts - administrator view and it is not to be used against Malaysia Unit Trusts - administrator.

EPF income at RM4.1bil

TheStar

PETALING JAYA: The Employees Provident Fund’s (EPF) investment income rose 7.7% to RM4.11bil for its first quarter ended March 31 from the fourth quarter ended Dec 31, boosted by its equities investments.

It said in a statement yesterday that income from equities rose 51.2% to RM1.06bil from RM698.21mil in the preceding quarter.

Other major income contributors were loans and bonds (RM1.59bil) and Malaysian Government Securities (MGS - RM1.24bil), it said. The EPF invested RM66.79bil in equities.

Chief executive officer Datuk Azlan Zainol said: “The EPF continued to remain vigilant in its equities investment in light of the global economic uncertainties that have carried well into 2008. Through effective management of our substantial equity portfolio, we were able to reap the benefits from stocks that delivered high yields.”

On the EPF’s investment strategy, he said a new category of the fund’s equities investment portfolio was the exchange traded funds, which made up 0.2% of its total equities investment.

The EPF’s total fund size now stands at RM320.81bil, with 39.1% (RM125.34bil) invested in loans and bonds and 32.4% (RM104.03bil) in MGS.

For loans and bonds, 85.4% of the funds were invested in high-grade companies with AAA and AA rating, a slight increase of 0.5% from the previous quarter.

The remaining 14.6% was invested in companies of other rating categories, it said.

For its MGC investment, 60.9% would mature in one to five years, 31.1% between six and 10 years, and 8% between 11 and 20 years.


Disclaimer: Reading materials in this site are obtained from its respective website and it is for information purposes only. It is not Malaysia Unit Trusts - administrator view and it is not to be used against Malaysia Unit Trusts - administrator.

EPF to invest another US$2b overseas

BusinessTimes

Total funds approved for foreign investments to date amounts to US$6 billion, says the Malaysian pension fund

THE Employees Provident Fund (EPF) has received the Finance Ministry's approval to invest another US$2 billion (RM6.36 billion) overseas this year, as it seeks to generate better returns for its members. The pension fund, which has 11.7 million members, has invested US$1.6 billion (RM5.08 billion) in overseas equities so far.
EPF chairman Tan Sri Samsudin Osman said with the latest approval, total funds approved for foreign investments to date amounts to US$6 billion (RM19.08 billion). This is about 5.8 per cent of EPF's total funds of RM319.3 billion as at January 2008.

"In Malaysia, the EPF will be outsourcing an additional RM1 billion to its equity portfolio managers and RM500 million to its fixed income managers.

"The funds will be disbursed sometime in the early second quarter of this year," Samsudin said at the external portfolio managers award ceremony in Kuala Lumpur yesterday.

Under the equity category, the EPF has allocated RM100 million to Hwang DBS Investment Management Sdn Bhd, CMS Asset Management Sdn Bhd (RM200 million), Pheim Asset Management Sdn Bhd (RM300 million) and Nomura Asset Management Malaysia Sdn Bhd (RM400 million).

In the fixed income segment, it has distributed RM200 million and RM300 million to CIMB Principal Asset Management Sdn Bhd and AmInvestment Management Sdn Bhd respectively.

Samsudin said EPF's assets grew from RM259.9 billion in 2006 to RM285.9 billion in 2007 to realise a dividend of 5.8 per cent..

"EPF's assets are expected to grow to RM346 billion in 2008 and to maintain the same dividend rate we would need to generate realised earnings of RM19.2 billion," he said.

Meanwhile, Nomura Asset was named the best overall equity portfolio manager for 2007. Pheim and CMS were picked as first and second runner-ups respectively. Meanwhile, AmInvestment Management Sdn Bhd won the best overall fixed income portfolio manager.

Disclaimer: Reading materials in this site are obtained from its respective website and it is for information purposes only. It is not Malaysia Unit Trusts - administrator view and it is not to be used against Malaysia Unit Trusts - administrator.

EPF move good for market

TheEdge

PETALING JAYA: The Employees Provident Fund’s (EPF) move to lower the Account 1 investment withdrawal threshold beginning Feb 1 would result in a significant flow of capital into the equity market, analysts said.

The move would release a bit more money into the market with the unit trust sector likely to benefit the most, said Kenny Yee, head of OSK Research.

“The actual impact is yet to be seen, but relaxing the ruling is good for the market,” he said.

An analyst at a local bank-backed research house said the move would mean more money for people to invest. “There will be more funds available out there.” he said.

EPF on Friday introduced its “Beyond Savings” initiative that links the threshold for Account 1 withdrawals for investment through approved institutions to the member’s age, compared with a minimum savings of RM50,000 for all ages previously.

Under the scheme, a 30-year-old member, for instance, may withdraw 20% of the amount in excess of a lower threshold of RM18,000, for investment through approved institutions. A younger member would have a lower threshold and, conversely, an older member a higher threshold.

EPF deputy chief executive officer (operation) Ibrahim Taib said the new initiative was expected to double members’ withdrawals for alternative investment from a monthly average of RM270 million to RM300 million.

He said the EPF move would give members the advantage of investing at a younger age. The change in policy would enable 1.76 million members to withdraw from Account 1 for investment elsewhere, compared with 850,000 eligible members previously.

An analyst at an investment bank said this would encourage people to diversify their investment portfolio.

“It allows them to make decisions with regards to their savings,” he said, agreeing that the unit trust sector has the most to benefit from the EPF move.

Disclaimer: Reading materials in this site are obtained from its respective website and it is for information purposes only. It is not Malaysia Unit Trusts - administrator view and it is not to be used against Malaysia Unit Trusts - administrator.

EPF lowers threshold for Account 1 withdrawals

TheEdge

KUALA LUMPUR: The Employees Provident Fund (EPF) members need no longer have at least RM50,000 in Account 1 to invest 20% of the excess amount through approved investment institutions.

Under its new "Beyond Savings" initiative, effective Feb 1, EPF is allowing its members to make such withdrawals at a lower threshold corresponding to their age, while ensuring they would accumulate at least RM120,000 at age 55.

“That RM50,000 threshold is no longer a criterion. The criterion is now variable at the different ages,” said EPF deputy chief executive officer (operation) Ibrahim Taib at a press conference here on Jan 25.

He said the change would give members the advantage of investing at an earlier age.
For instance, the threshold for a 30 year-old is RM18,000. If the person has RM30,000 in his Account 1, he may now invest 20% of RM12,000 (the excess amount) through approved investment institutions.

But members should make informed decision when investing, cautioned Ibrahim.

“If you can make informed decision, then go ahead and invest. The best investment is still in EPF,” he said, adding that members should not invest if they are not prepared to face possible losses.

Ibrahim said about 1.76 million EPF members would be eligible to participate in the scheme following this change, compared with 850,000 members previously, while monthly withdrawals were expected to double from the current average of RM270 million to RM300 million. EPF had been receiving approximately 20,000 applications each month, he added.

On the RM120,000 projection, Ibrahim said the figure was derived based on the calculation for a person who started work at the age of 18 with a pay of RM440, annual salary increment of 3% and an EPF dividend rate of 4%. This figure would be reviewed on a five-year basis.

Ibrahim also reiterated that the 5.5% contribution for employees and 6% for employers in respect of employees aged 55 to 75 was mandatory.

“Dividends would be paid until the member reaches the age of 75,” he said, adding the change was aimed at encouraging those above 55 years old to continue working.

Members and their employers have the option to contribute more than the prescribed level. This new rate does not apply to members above 55 years old who are currently working and have yet to make any age-55 withdrawal. These workers and employers would continue to make contribution of 23%.

EPF also announced that any savings not withdrawn by the age of 80 would be transferred to the Registrar of Unclaimed Monies.

Disclaimer: Reading materials in this site are obtained from its respective website and it is for information purposes only. It is not Malaysia Unit Trusts - administrator view and it is not to be used against Malaysia Unit Trusts - administrator.

EPF to make changes for better savings

BusinessTimes

CHANGES will be made to the Employees Provident Fund scheme structure to enable its 11.4 million members to have a healthier level of savings upon retirement.

These changes, to be implemented in phases between November this year and January 2013, will also give members greater choices and flexibility to manage their EPF savings.

EPF chief executive officer Datuk Azlan Zainol said key among the changes is the introduction of basic savings, with members required to set aside a certain amount in their Account 1 progressively at various age levels.

This would ensure that members would have accumulated at least RM120,000 when they turn 55 to cover their basic retirement needs.

That sum would enable a retiree to live on RM500 a month over a 20-year period until he or she is 75 years old, which is the average life expectancy of Malaysians.

Azlan said changes such as these were necessary as the average retirement savings for EPF members currently is inadequate.

“With Malaysians having a longer lifespan aswell as inflation, escalating medical costs and a weakening extended family system, many members may find themselves with insufficient funds if the issue of adequacy of savings is not addressed now,” he said at a briefing yesterday.

Last year, the average savings of an active member at age 54 was only RM114,402, and for an inactive member it was RM21,478.

Azlan noted that a survey done three years ago showed that 98 per cent of EPF members tend to withdraw all their money when they turn 55.

And of these, it was found that 80 per cent would exhaust those savings in three years.

To discourage lump-sum withdrawals, the EPF will soon give members over the age of 55 the option of making ad-hoc withdrawals.

As ofNovember, they can withdraw a minimum of RM2,000 at any time, at intervals of at least 30 days.

“We may make it even more flexible in future and allow withdrawals of RM1,000 a day, for example,” Azlan said.

It will also soon be mandatory for employees aged 55 years and above to contribute to the EPF.

However, the statutory contribution rate will be halved to promote employability of this group.

From November, EPF plans to allow members of any age whose total savings have exceeded RM1 million to withdraw an amount in excess of RM1 million at any time to invest on their own.

According to Azlan, there are about 4,700 members with savings of more than RM1 million.

Another major change that will be enforced — although only in January 2013 —is that members must have RM120,000 in Account 1 at age 55 to be able to withdraw their savings in Account 2.

This rule will affect members who are currently 45 years old, Azlan noted.

Among other changes that will be implemented are:

• allowing members to use savings in excess of the “basic sum”in Account 1 for approved investment products (next February)
• allowing members to withdraw savings from Account 2 to purchase critical illness insurance policy for themselves and immediate members (next June)
• allowing children to top up parents’ savings in Account 1.
Spouses too can do this for each other (next June)
• making it mandatory for big companies (more than 1,000 staff) to contribute via electronic mode. (next June)

Azlan said the changes come under the EPF’s Beyond Savings initiative.

Disclaimer: Reading materials in this site are obtained from its respective website and it is for information purposes only. It is not Malaysia Unit Trusts - administrator view and it is not to be used against Malaysia Unit Trusts - administrator.

Higher EPF dividend

BusinessTimes

THE Employees Provident Fund, Malaysia’s biggest pension fund, will be able to pay higher dividends to its members for this year.

The fund, which manages RM315 billion, paid a dividend of 5.15 per cent for last year. It paid five per cent for 2005.

It has raised dividends for four consecutive years but its chief executive officer Datuk Azlan Zainol declined to say how much the payout will be for this year.

“We ’re confident this year we’ll be paying a dividend slightly more than last year,”he said.

This is because the EPF’s income this year was better, boosted by investments on the equity market. The stock market has gained by more than 20 per cent so far this year “Our equity investment has done very well this year,”he said.

Although the bulk of EPF’s investments are in safe investments like government and corporate bonds, about a fifth are invested in the stock market, which provides better returns.

It also has close to US$2 billion invested abroad, Azlan said.

Last year, about 70 per cent of EPF’s assets were put into government and corporate bonds, its annual report showed.

Disclaimer: Reading materials in this site are obtained from its respective website and it is for information purposes only. It is not Malaysia Unit Trusts - administrator view and it is not to be used against Malaysia Unit Trusts - administrator.

EPF to raise stock market allocation

BusinessTimes

THE Employees Provident Fund (EPF) expects to increase its allocation for equity investments, which stands at about RM55 billion currently, by an additional RM4 billion to RM5 billion this year, a top official said.

Johari Abdul Muid, its new deputy chief executive officer for investments, said the EPF gets about RM25 billion of fresh money to invest each year, of which about 20 per cent is for equities.

"As our fund size increases, so will the allocation for equity. I expect, from the new money alone this year, another RM4 billion to RM5 billion will be allocated to equity," he told Business Times in his first interview with the media.

"But whether we fully invest or under-invest a bit, there is a tactical range in which we can play around," he added.

The EPF is currently invested in about 190 public-listed companies in Malaysia, a sharp drop from 425 companies about three years ago.

Johari explained that the drop was because the EPF had in recent years become more "focused" on the types of stocks it wants to invest in.

"There are many good companies on Bursa, definitely more than 190, but as a pension fund, we have to look from the perspective of size, liquidity and dividend yields as well. Hence, the reason why we are left invested in about 190 companies," he said.

The EPF will continue to let go of a few more companies, but at the same time, plans to include some new ones into its list when the time is right.

"There are not many, but once in a while, one comes about and we include it," he said.

The EPF has US$2 billion (RM6.96 billion) to invest in equities overseas, about 70 per cent of which has already been allocated to fund managers to invest on its behalf.

At the moment, its external fund managers are Aberdeen Asset Management, Nomura Asset Management and BNP Paribas. Locally, it has Pheim Asset Management.

Besides Asean, the EPF has also invested globally, concentrating on the US, the UK, Australia and Japan.

Its private equity investments are still "very insignificant", he said.

Johari said the EPF, which makes only long-term investments of generally five years and above, chooses to invest in companies mainly on the strength of their fundamentals and liquidity in addition to other factors such as company management and shareholders.

Given these criteria, it has invested mainly in blue-chip companies. "Companies which we are not sure of, or which don't have a long track record, we prefer to steer clear of," he remarked.

In recent years, however, to protect itself in case of a market slowdown, it has begun to increasingly rely on its dividend income to supplement its income through sale of stocks.

"(It's) not just buying the stocks which issue dividends; it's also going to meet these companies to talk to the management about having a dividend policy ... telling them that we (have) a better preference for a company with a dividend policy against one that doesn't," he said.

The EPF is expected to benefit from the strategies it has employed.

"We're a lot more focused and the income will be a lot more consistent and, surprisingly, very much better," Johari said.

Disclaimer: Reading materials in this site are obtained from its respective website and it is for information purposes only. It is not Malaysia Unit Trusts - administrator view and it is not to be used against Malaysia Unit Trusts - administrator.

EPF liberalisation to benefit consumer sector

TheEdge

KUALA LUMPUR: The further liberalisation of withdrawals from the Employees Provident Fund (EPF) to make monthly payments for housing loans will benefit not just the property market but also the consumer and retail sectors, said analysts.

The move may substantially increase house owners’ purchasing power if they were allowed to settle their monthly housing instalments via their EPF funds.

“EPF contribution is expected to be around RM32 billion annually and the change can potentially release RM9.6 billion into the system. We expect this to benefit the property and consumer sector the most,” said HLG Research in a research note.

“The amount available for withdrawal is significant to the overall annual property market of RM30 billion, total housing loans of RM135 billion and the retail and wholesale segment of the economy at RM55 billion,” it said.

The government has proposed in Budget 2008 that effective Jan 1, EPF contributors could make monthly withdrawals for housing loan repayments.

Calling it a major move, the government said it would benefit five million active EPF contributors and make available up to RM9.6 billion annually for the purchase of houses.

SJ Securities Sdn Bhd research head Cheah King Yoong said there would be some indirect impact on consumer spending arising from the change, as it could create more liquidity in the market with the potentially higher disposable income.

“Any retail or consumer play, however, will only be visible in the second half of next year. Eventually, EPF contributors will take up this benefit as it could free up their cash flow.

“Most people would likely then spend a little more on leisure activities like holiday or travel, and in some cases increase retail purchases,” he said.

He said it was too early to speculate on this as the withdrawal mechanism or procedures were not clear.

The EPF, on its website, says details of the new withdrawal scheme will be announced in December.

Cheah conceded that some EPF contributors would rather use the monthly withdrawals to speed up settlement of their housing loans instead of using the facility to make part-payment of the loans.

He said among the stocks that could potentially benefit were Aeon Co (M) Bhd, Bonia Corp Bhd, Padini Holdings Bhd, Degem Bhd, Poh Kong Holdings Bhd, AirAsia Bhd, Genting Bhd and Resorts World Bhd.

Inter Pacific Research Sdn Bhd head of research Anthony Dass said while he expected the feel good factor among households to remain, the impact from EPF move arising from the monthly withdrawal would be minimal if not negligible.

“Improving employment opportunities, low interest rates, higher civil servant salaries, firm commodities prices and positive wealth effect are believed to be the main contributory factors,” he said.

“The real multiplier effect is still very tricky to assess. Certainly, the property development sector will benefit from this facility but to say others will enjoy similar boost in business will be remote,” he said.

He said individuals would possibly opt to buy better houses, or settle existing loans faster than spend on other items.


Disclaimer: Reading materials in this site are obtained from its respective website and it is for information purposes only. It is not Malaysia Unit Trusts - administrator view and it is not to be used against Malaysia Unit Trusts - administrator.

Bank Rakyat said to be bidding for MBSB shares

BusinessTimes

THE Employees Provident Fund (EPF) has received two offers last week for its shares in Malaysia Building Society Bhd (MBSB), a mortgage provider, bankers familiar with the matter said yesterday.

"We are evaluating the offers. A decision on the matter will be made with the best interest of EPF and MBSB at heart," an EPF spokesperson told Business Times.

The spokesperson declined to reveal more details.

RHB Investment Bank Bhd is advising EPF on the sale. EPF holds a controlling 62.41 per cent in MBSB.

Business Times understands that state-owned Bank Kerjasama Rakyat Malaysia Bhd, the country's largest cooperative bank, is one of the parties which made a detailed offer last week, after it received the nod from the Ministry of Finance to proceed with its plans.

The Bank Rakyat plan, split in two stages with different timelines, will first see it buying a 30 per cent stake in MBSB.

Subsequently, Bank Rakyat will inject money for new shares and this will erode EPF's shareholding further.

The bank's offer, which is in the range of RM2 a share, is a steep premium over MBSB's asset backing per share of RM1.29, a source involved in the advisory of the sale said.

This is in line with similar deals in the financial sector where offers are between 1.5 times and two times the book value.

Bank Rakyat has cash and short-term funds of RM1.5 billion as well as 111 branches nationwide. The bank posted a net profit of RM368 milion for the financial year ended December 31 2006.

EPF has taken some flak in recent years over its investment in MBSB, after the company suffered six straight years of losses.

However, over the last three financial years, MBSB has stayed in the black, largely due to the professional management team appointed by EPF.

For its financial year ended December 31 2006, MBSB's revenue was up 28 per cent to RM293.1 million while net profit stood at RM40.2 million.


Disclaimer: Reading materials in this site are obtained from its respective website and it is for information purposes only. It is not Malaysia Unit Trusts - administrator view and it is not to be used against Malaysia Unit Trusts - administrator.

EPF first-half investment income up 39pc

Business Times

THE Employees Provident Fund (EPF) said its investment income surged by 38.6 per cent to RM9.8 billion in the first half of the year.

Its unaudited first half results revealed that income from equities recorded a 141 per cent jump to RM4 billion, accounting for 40.8 per cent of the fund's generated income.

"The returns from our equities portfolio have been very encouraging, reflecting great improvement in our investment management of the equities market, which has been further strengthened by the buoyant stock market," EPF chief executive officer Datuk Azlan Zainol said in a statement.

Azlan said EPF will however remain cautious as investments in equities pose relatively higher risks over most other instruments.

He said this is especially so in the wake of the weakened financial markets triggered by the subprime mortgage lending crisis in the United States, which is expected to slow down the equities market in the second half of 2007.

A total of RM58.6 billion was invested in the equities market in the first half of the year, with focus largely on the trade and services (41.9 per cent), financial (26 per cent) and plantation (9.7 per cent) sectors.

Investments of less than 10 per cent were made in sectors such as consumer and industrial products, construction, property, technology, infrastructure, REITS, Mesdaq and the second board.

Azlan said during the first six months, 71.8 per cent of its funds was invested in low-risk fixed income instruments such as Malaysian Government Securities (MGS) of various maturity dates, loans and bonds.

Income derived from money market instruments improved 79.7 per cent to RM592.4 million.

Loans and bonds contributed RM2.8 billion to the fund's income, and revenue from investments in MGS and property accounted for RM2.4 billion and RM23.3 million respectively.

Total accumulated investments also strengthened by 10.7 per cent to RM301.4 billion.

Disclaimer: Reading materials in this site are obtained from its respective website and it is for information purposes only. It is not Malaysia Unit Trusts - administrator view and it is not to be used against Malaysia Unit Trusts - administrator.