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.
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