THE Employees’ Provident Fund (EPF) declared dividends of 6.15% for conventional savings and 5.9% for shariah savings for 2018, with the total payouts amounting to RM47.31 billion.

The fund announced healthy returns for its subscribers today, at the start of a difficult year amid market volatility and downtrend.

The payout amounts to RM43 billion for conventional savings and  RM4.32 billion for shariah savings.

This year’s dividend is lower than last year’s 6.9% for conventional savings. 

“We are very grateful and pleased that we have been able to consistently meet our two strategic investment targets. Beyond the anticipated nominal dividends, more importantly is that we consistently deliver above-inflation returns so that we are able to preserve and enhance the value of our members’ savings over the long term and help them achieve a better retirement future,” said EPF chairman Samsudin Osman.

“This is despite 2018 being a difficult year, marked by volatility and a downward trend in global markets, due to the long-standing US-China trade war and four rounds of US interest rate hikes in the year alone. Nonetheless, we remained focused on our long term strategy and our portfolio diversification has provided resiliency and delivered commendable returns to our members.”

EPF recorded a gross investment income of RM50.88 billion in 2018. 

Of this, RM46.62 billion is attributable to conventional savings and RM4.62billion to shariah savings.

The lower income for EPF’s Shariah portfolio in 2018 was due to the underperformance of the telecommunications, construction and oil and gas sectors. 

The payout for each account was derived from total gross realised income for the year after deducting the net impairment on financial assets, unrealised gains or losses from inter-company transactions, investment expenses, operating expenditure, statutory charges as well as dividend on withdrawals.

The payout amount required for each 1.00% of the dividend in 2018 was RM7.72 billion, compared to RM7.02 billion in 2017.

In accordance with the implementation of the Malaysian Financial Reporting Standards 9 (MFRS 9), which came into effect on January  1, 2018, capital gains on disposal of equity amounting to RM18.21 billion for 2018 will be channelled directly to the Retained Earnings from the Statement of Other Comprehensive Income, instead of the Statement of Profit and Loss as under the previous MFRS 139.

In addition to that, EPF will no longer recognise any impairment on its listed equity holdings.

In the year under review, equities continued to generate the most  income for EPF, accounting for 57.55%, or RM29.28 billion, of the total investment income.

However, the contribution from the asset class was 6.96% lower than the RM31.47 billion recorded in 2017.

Samsudin said the financial year of 2018 was a stark contrast to the market uptrend seen in 2017, as all stock market indices wrapped up the year in the red. 

The FBM Kuala Lumpur Composite Index (FBM KLCI) closed 6.00% lower, while global equity indices lost between 9% to 16%.

In the year under review, EPF’s investments from fixed-income instruments, such as Malaysian Government Securities and Equivalent, as well as loans and bonds, collectively contributed to 36.13%, or RM18.38 billion.

Loans and bonds continued to provide stable income through scheduled coupon payments, although capital gains from this asset class declined as a result of rising yields in a volatile market environment. 

Meanwhile, contributions from real estate and infrastructure portfolio saw a year-on-year decline of 29.29% in 2018 to RM2.10billion due to  the high base effect from a one-off transaction made in 2017. 

The asset class continued to deliver over 8.00% return annually for the past five years, translating into a premium of 3.29% over fixed income instruments. Money market instruments contributed RM1.12 billion.

This year’s income from foreign investments of 37.52% was also lower due to the downtrend in global and regional equity prices  and volatile foreign exchange.

EPF said however that foreign investments added value to its portfolio by enhancing returns and cushioning market volatility throughout the year. 

The fund said it remains prudent in its expenses as indicated by the consistency in its key financial ratios, including the cost to asset under management (AUM) of 0.27%, cost to gross income of 4.24% and cost to average total asset of 0.17%.

Samsudin EPF is bracing itself against external headwinds, such as the long standing trade spat between US-China, Brexit, slowdown in global growth and potential interest rate hikes by the US Federal Reserve. 

“Nonetheless, we remain committed to our long-term global diversification as guided by our strategic asset allocation. This has, time and again, served us well, especially during times of market uncertainties, and equipped us with the ability to withstand short-term volatilities.” – February 16, 2019.