PETALING JAYA: All eyes will be on the upcoming full-year dividend announcement by the Employees Provident Fund (EPF) after it chalked up good income growth amid a decline in its assets from Covid-19-related withdrawals.

       Based on the numbers announced yesterday, the EPF is poised to record a higher dividend payout for financial year 2021 (FY21) if it can maintain its third quarter performance.

       The EPF announced RM48.02bil of total gross investment income for the nine months ended Sept 30, 2021: 7.7% higher than the RM44.6bil recorded a year earlier.

       Annualising the RM48.02bil, the EPF could potentially record RM64.02bil of gross investment income, which is higher than the RM63.45bil recorded in FY20.

       A higher investment income could translate into a higher dividend payout.

       Former chief investment officer Pankaj C. Kumar pointed out that the EPF’s overseas investments have done very well in 2021 thanks to the rally in the global equity markets.

       “Although the EPF’s fund size was affected by withdrawals, the dividend payout for FY21 is expected to be much better than in FY20, contributed by EPF’s diversified portfolio especially in equities.

       “Last year, the global stock markets were fuelled by a strong rally in technology stocks while liquidity factors drove markets to all-time highs, especially in the United States,” he told StarBiz.

       Former chief investment officer Pankaj C. Kumar pointed out that the EPF’s overseas investments have done very well in 2021 thanks to the rally in the global equity markets.

       Over the past three years, the US stock markets have been on a bull run despite the Covid-19 pandemic disruptions.

       The S&P 500 has been experiencing total returns of 1.5%, 18.4%, and 29.6%, respectively. While the Dow Jones saw 25%, 9.7% and 18.9%, respectively.

       However, a market observer expected that the the dividend rate is unlikely to be above 6%.

       “While the return on investment will be higher than 6%, there are operational expenses and accounting provisions, as well as adjustments that have to be made.

       “The management needs to be prudent due to the volatility in the market,” he said.

       In FY20, EPF declared a total dividend payout of RM47.64bil to its members, which resulted in a 5.2% dividend rate for Simpanan Konvensional and 4.9% for Simpanan Shariah.

       The dividend payout for FY20 was equivalent to EPF’s net investment income for the first nine-month of FY21.

       The EPF posted RM47.96bil in net investment income for the nine-month ended Sept 31, 2021, 26% higher than the RM38.14bil recorded in the same period a year earlier, thanks to lower write-down from its investment in listed equity.

       The EPF’s total investment assets declined from RM998bil as at end December 2020 to RM988.55bil as at end September 2021. To assist members affected by the pandemic, the EPF launched the i-Sinar and i-Citra facilities and the fund has disbursed RM67.6bil under those facilities.

       During the period under review, the fund said RM350mil was written down for listed equities compared with RM6.46bil previously on the back of continued recovery in the global equity market.

       However, it is worth noting that the third quarter of FY21 saw the lowest gross investment income recorded by the EPF over the past five quarters due to the volatile capital markets.

       For the third quarter of FY21, the fund’s total gross investment income amounted to RM13.97bil, lower than the RM17.33bil achieved in the corresponding quarter in 2020.

       In a statement yesterday, EPF chief executive officer Datuk Seri Amir Hamzah Azizan said: “The third quarter of 2021 has been volatile for equities in both the domestic and emerging markets, largely caused by the concerns surrounding rising inflation and interest rates.”

       “On the other hand, the continued recovery of equities in the developed economies amid the heightened volatility has provided EPF the opportunity to capitalise additional gains.”

       He said the stock market continued to be the main income contributor for the fund, accounting for 54% of total gross investment income at RM7.5bil.

       After taking into account the cost write-down, RM13.86bil of net investment income was recorded for the third quarter of FY21.

       Meanwhile, the EPF’s investments in fixed income instruments contributed RM5bil, or 36%, of the third quarter FY21 gross investment income, which was lower than the RM8.18bil income generated a year earlier, due to lower trading gains.

       The fund added that this is in line with the higher market yield in Q3 2021, compared to the same period last year.

       Amir pointed out that the continued inflationary pressure and aggressive shifts from central banks had led yields to increase during the quarter amid increased expectations for monetary policy tightening.

       “The environment of increasing bond yields has not just impacted bond markets, but created unease in equities as well,” he said.

       The fund real estate and infrastructure, as well as money market instruments, contributed RM1.18bil and RM290mil, respectively.

       The EPF’s total investment assets declined from RM998bil as at end December 2020 to RM988.55bil as at end September 2021. To assist members affected by the pandemic, the EPF launched the i-Sinar and i-Citra facilities and the fund has disbursed RM67.6bil under those facilities.

       Despite the weakness in the local stock market this year, EPF said its diversification in different asset classes, markets and currencies continue to provide income stability and add value to its overall returns.

       About 36% of its assets were invested overseas.

       In third quarter of FY21, the EPF said its overseas investments generated RM8.1bil in income, representing 58% of total gross investment income.

       Moving forward, Amir said the post-lockdown recovery will continue to grow although at a slower pace, despite continuing concerns on monetary policy and inflation.

       He hinted that the risks to Malaysia’s economic growth remain tilted to the downside on external and domestic factors amid lingering Covid-19 concerns.

       “The emergence of new infectious or vaccine-resistant variants of the Covid-19 virus is one of the key downside risks to economic growth and market recovery.

       “Concerns over inflation and the tightening of monetary policy will continue to cause uncertainty and volatility in both the equity and bond markets,” he said.

       He said that despite the challenging and unprecedented times, the EPF was hopeful of seeing market sentiment improve in the near future.

       “As a long-term fund, we remain committed and guided by our Strategic Asset Allocation (SAA) that helps us to ride out volatilities while taking advantage of the declines in valuations of fundamentally strong assets,” he added.

       Amir pointed out the reopening of the Malaysian economy is expected to support gradual recovery into 2022, and in tandem, the EPF would accelerate its efforts to help members rebuild their retirement savings as well as cast its social safety net wider by coordinating closely with the government and relevant agencies.

       “One of the big ticket items for the EPF further into 2022 is to refresh our mandate to remain relevant to more Malaysians in the informal sector as well as contract for service workers, which now form the majority of the country’s labour force.

       “This is important as we need to ensure that they have access to at least a minimum standard of living, even during unprecedented times,” he said.