Malaysias EPF Expects Market Sentiments To Improve Despite Volatility

Malaysia’s state pension fund Employees Provident Fund (EPF) said it expects market volatility to continue even as it is hopeful that market sentiments may improve in the near future as major economies have implemented aggressive measures to contain the COVID-19 pandemic.

The country’s largest pension fund, which manages more than RM900 billion investment assets, also said it is “making the most out of the current headwinds in global markets.”

“Although we expect continued market volatility, we have also recorded some soft recoveries in various markets since April. With the aggressive plans implemented by major economies to combat the virus and prepare for a post-COVID-19 recovery, we are hopeful to see market sentiments improving in the near future,” EPF chief executive Alizakri Alias said in a statement on Saturday.

As a long-term provident fund with a global investment footprint, he said the EPF always employs strict discipline in all its investment decisions, guided by a long-term strategy which ensures that the fund remains cautious and not make rash decisions based on short term market reactions.

“Hence, we are well-positioned to not only ride out the current volatility but also to take advantage of the declines in valuations of fundamentally strong assets,” Alizakri said.

He also added that the EPF is “making the most out of the current headwinds in global markets” with its continued investment presence in overseas markets, which makes up 28.8% of the fund’s total investment assets.

EPF said it has recorded a gross investment income of RM12.16 billion ($2.85 billion) for the first quarter ended March 31, 2020.

Fixed income instruments contributed RM4.87 billion to gross income. Real estate and infrastructure, as well as money market instruments, contributed RM0.43 billion and RM0.54 billion respectively, while equities registered RM6.32 billion, or 52% of total gross income. After taking into consideration the write-down on listed equities, a prudent practice by the EPF in ensuring that its long-term investment portfolio remains healthy, net investment income came in at RM7.50 billion, the fund said.

Alizakri said the pandemic has happened on the back of an already weak global environment characterised by extremely low oil prices and market volatility from uncertain and unpredictable geopolitical issues ongoing since 2019.

“All asset classes were severely affected, particularly equities which suffered steep declines with the global markets going down as much as 32%, while our local FBM KLCI dropped by 15% as at March 31, 2020,” he noted.

“Furthermore, as central banks across the world introduced various monetary policy measures to support households and businesses, consequent cuts in interest rates reduced the yield on fixed-income investments. The EPF was not spared from the impact of COVID-19 and we recorded marked declines in the performance of our investment assets.”

Thanks to the EPF’s Strategic Asset Allocation (SAA), the fund said it managed to outperform many equity funds despite the market downturn, as the flight to safer assets such as bonds have boosted its fixed income returns and provided a cushion from the decline in equity prices.

EPF’s Strategic Asset Allocation allocates 54% to fixed income instruments, 36% to equities, 6% to real estate and infrastructure and 4% to money market instruments as a reflection of its long-term goals, to ensure prudence and prevent overreactions to market movements, the provident fund added.

Established in 1951, EPF is one of the oldest retirement funds in the world. Its total assets stood at RM924.75 billion ($216.55 billion) as of the end of last year. It has 14.58 million total members of which 7.62 million are active contributors.