Economist: Invest in higher yielding assets and overseas funds

EPF/KWSP Dividend History
• 1983-87 – 8.50%
• 1988-94 – 8.00%
• 1995 – 7.50%
• 1996 – 7.70%
• 1997-98 – 6.70%
• 1999 – 6.84%
• 2000 – 6.00%
• 2001 – 5.00%
• 2002 – 4.25%
• 2003 – 4.50%
• 2004 – 4.75%
• 2005 – 5.00%
• 2006 – 5.15%
• 2007 – 5.80%
• 2008 – 4.50%
• 2009 – 5.65%
• 2010 – 5.80%


By EUGENE MAHALINGAM
eugenicz@thestar.com.my

PETALING JAYA: The Employees Provident Fund (EPF) should diversify its investments into more higher-yielding asset classes and overseas funds to be able to declare higher dividends in the future.

“It (the EPF) is in the right direction (but) it needs to diversify its exposure to higher yielding and overseas investments,” said RAM Holdings Bhd chief economist Dr Yeah Kim Leng.

On overseas investments, Yeah said the EPF would need to be watchful of the particular country and its currency risks.
Dr Yeah Kim Leng

Last September, the EPF announced it would invest 1bil (RM4.88bil) in properties in Britain.

The investments, which would be for long term, was expected to yield 6% to 7% annually, the EPF had said at that time.

Yeah said the EPF's investment in real estate, especially in the long term, could help elevate returns.

On Sunday, the EPF declared a dividend of 5.8% for 2010, up from 5.65% the year before. It will pay a total of RM21.61bil to members, an increase from the 2009 dividend payout of RM19.37bil.

EPF declared that the rate, which was approved by the Finance Minister, was the “highest dividend payout amount ever”.

EPF's total investment assets stood at RM440.52bil as at Dec 31 last year while its gross investment income was RM24.06bil.

The EPF said that equities was its largest investment income contributor at 45.45% or RM10.94bil, followed by loans and bonds, Malaysian Government Securities, money market instruments and property and miscellaneous income.

Two-thirds of EPF's total investment assets last year remained in low risk fixed-income instruments with stable streams of income.

Yeah said the 5.8% dividend payout was actually above expectations.

“The (5.8%) payout is reasonably good, given the prevailing low interest environment at the moment. Given the financial turmoil in the global economy, many pension funds were affected but the EPF performed in a commendable way.”

Yeah said EPF returns were positive as long as they were above inflation levels.

“With inflation at about 1.8% to 1.9% in 2010 and the EPF declaring 5.8%, than contributors would be receiving real returns of about 4%,” he said.

Malaysian Employers Federation executive director Shamsuddin Bardan welcomed the higher rate but said it could be better, adding that contributors were expecting at least 6%.

“The EPF needs to extend their investments overseas. Currently, the bulk of them (investments) are within the country,” he said.