KUALA LUMPUR: The Covid-19 outbreak has brought about unprecedented challenges not only on the global public health system but also economies around the world.
Despite the devastating impact unleashed by the global pandemic across all sectors, economists say the 2020 dividend for the Employees Provident Fund (EPF) is unlikely to disappoint following the commendable performance by the retirement body.
One school of thought went as far as predicting that EPF, which is the 12th largest pension fund in the world with assets nearing RM1 trillion, could declare a dividend that is at par or higher than the dividend paid out by Amanah Saham Bumiputera (ASB).
Putra Business School Associate Professor Dr Ahmed Razman Abdul Latiff said EPF could declare a dividend for the year 2020 of between 4.5 per cent and 5.5 per cent.
“I think, maybe, for the first time the EPF dividend will be at par or even higher than the 4.25 per cent dividend declared by Permodalan Nasional Bhd (PNB) recently,” said Ahmed Razman.
MIDF’s Head of Research Imran Yassin Md Yusoff said it was “quite impossible” for EPF not to register any income taking into consideration the retirement fund’s performance throughout the year.
“We do not normally provide any estimate of a dividend rate for EPF or asset management companies in general. However, we expect that at the very least it will be able to match the ASB dividend announced by PNB.
“This is due to its commendable performance thus far. Based on EPF’s performance during the first nine months of 2020 (9M2020), we note that its net investment income is only 0.5 per cent lower than the full year 2019 net investment income,” he said.
The diversification strategy adopted by EPF, said Imran Yassin, has paid off in particular its ventures overseas. This has resulted in a meaningful contribution of income and, to a large extent, has also helped them to build their economies of scale and experience, he said.
Bank Islam chief economist Dr Mohd Afzanizam Abdul Rashid said EPF’s Strategic Asset Allocation (SAA) had enabled the federal statutory body to plan its investment strategy in a more structured way.
“This will help them to ensure their investment returns will be optimised against their risk tolerance more effectively.
“In addition, their experienced fund managers and research team alongside the governance structure will ensure that every investment decision will be data and knowledge driven,” said Afzanizam.
The other two experts also concurred with Afzanizam that the SAA adopted by EPF has helped the retirement fund to manage effectively its investment portfolios overseas.
“One advantage for EPF is its high percentage holding of overseas investment assets which consistently gives higher returns than other classes of assets.
“For example, 32 per cent of EPF’s investment assets are overseas and that contributed 45 per cent of the RM17.33 billion in total gross investment income in the third quarter of 2020.
“That is up from 30 per cent of its assets that contributed 39 per cent of its RM15.12 billion gross investment income in the second quarter of last year,” said Ahmed Razman.
He added that the performance of EPF’s real estate and overseas investments as well as its fixed income would enable the retirement fund to provide a competitive dividend rate despite outflow of funds following the relief measures introduced by the government such as the i-Sinar and the i-Lestari facilities.
Afzanizam added: “As it is, the withdrawal scheme has been aplenty and the EPF has been managing its assets and liabilities for the longest time.
“The EPF, surely, already has economies of scale and can actually plan their cash flows so that it will not disrupt their operations.”
He also said EPF has the capability to maintain good or decent dividend rates in future provided that the retirement fund adheres to the SAA in its investment strategy.
“Typically, Tactical Asset Allocation (TAA) will also be deployed to take advantage of the prevailing market condition.
“Meaning to say, the EPF will always have the flexibility to ride the market condition and will react accordingly in order to deliver respectable investment returns to contributors,” he said.
Imran Yassin agreed with Afzanizam that SAA was important in ensuring the sustainability of investment income and subsequently the stability of dividends.
While the pandemic has led to higher uncertainty, he said the diversification in an investors’ portfolio was important to ride out the volatility and uncertainty.
“Therefore, we believe that SAA continues to be valid. Where it might change is in the percentage allocation of each asset class given the current and future situation, which is more of a tactical approach.
“Having that said, we opine that this goes back to EPF’s mandate. Although, the equity market may offer higher returns, the risk and volatility is also higher.
“Therefore, a more balanced approach is needed. As mentioned, we opine that stability of income and, to that extent, dividends is more important,” he said.
Ahmed Razman said he noticed that EPF had deviated slightly in terms of percentage of investment allocated for each asset class such as higher percentage allocated to money market instrument percentage and lower percentage allocated for fixed income and real estate instruments than what had been planned.
This situation, he said, was understandable given the current circumstances of allowing contributors to withdraw their money and thus affecting the liquidity of EPF assets.
“I am sure that starting this year, EPF will start to revert back fully to guidance given by SAA to ensure they will be able to consistently give higher return of investments in the foreseeable future,” he said.