EPF: Still up as at Q3 2016 but unsustainable moving forward

Feel free to read the full article about a piece of good news, even if it may not be repeating so soon. Reported in thestar.com.my Our Employees Provident Fund (EPF) has a good Q3 2016. Its investment income surged 29.21% to RM12.32 billion in Q3 2016 when compared to the same quarter in 2015 which achieved just RM9.54 billion. Investment assets has also increased from RM684.52 billion as at Dec 31 to RM712.50 billion as at Q3 2016. This is what its Chief executive officer Datuk Shahril Ridza Ridzuan shared, “Our overseas investments continued to enhance returns during the quarter, while non-cash impairments also recorded a significant reduction from last year.”
Other stats include the following: 41.24 percent of total investment assets are equities and this represented 56.96 percent of total investment income for Q3. In brief, equity has given a higher return compared to the investments into it. Earlier, EPF has also stated that it will focus on equity too. Read here: EPF: More into private equity, property and infrastructure  The higher income in Q3 was because of improvement in equity prices, mainly in the North Asian and developed markets. As at Sept 2016, 49.76% of EPF’s investment assets were in fixed income instruments. Out of this, the fixed income investment provided 36.65 percent of the quarterly investment income. In other words, the returns from fixed income investments are lower when compared to equity.
However, such a good quarter is not sustainable. Shahril shared that the EPF’s cost for overseas investments will increase as it will be at higher foreign exchange rates. Besides that the fixed income investment would continue to be bogged down by the low interest rate environment. He added, “Given the decline in investment income in the first half of the year and the uncertainties expected to remain for the rest of the financial year, it would be a challenge for the EPF to sustain previous years’ returns.” Happy following and yes, I do not mix my EPF and my unit trusts. 
written on 21 Nov 2016
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