Match EPF investments with market results

THE Employees Provident Fund (EPF) should reconsider its commitment to investing over 70% of its annual allocation in the domestic market to support Malaysia’s economic growth.

This is because the provident fund’s overseas investments have consistently outperformed domestic investments and are likely to continue doing so.

As of March 2025, the EPF’s total investment assets stood at RM1.26 trillion, with 38% invested in overseas markets.

These investments generated 44% of the total investment income of RM18.31bil in the first quarter of 2025 (1Q25), in contrast to domestic investments, which continue to struggle despite being a source of longer-term income stability derived mainly from fixed-income investments and dividend stocks.

While confidence in the home economy is important, the 1Q25 performance highlights the need to re-examine the balance between domestic and overseas investments. The provident fund’s purpose is to build members’ retirement future and help them achieve a comfortable retirement income.

Over-dependence on any one market exposes the fund to volatility and uncertainty, a fact that EPF chief executive officer Ahmad Zulqarnain Onn emphasises in a statement accompanying the 1Q25 performance.

Historically, the EPF’s overseas investments have outperformed domestic ones.

Reducing overseas exposure would mean reduced dividend income for members relying on their EPF savings for retirement.

The fund’s flexibility to invest based on risks and returns is crucial to achieving dividends consistent with its mission.

Over the past 10 years, the average dividend has been 5.91%, higher than the often-cited 5.50%.

There should not be a fixed rule requiring the EPF to invest 70% of its annual allocation in Malaysian assets.

Allocations should be based strictly on market performance.

Recent financial results from Bursa Malaysia have been lacklustre, and volatility is expected to continue.

CIMB Research has lowered the year-end target for the FBM KLCI by 6% to 1,560 points, expecting range-bound trading. Overseas investments have consistently delivered strong returns.

In 2024, they generated 50.3% of total investment income while comprising only 37% of total investments. Similarly, in 2021, overseas investments contributed 56% of total investment income.

These results demonstrate the value of investing overseas, even as the ringgit strengthens and foreign exchange translation gains narrow.

The EPF allocated RM96.8bil for new investments last year, with 82% directed to domestic investments.

Since 2020, over 80% of new investment allocations have gone to domestic markets.

While initiatives like Gear-Up, which focuses on healthcare investments, are commendable, the EPF’s ultimate mandate remains addressing the retirement savings crisis faced by most of its members, a crisis exacerbated by the higher cost of living.