By Wong Wai Ken, Country Manager, StashAway Malaysia
Malaysians generally received EPF’s recently announced dividend of 6.3% for 2024 positively. Part of the positive reception was due to comparisons to 2023’s return of 5.5% or the ten-year average of 5.9%. The dividend also happened to be the highest since 2017, which posted a bumper rate of 6.9%. No matter how you compare it historically, 6.3% is a good rate.
However, that is just one way of judging those returns, as one must look at local and foreign market conditions to appreciate how EPF delivers returns.
In 2022, when the S&P 500 declined 18% and bonds had a similarly torrid time, EPF posted 5.35%—a very respectable return given the surrounding conditions. In 2020, during the pandemic, when the S&P 500 fell 25% before recovering after stimulus was introduced, the EPF delivered a 5.2% dividend. Not to mention, the various withdrawal schemes introduced that year to enable contributors to tide themselves over surely disrupted the investment process.
Going back even further to the Global Financial Crisis in 2008, when markets were in turmoil, the EPF still reported a 4.5% dividend. The truly laudable aspect of EPF’s returns is that they are consistently positive at a rate that outpaces inflation.
This all comes back to EPF’s strategic asset allocation, which matches its mandate of managing funds for retirement. In 2024, the EPF invested 46% of the investment portfolio in bonds and 42% in equities. This almost equal split represents a balanced portfolio that preserves wealth while still taking a measured amount of risk to produce respectable returns.
Of its RM1.25 trillion fund, 67% is invested domestically (predominantly into fixed income), while 33% was invested overseas. This overseas exposure contributed 50.3% of the investment income, which is to be expected given that most of it is invested in equities. In 2023, 74% of the overseas investments were in equities, according to publicly available documents. This equity focus paid off since global equities performed 24% in 2023 and 19% in 2024.
Malaysians can learn a lot from the investing style of institutional investors like EPF. Diversifying into different asset classes and investing in overseas markets that have better risk-adjusted performance is a wise thing to do. A long-term mindset focused on retirement is also a good practice, given that by contributing monthly to the EPF, you are forcing yourself to save for the future while also dollar-cost averaging at the same time.
Note: References to the EPF rate are to the conventional dividend rate only. The S&P 500 returns represented here are for comparison purposes only to indicate market conditions.
