EPF declares 4.5% dividend for 2008

From The Business Times:

The Employees Provident Fund (EPF) Board had on March 16 declared a dividend rate of 4.50% for 2008, but this was lower from 2007 due to higher investment provisioning resulting from the sharp fall in global equity prices. In 2007, the dividend was 5.8%.

“Despite the financial meltdown, the EPF recorded the highest ever earnings of RM20 billion in gross income for 2008. This represented an increase of 9.36% over the previous year’s gross income of RM18.29 billion,” said a Bernama report.

EPF chairman Tan Sri Samsudin Osman said EPF’s investment portfolio for the year performed better at the gross income level compared to 2007.

“However, due to the sharp decline in the equity markets, a large provision had to be made resulting in a marked reduction in net income,” he said.

Net income for 2008 was RM14.26 billion, after deducting allowances for diminution in value of equities and doubtful debts, dividends for withdrawals, investment expenses, operational expenses, and death and incapacitation benefit payments.

This represented a decrease of 15.47% over 2007 net income of RM16.87 billion.

Equities accounted for 34.82 per cent of the EPF’s total gross investment income. The EPF earned RM6.67 billion from equities which was the second largest contributor to income in 2008 compared to RM5.37 billion in 2007.

“Up until September last year, the EPF was doing well in equities. However, following the effect of the global financial meltdown, our performance in equity investments recorded a drop of less than 20%, which impacted our dividend payout.

A grid of what percent of the investment allocation of the epf from their website:

The major concern here is that the loans and bonds exposure have been creeping up. The equity allocation has been relatively low at 20%. During the boom days of 1996, the equity allocation was up near 30%. But still, a loss is a loss.

Though they are declaring dividends, I'm not surprised if they have seen their overall portfolio dip by 5-10%. Especially if some of the loans and bonds have lost a bit of value due to market rates or defaults. 20% drop in equities is a 4% drop in overall portfolio. Say the value of the bonds and loans dropped 10%, that would equate to another 4% drop in the overall value of the portfolio. We're talking a 8% overall drop in the portfolio for 2008.

And yet the headline numbers are still paying 4% dividends. Where are the headlines for the principal performance? Sounds a bit ponzi-ish to me.