Market expensive? I agree partially BUT...

Where else should one put their money? Cash (which literally means return of about 3% to 4% from deposits), properties which is not cheap now (rental return less than 3% in most cases), bitcoin (are you sure), gold, other commodities, JJPTR equivalent (even more are you sure) etc?

The market has been inundated with headlines - first from the head of EPF - who is a very powerful person due purely to the size of the fund he oversees and second from a fund manager from Affin-Hwang. Think of it this way, the head of Affin-Hwang can be a respected figure but his fund would not cause ripple (not the digital currency) but the action from EPF can cause aftershock to the market. EPF oversees some RM600+ billion or could be as high as RM700 billion of funds. That is some 36% of the capitalisation of Bursa Malaysia.

Of course, EPF has investments all over the place i.e. MGS, private investments, private bonds, but equity forms more than 40% of its holdings (local and foreign). To my calculation of where majority of its equity investments is still in Malaysia - the exposure of EPF in the local equity market is about RM200 billion. That is more than 10% of our market. Considering that many of our companies are either GLCs or family controlled, the 10% really play the king maker role - ala PAS, the political party - i.e, third force.

Hence in this respect, with EPF moving overseas and hunting for deals - I agree but once EPF goes overseas it is now a big fish in a big ocean or five oceans, no more a big fish in Selat Malacca where it does not have much room to manuever. A big fish in a big ocean though will have bigger fishes - even bigger sharks. Then in that respect (with all due respect) it is now a equivalent of Affin Hwang Asset Management in Malaysia. Not easy. That's why EPF is - to some certain extent - still back to Malaysian-related deals such as the Battersea. It is better to do what you know, than to invest in areas which you are not so sure.

Now back to the first topic in this blog. Is our market expensive? If one is to look at KLCI and the type of companies that represent it, I would say very - just like what the Value Partner guy, Cheah Cheng Hye said. In fact, back in late 2016, I have put up a blog (on our KLCI counters) where if I were given a choice to pick from the Bursa KLCI Composite 30, I do not know which companies to pick.

Investments is not just about the PE of today or next year, but how we foresee (with good hindsight) on where these companies will lead themselves into. Based on that same article above, I just do not have good positive view of these companies moving forward. These companies which forms the 30 Composite - AMMB, Axiata, Maxis, Digi, YTL, PDB, Tenaga Nasional - they are not exciting.

(Note: the last 1-1/2 year, there has been movement in the KLCI 30 where Press Metal, Nestle has joined taking over from IJM, Sapura Kenanga, BAT but the two new counters have since became expensive.)

So, is out market expensive? Based on that 30 stocks (which forms about half our our market capitalisation) - yes. Not just on current PE valuation but future valuations of these companies.

One should know, funds (local and foreign) form 2/3 of the movement of stocks almost daily. Many of them are exposed to the KLCI 30 and the mid-cap 70 stocks i.e. the larger capitalised companies. These funds when they make a mention of the market they look at the PE of the market as a whole. (I look at this as well but I like to look much much more micro - which means the individual companies - then only macro)

Our market, on the large part is a bit stale as there have not been much new exciting listings over the past few years. If there are new potential ones, it is more of a repackaging i.e. Sime split into 3 companies, KFC wanting to come back, eDotco - the tower arm of Axiata coming onstream.

As I see it, on the micro level, there are still a portion of attractive companies - which I am not going to discuss here. Because of the general perception that the Malaysian market is not cheap and some of them are avoided or missed out by the funds, they are surprisingly still very good in my eyes. As mentioned above, the global market is now running on low interest rates still and to find investments that secure more than 5% is not easy. It is hard to find companies that are consistently growing and yet traded at less than 10x PE. If you have one and quite confidently see that they will be having that good growth 10 years down the road - you and I have found gems.

Why?

At 8x PE for example and if the company is growing at 10% growth yearly in terms of earnings, one could get easily 15% return yearly over a long term period from its investments based on value - not price. Isn't that better than keeping cash? Of course, there are risks but in today's world keeping cash is risky - if you know what I meant.

HENCE. Do continue to keep looking because there are those types of opportunities still in Bursa. And sometimes being a small fish is perhaps better as I do not really need to eat a lot to satisfy myself.

Stopping PLUS toll collection - REALLY?

I am hearing from Lim Guan Eng that he can eliminate the toll for PLUS based on the youtube video below.

Not so easy. PLUS has RM30 billion debt. Who is going to pay off that debt? EPF owns 49% of PLUS while Khazanah owns remaining 51% of it. Is the government going to pay off that debt for PLUS? Agree on the return for PLUS but I do not think one can so easily dismantle the debt issue. To be frank, it was actually a very smart move by all the parties involved in the privatisation of PLUS. It is structured in a way where if we are to stop the toll or soften the price hike, it will affect the EPF contributor's pockets - i.e. yours and mine. Damn if you do, damn if you don't. They are quite smart people out there structuring this deal!

In restructuring to take tolls out of PLUS, one will definitely need to obtain the approval from the bond holders. Easy? Nope. Otherwise, they would need to find RM30 billion to pay the bondholders off.

Based on the principal amount of RM30.6 billion debt and at weighted average yield of 5%, its interest is more than RM1.5 billion/year. Ever wonder how it can be barely profitable? Huge interest costs of course.

So now on investments - with its ability to fund a RM30 billion debt, do you know what is PLUS cash generation capacity? HUGE!

Interest payment alone is going to be around RM25.4 billion. Total repayment including interest over the 27 years is going to be about RM56.2 billion. That's how much the banks think PLUS can generate free cashflow over the 27 years from 2012 to 2038, at the very least. This comes to on average more than RM2  billion a year.

EPF's contribution: How many Malaysians contribute until 55?

I have been hearing a lot on many Malaysians do not save enough for old age. According to the latest report by EPF, only 22% of people will actually have more than RM196,800, the minimum amount required to retire. This is assuming that many do not have savings elsewhere. It went on to say that 68% of Malaysians at 54 of age has less than RM50,000 in their EPF account. The below will justify that these are true (as it come from EPF) but they are just some ridiculous reasons to tell us that the savings situation by Malaysian is in dire strait. Why? A Malaysian who earns minimal income but worked for their entire life as a salaried worker would have at least RM196,800 in their account, AND in no circumstance would they have less than RM50k in their EPF account. The below tells why.

While I do see that many in Malaysia do have challenges post-retirement, but some of the numbers that are provided does not really reflect what may be the actual situation.

I am just wondering how many of the EPF's contributors in the list that are still active contributors towards the EPF fund? I think most people will fully withdraw when they reach 55 years of age, but by the time they withdraw their money, were they still actively working. They may be working but not contributors anymore as they are probably working for themselves and are not required to contribute towards the fund.

To answer some of those I have put up a hypothetical calculation. Assuming a person works for 32 years from age 24 to 55. If that person retires in 2014 (last year), this means that he started work from 1983. Below are the EPF's rates from 1983 to 2014.

Average return for last 32 years was 6.737%

The table above shows the historical contribution by EPF over the last 32 years. On average, the percentage contribution over the period is 6.737%. If I were to take one of the lowest earning individual and take below assumption:

• he started with salary of RM415 (no overtime salary). Final salary is RM1247;
• his EPF contribution is according to statutory rate i.e. 11% employee, 12% employer;
• increment per year 3.5% - which is minimal. This means not much promotion at all;
• he does not get any bonuses;
• he does not stop work at any point of time;
• started work at age 23 and retires at 55;
• average EPF dividend earned 6.737%.

What would be the savings in his EPF by the time he retires at age 55? See below. He has RM197,349. This number is higher to the one that was the amount needed for one's retirement as proposed by EPF i.e. RM196,800.

Now, remember my assumption is quite conservative - i.e. no bonuses, no promotion with increment of 3.5% per year. The person started with salary of RM415. Note that by the time he retires at 55, his final salary would be RM1247.

While EPF provides some data which tells that many Malaysians do not have enough in their EPF savings to retire, I am just wondering whether these can really be applied overall in general...From these, one will know that the 68% group which has less than RM50k in their EPF savings are the outliers as they only worked partially as salaried employees in their life. We can't just throw in numbers for numbers sake.

Another exercise, if I were to take the group that have less than RM50,000 in their account how much on average would they have earned and for how many years have they contributed actively to EPF?

Diagram 2: The group that have less than RM50,000 in EPF

Based on above Diagram 2, those group would have earned average RM850 per month, earned 6.737% dividend and worked for only 13 years! In fact, I have yet to add in the yearly dividend they earned after their retirement (age 36) until 55 years of age. If I were to add that in, they would have RM160,319 by age 55! (Do that multiplier by multiplying 6.737% to RM49,581 - Year 0 - cumulative every year from 36 to 55.)

While I do not have all the facts, I would think that many Malaysians have either stopped contributing to EPF after certain age and do not do this until 55 i.e. stopped working entirely or along their working life, they may be working in areas which they do not contribute anymore. They may also have withdrawn a substantial amount for housing, health, education etc. along the way. But those that can be withdrawn are now in Account 2 and they only comprise of maximum 30%.

In any case, I am still questioning the data that was presented as the database I think is based on all the people that have EPF account - and that could be many as long as in their working life they are required to open an account. Hence, I am made to think that every Malaysian that have worked before would own a EPF account although they may not be working or work for themselves later on in life. I had mine opened at age of 18 when I was working part-time for a restaurant and I later went on to further studies for several years.

We also know that about 10% of working Malaysians actually pays individual income tax - it does not seem right. Those numbers could also mean that there are a group whom may not declare their actual income. I would like to be proven wrong.

Even today, there is an article on The Star headlined "Save or Suffer". To me they are using a set of data that are overused, wrongly interpreted and may not be scrubbed through well.

Note:

1. The tools that I have used are all available from the net.
2. I still feel that RM196,800 of savings is a challenge for many to survive through old age but I am also not sure what EPF intends to implement i.e. allowing full withdrawal at 60 only is going to change much as compared to 55. What should be done is to provide financial education, not withholding people's own money. The days of government knows best should be re-thought.
3. Let's be more transparent on the data and while it is critical for people to save, I do not think the current situation is as bad as being shared.
4. If one no longer actively contributes actively towards EPF, chances are they do not pay personal income tax as well. You also see the advantage of having GST although many would be against it now.

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This article does not mean I do not understand the predicament of current inflation, hard conditions for retirees if one does not save enough - but the above were based on usage of a set of data which one do not scrub through to identify the outliers.

IHH: Perhaps EPF should reconsider this

I have talked about share repurchases and where companies repurchase their shares but directors selling. The other phenomenon which is of a bigger concern is outsiders buying while insiders selling.

In IHH's case, EPF is considered an outsider despite it being a substantial shareholder. Let me highlight the  transactions which I saw today.

At the same time, on the same page, EPF was still accumulating.

In an earlier article, I have mentioned of the Group CFO transferring his shares so that it is not noticed if he sells. In today's announcement, the Group CEO sold some RM8.28 million worth of stocks. My question if I am Khazanah, why are they selling such a huge stake less than 6 months after the company just got listed!!! Are they not confident of the company they are managing. If I am a shareholder, I would be selling if the company is way overvalued. If I am an employee who happens to be principal officers, I would not be selling despite them being overvalued. Imagine Tim Cook selling huge stakes (I meant HUGE) while he is still CEO of Apple. What kind of message this translates to?

I have mentioned of IHH being on the expensive side despite it being an attractive business.

These are Singaporean managers who are selling while our fund is buying and it looks like we are buying while allowing them to sell. Seriously, does not look good. As much as we want to allow IHH to look good, it is helping the management who knows the company better to sell! I sincerely do not like this...

Kwasa Land and their potential pretenders

Was talking to a friend and were discussing about the potential of Kwasa Land - aka Kwasa Damansara, the RRIM project covering 2230 acres of development land initiated by the government.
I did some reading on the project although no parcels have yet to be awarded by EPF being the passive developer / owner. Of course many developers are eyeing this project located in a prime area with all kinds of facilities such as highway, MRT, green lung park - usual suspects like SP Setia, Sunway, Dijaya, Mah Sing, UM Land, IJM etc. and some smaller ones. When I was reading some of the forums, came across the comments on www.propertywtf.com.my. Hilarious...

1) Mah Sing - they will squeeze the max unit of house in the small plot of land, then remind you to buy by sending 100 sms to you in a week.
2) Empire Group - they will convert the residential land to commercial title then build SOHO/SOVO, 300sqft BU without car park given. Outsource Prop Agent to market their products (no in house sales), with price list written in pencil.
3) Sunway - they sell you the future price in 2020, then give u early bird discount, PAL member discount, rebate, renovation incentive, long list of discount. If u entitle 90% loan u still have positive money back. Sunway choice of land is Leasehold, near HTC, near TNB main station (judging from their Charlis, Rymbal Hill, 3 Harmony choice of land)
4) Tan & Tan - least aggresive developer, they will keep the land undeveloped till the cows come home. "Tan & Tan" means "Wait and Wait" in Hokkien.
5) Monoland - They will build undersize condo (600sqft) and oversize condo (2000sqft). Knowing nobody interested in 2000sqft condo, then force u to buy in pair. 600sqft paired with 2000sqft. No catalogue, No website, nothing given to u even after u sign S&P.
6) Dijaya - Overprice overprice, if u think SHC's 9 Bkt Utama 2000sqft at 1million is expensive, let's look at their Tropicana Grande NKVE facing condo, 2000sqft @ RM2million
7) INP - Purposely price the products under priced, create a chaos, when u attend the balloting, 80% fully booked by internal (directors, associates, government officers, staffs and family), then thousands of public q up fight for the remaining 20%. Those who want the 80% pre-booked choice unit, then under table transactions...."you help me, i help you!!"

Disclaimer: The above opinion on the developers of course are not mine.

Do I trust EPF?

YES. I still have a substantial part of my savings in EPF and I am actually letting it stay put there. Some readers have actually asked me on unit trusts and they are thinking of parking some of their EPF's money in unit trusts. Seriously, I have not much comment on this as I myself have not done detailed research on this - but one thing I have read is that there are not many funds that outperform the market consistently.

Picking a fund is like picking a stock - one will need to identify the investment mindset and objectives of the fund manager - how much they have consistently beat the market and can they still do it in future. That's a hard call. Then the fees. Are you willing to pay for the additional fees while in EPF, you are basically not paying the extras.

Back to EPF - EPF is a the largest fund among all the unit trusts. In fact it is not a unit trusts. It is a provident fund - i.e. taking care of our old age.The recent attack by some opposition members may not be that wrong as it has invested into FGV and it looks like it was supporting the share price. (However, statement like EPF has lost few hundreds of millions investing in FGV is a misguided statement as there are losses and there are gains in investments - and anyway it is losses in the books, unrealised) I in fact have mentioned of my unhappiness with regards to the investment, but one must know that EPF is a very large fund. That is a very small portion of its investment. Unlike me, where I can be very picky with my investment decisions, EPF can still be picky but if it is too picky, it has less places to invests in. (But that doesn't mean it can simply invest anywhere, which to a large extent it is not so.)

Investment assets of EPF have been growing very fast

As at 31 Dec 2011, it has investment assets of RM469.2 billion. Who in Malaysia can beat that? While the fund size looks appetizing for a fund manager, I would imagine it is actually very tough to manage a fund this size. Every month, it probably has a whopping net size growth of about RM1.2 to RM1.5 billion after withdrawal.

If I am the fund manager of a fund this size, I will have problem allocating these assets. Hence, managing it and have a decent return of 6% for example last year is quite a good feat.


The only good thing for EPF's fund managers are that they do not have to source for contributions (i.e. growing their fund size) unlike the other unit trusts fund managers which have to worry over fund size growth vs withdrawal, anytime. That is a great advantage that EPF has - where it can actually figure out the future withdrawals while other open-ended unit trusts can't really do that. As a result, unit trusts have to park a larger portion of their money in more liquid assets.

 Where does EPF puts its money (or rather our money)?

See below.

Picked from the Chairman's statement in Annual Report 2011

The pressure of low interest rates environment as well as reducing government loans relative to the growth of the fund size has caused EPF to look elsewhere (mainly equity) to park its money. Fortunate and unfortunately to me it has parked most of the funds in Malaysian equity market. The thing about putting money in the Malaysian market is that it has overwhelmed the market with EPF's funds and an elephant can't dance very well. Parking its funds in the Malaysian market means that the companies that it invests in have to perform. Luckily for us - companies like CIMB, Maybank, Public Bank, Digi, Maxis etc performed over the last decade. EPF cannot afford non-performance from these companies that it invests in as it will have problem pulling out from its current holdings as if it pulls out, the share price of the companies will be largely affected. One example you can see is Malaysia Airlines where EPF is slowly reducing its stake but still it is stuck with substantial percentage.

2001 vs 2011 allocation from EPF's investments

From above, you can see that the contribution from equity is now constituting a substantial percentage of its income. While it still needs to put some of the money in MGS and money market, this obviously is reducing.

While it is now putting a lot of money in equity, the return that it has gotten is not too shabby against many of the funds.

Last year itself, return from equity investment was 11% which was even better than many of the funds. Now, with this kind of investment returns, I do not really have to think of diversifying my investments into unit trusts.

You can say that the large holdings EPF has in a lot of the companies it invests into, it may be able to largely control the share price - well, that's another argument but most unit trusts have to put their money in the Malaysian bond or equity market anyway.

And the ones that went overseas i.e. South East Asia or East Asia actually largely underperformed in the last few years.

Source: EPF

Based on the chart on the left, many more people have taken their money out from EPF recently. Great for the funds industry as it needs that. Obviously, I was approached as well but I am staying put with EPF. If any of the fund can outperform EPF by say 1% - 2%, or maybe even slightly more, I will just say - forget about the trouble.

I generally think that EPF has done quite well for the larger portion of the public which consists of more than 13 million contributors although once a while we may make some comments like the ones with FGV.


NO, I am not being paid by EPF to write this article, but I think the guys need some pat on their back to do what they have done. But of course, if I am given the opportunity to withdraw the money for me to invests myself, I would gladly welcome it.

EPF: The way it announces numbers has to change

No wonder MTUC asks for higher dividend because he is reading the headlines. See the report below. The guy is probably being mis-informed
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KUALA LUMPUR: The Malaysian Trades Union Congress (MTUC) has called on the Employees Provident Fund (EPF) to declare a higher dividend this year because of its increased investment income.

The EPF recently announced that its investment income soared to RM7.02bil in the third quarter of this year ending Sept 30.

MTUC vice-president A. Balasubramaniam told Bernama on Tuesday that in view of this, it was only appropriate for the fund to declare a higher dividend.

EPF declared a six percent dividend for 2011.

Balasubramaniam said the majority of the 10 milllion private sector workers were looking forward to a better dividend from the fund as it was the only source of savings for them. - Bernama

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The thing is if we use absolute numbers to announce the performance of the fund, chances are it will increase. This is because the fund size increased as well. Over time, EPF's fund size would probably increase (by quite a lot) rather than decrease. This is because total number of contributors increase as well as its amount each contributor gives increase as well. What EPF actually needs to report is Return on Investments or Return on Assets - not the absolute number in terms of performance. EPF's fund size is having net increase of RM1 to RM1.5 billion a month! Its absolute return should increase as well...What's more important is the performance per ringgit of fund contributed.

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See the announcement below (can you track what's wrong):

EPF earns RM7.02bil in investment income in third quarter ending Sept 30

KUALA LUMPUR: The Employees Provident Fund (EPF) Thursday announced a 66% year-on-year income growth for its loans and bonds portfolio to RM3.06bil for the third quarter ended Sept 30, 2012 vis-a-vis RM1.85bil in the same period in 2011.

EPF said it earned RM7.02bil in investment income for the quarter under review, up 3.24% over RM6.8bil last year.

Chief Executive Officer Tan Sri Azlan Zainol said loans and bonds generated exceptional one-off returns due to a number of tactical capital market transactions, thus outperforming other portfolios in the same period. - Bernama

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Not asking much. EPF is representing almost everyone in the labor force (except for public servants and self-employed) - I think we deserve a bit more in terms of reporting.

Airasia's trade: What could we have expected from EPF

The Malindo announcement caused Airasia's shares to be highly traded over the last few weeks. While some has deemed it as a downside for Airasia's future, this to others have become a buying opportunity. We know that knee-jerk typed of reaction like this could be an opportunity as sometimes a sudden drop could have caused some trades to be force sold.

Some may take this to reduce its ownership in a company due to the uncertainty for the stocks. Now, let's see what EPF has done during this period. As mentioned, EPF is a very large fund - its trades could move the market. As a result, there are lesser opportunities for EPF to take opportunity from large short term movement.

However, for this time I found that due to Airasia was a larger counter and due to the high volume traded during these period, EPF (to me) had taken some positive moves. Look at the chart below, the blue line shows that transactions which EPF has taken over the last 1 month, while the maroon line shows the trend of Airasia's share price.

I feel that the fund had taken a smart step as it has been buying from the extremely high volume opportunities. On a another table which is shown below, you can see that as the price trend turns red, the fund has been accumulating.

While I have been critical of some of EPF's purchases, this action shows that when EPF is not under stress to provide stability to the market, it has traded smartly - as I see it.

EPF, KWAP continuing to support FGV?

Should I call it support or should I deem it as buying from opportunities? If you read the EPF's Chairman's statement, he calls it buying from lower price opportunity. I beg to differ in some cases. Do look at the trend below. EPF has been buying FGV daily. If I am buying smartly, I would let the share price drop rather than continuing purchase.

If I put the trend into a chart, please see below.

EPF, KWAP's purchase have been on uptrend while FGV's shares on downtrend

As an investor (value that is), I may sometimes continue to buy the shares on its downtrend. Of course, you can't call me supporting the share price as I only buy in small quantities. However, both EPF and KWAP have been buying a huge percentage of FGV's daily trade. Remember in my previous article, find out who have been provided IPO shares of FGV (read those). These trend are seen in IHH's IPO as well together with another upcoming large IPO in Astro. I could not wait when the lock up period is over when the cornerstone investors are allowed to sell (especially IHH). Will these shares be bought in even larger quantities then by these pension funds?

I am just wondering (can I call it) are large funds being used to support these stocks? Is this the reason why large Malaysian IPOs have been doing well? Who are to lose from here - you tell me.

RRI land bought at around RM22.50 per sq ft

In an announcement today, Kwasa Land, a subsidiary under EPF has bought 2,330 acres of land at RM2.28 billion from the government. That comes to around RM22.46 per sq ft (which is seemingly very cheap). The development is planned for 15 years.

With such a large development being offered, will property prices taper down? - as supply will definitely increase.

Can I say something needs to be done to reduce the prices of properties? And this can be a good start.


p.s. Although I need a new house, believe me I am not in those category that seriously in need of one.

EPF, KWAP, TH on FGV: The big 3's position

I wanted to have a feel on the largest national funds with regards to their holdings on a company which can be thought to be controversially supported - FGV.

Let me show the table which I have prepared. As you can see the three funds:

• EPF started with 5.06% holding, now after 1 month owns 5.65% of FGV;
• KWAP started with 5.30%, by 26 Jul it increased its holdings to 6.33%;
• Tabung Haji started with 7.55%, 1 month later reduced slightly to 7.49%.
• As for share price, FGV opened at RM5.30 on 28 June, latest was RM5.12 (for the period in review).

Now, you see that as the share price of FGV dropped, the funds continue to increase their holdings especially from mid July. It is not wrong to buy as shares continue to drop, but this I think is not the case here. Currently, the three funds hold in excess of 19.3% of FGV from the initial period of below 17.9%. As EPF has proven to hold more than 10% of many Bursa Composite companies, I will not be surprised that it will continue to increase its holdings.

Now the question is whether these purchases allow some to sell especially the huge list of MITI's holders? Currently, palm oil stocks are on the slide due to potential weakening of crude palm prices but this is not the case here. Many of the shareholders of FGV at the moment are just not the believers type (and they were just doing trading) and I have the suspicious mind that these funds are doing their best to not let it slide much further.

Do you know why I am not supportive of these funds being heavily involved in Malaysian stocks?

EPF's full withdrawal at 60

It seems that the proposal for full EPF's withdrawal extended to 60 is true. Unfortunately, it went without much to be debated. The time for government knows best is over and yet we are being treated like kids. Priority should be on money management which we are to do ourselves rather than thinking of managing it for us.

C'mon, this is just too disappointing.

My other article on this:

EPF, I want all my money back by 55.

EPF, I want to withdraw all my money by 55

It is a cause for concern when there are mentions of we may not be allowed to withdraw all our money come 55. There's no smoke when there's no fire. Here, I am not saying that EPF is mismanaging our money. I will be fair with my reasoning.

The very government that has asked to believe in them for indebting the nation further has asked us to trust them in managing our money for us. It is already a cause for concern when we have continued to be in budget spending deficits over the last 14 years until we are to reach a total debt to GDP of almost 55%. Yes, these numbers are better than some European nations but until when you are to continue to overspend. For a government who continues to overspend, how are we to entrust our lifelong savings to you until our late age in life.

While it is true that over the last decades, EPF has done a decently good job at managing our savings fund, it does not mean that we can blindly allow you to continue to manage these funds until we are 60. What happens to the call for us to have money management education? When you hold a large sum of our savings and you feel that you can manage them better we will not have the experience and ability to proof to you aren't we? Since when does the government knows better, and has proven that they have acted best for its people until we are to assign a huge chunk of our savings to you to manage?

With the EPF's fund growing at much more than RM1 billion a month, I am sure you already have problems allocating these money. Already, EPF's investment into equity is reaching 35% of the total fund size of a staggering RM475 billion. The last few years I am noticing that it is getting more and more difficult to put those money in the Malaysian equity market. Which is also why you have gone to buying properties in UK and more recently into Australia. Our money in EPF is now being used to own PLUS. Not a bad move, but it shows that managing these funds successfully is getting tighter. How many more PLUSes are there? Already, the fund is asking for more allowances to invests these money overseas. How confident are you in making a better return overseas? Remember, by going overseas, you will not be given with the same preferential treatment as in locally. Sometimes, a large fund such as EPF may even be treated to be a sucker for deals.

In fact, I have felt that Khazanah has been suckered in the private healthcare deal in Singapore and Turkey. How sure are we EPF will not be treated the same when you are moving more aggressive overseas?

Moreover, while there are calls for us to work until 60, at 55 years of age it is important for us to be allowed to enjoy some of our savings. I am sure there are better ways than for the government to continue to say that it is better for them to manage those funds for us. If there are those who prefer to park their money in EPF, let them do so. Create an annuity fund, if you may. However, do allow for those who feels that they can do better without EPF's assistance. Let us have liberty to choose. As it is now, the option is very limited.

This very idea and mentality of government knows best is perhaps the very reason where you have ballooned up our nation's debt. Maybe it is better to give us back the money at our earlier age so that we can have better and more careful planning with them. After all it is still our money!

Should EPF reinvests into KFC?

Unlike the McDonald's franchise, KFC is a franchise which has garnered quite a bit of corporate news in Malaysia over the years. If you noticed the history of KFC franchise in Malaysia, it has changed hands quite a few times. The reason for this is that KFC is a very strong franchise particularly in this region and over those years, the owners that controlled the franchise are never that financially strong to really stake their claims decisively. Hence, on one hand the franchise itself is attractive (as it is a strong cash generating business with good dividends) but on the other hand, parties that are acquiring the controlling stake are never able to consolidate their positions in the group. In its history of owners, most of them are having the wrong mindset when comes to its ownership - they see KFC as the golden goose - not knowing that it was still a business which they really need to nurture for growth.

In 2005, with the assistance of CIMB as the debt financier, Johor Corp managed to take control of KFC via its control of QSR (holding company of KFC). Unfortunately, Johor Corp was exactly in the same mould as the scenario I mentioned above. They are never financially strong to see through it but on the other hand, they know that it is a golden goose. They are reluctant to sell the goose. In keeping the goose however, their debt ballooned. (CIMB as the hand that fed them will definitely not sit still and allow that to happen - as the nation's most INNOVATIVE investment banker, why not make more from other fees besides the income from interest). Hence, the pressure for the Johor Corp Group to restructure their finances. To restructure, they need to do something with KFC.

As in the above structure, although Johor Corp is able to control KFC, effectively it only has 15.1% stake in the fast food franchise. Even though KFC is the golden goose assumingly, there are not much to be reaped from the group once it reaches to Johor Corp. The 15% effective ownership is not going to solve its debt problem even though KFC gives good dividend. One must remember the prized possession here is KFC, not QSR and not really Kulim. Johor Corp nevertheless has control of the group through the layered ownership despite the continuous mess surrounding KFC's structure.

To top off the mess, the Johor Corp group made some related party transactions which from news pissed off EPF. In an unusual move EPF which owned some 10% of KFC sold off its entire invested stake in KFC. I am not sure what are the reasons which caused this but if you look at some announcements, KFC was buying several pieces of land from Johor Corp for development of new restaurant sites and other business purposes. Transactions like this would be hard to quantify especially on its valuations and other strategic reasons.

Now with the new structure, EPF is back to KFC. It seems that EPF has already changed its perception in Johor Corp for them to now decide to have effective 25% control of KFC group. What makes them change their mind? Better control now? Tough one to convince I would say as the ultimate controlling shareholder remains the same. If those concerns however are really resolved, then I would say KFC is worth it as there are not many assets like this out there.

Reply from the Deputy CEO / CIO of EPF

I received a reply through my facebook from the Deputy CEO of EPF,  Dato' Shahril Ridzuan - here are his reply with regards to my articles on his share trades and ownership in MRCB and being offered IPO shares through his directorship in FGVH.

Dato' Shahril Ridzuan:

I noticed your postings on FGVH and MRCB with interest. I just wanted to clarify that at EPF, we have clear policies prohibiting our staff from trading on the markets due to potential conflicts of interest. These policies do allow our staff to sell securities that they owned prior to joining EPF.

In relation to FGVH, I had already declined my IPO entitlement and had in fact asked them to allot it to the settlers instead. I believe the prospectus has to legally state that I am entitled to subscribe if I want to.

In the case of MRCB, all my shares in the company are from the company ESOS and rights issue. As you know, I was the MD there for several years and a large chunk of my entitlement vested after I had joined EPF. I have never acquired shares from the open market. Subsequent sales have been to settle my financing under the ESOS scheme and also to reduce my holdings in MRCB to reduce its weightage in my own personal finances.

I hope that clarifies the points raised. Appreciate if you could also let your readers know. I tried to leave a comment on your blog but it didn't seem to work...

Also, this is a personal reply since the references in your postings seemed to be about myself (rather than EPF) and I want to assure you that I have, and will continue to, always act professionally in the interests of EPF.

My comment:

I would like to thank him for his quick reply and in my opinion he is definitely doing the right thing by rejecting shares in FGVH. Kudos to him for offering his portion to the settlers as the 800 shares per settler's family is a little pathetic, don't you think. However, seriously come to think of it, imagine - there may be a mess if too many shares are allocated to 112,000 households. The selling can be uncontrollable. Maybank for example has 60,187 shareholders as at 8 Feb 2012.

I would like to apologize if my postings harm him in any manner as it was never my intention to do so but rather as an observer who would like to protect his live long savings as well. I wish him the best.

Is there anything wrong if EPF's CIO trades the same stock for himself and you?

After the findings of FELDA directorship and shareholdings, I looked through Annual Reports of MRCB, a company where Dato Shahril Ridza is a director and EPF acts as the controlling shareholder. I found out something which to me is not right and worrying. Acting as the Chief Investment Officer (CIO) of EPF and director of MRCB, he trades on both sides - which means as an individual shareholder of MRCB and CIO of EPF, he trades MRCB stocks for himself and EPF. See below where I have summarised his holdings from MRCB's Annual Report.

EPF is the controlling shareholder of MRCB.

Notice that from the chart below when he purchased shares of MRCB on his personal capacity, MRCB's share performance was at its low and he started to sell down, the shares of MRCB was at its high.

This is not an attempt to attack any person, however I feel that as the CIO who is in charge of more than RM470 billion (one of the most powerful person in the world in terms of money management), he should not hold any shares that EPF invests into. It is important for a person who holds such a position to have strong discipline in what he is doing especially how fund owners perceive him to be. Already, the ever growing EPF fund is holding more than 35% of its total fund in equity - and it is growing. As the CIO of EPF, he is representing all working Malaysians in terms of our retirement funds. The misnomer of trading MRCB shares on his personal capacity while double acting as the leading investment officer of the largest fund in Malaysia is just plain wrong.

I do not hold any trust funds, as I am one who does thorough checking on anything I own whenever I decide on having it especially investments, however with EPF I have no choice - and to see this is saddening. Frankly, I am sickened by it.

Related article:
Reply from the Deputy CEO / CIO of EPF

Will EPF buy into FELDA now that its CIO is a director / shareholder post IPO

I am not interested in FELDA's IPO, but I am interested in protecting my money in EPF. You know what, after browsing through FELDA's prospectus I noticed something - the current Deputy CEO and co-acting as Chief Investment Officer (CIO) of EPF is also a director of FELDA.

As a director of FELDA, he is to be provided some shares - 150,000 to be exact (see below). With the retail pricing at RM4.55, that 150,000 shares is to be worth RM682,500.

I am still not interested in FELDA but my question is that will he as the CIO who can use his position to invest on behalf of all the EPF contributors be buying FELDA's shares. If he is, will that be considered as conflict of interest? Can someone let me know or SC check this if happens that EPF is taking up some stocks?

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I have the hunch the government will get EPF to buy into FELDA as it needs those funds to provide better support for FELDA's stock price. Anyway EPF is into most KLCI stocks after all and FELDA is a very large listing - I am quite sure EPF will be in there.

If EPF is putting its money into Felda, then Shahril should resign from one of the position - either EPF or FELDA. Don't tell me he overlooked this being a person of such high position - or is it that he doesn't care with his potential immunities.

Related article

Deciphering FELDA's IPO attractiveness 

Reply from the Deputy CEO of EPF on him being offered IPO shares in FGVH

EPF's RM1.5b loan scheme: When the crux of the matter is not addressed

A government has the duty to address matters of public housing to those who cannot afford private properties while doing their best to maintain the prices of properties in check.

What we have seen over the last many years are sheer lack of interests to address matters with regards to housing by the Malaysian government. There are just too many cases of property developers abandoning projects and eloping with the deposits and any other progress payments that cheated buyers have made. After many disappointments and through lack of initiatives to keep prices of properties in check especially in Klang Valley, Penang and Johor, they have come out with this scheme that can be considered to be a joke.

What can EPF (who is supposed to be protecting the savings of the Malaysian employees) do to help public housing? Provide financing at high interest rates to high risk clients? That is not the solution. The poorer group cannot afford to pay high interest rates on top of the principals especially with matters concerning the biggest portion of payment out of their monthly household income. At 6.5% to be charged, it is way higher than the current market rate of 4.0% to 5.0%. Housing firstly should be made affordable to all. Then you will not see situations of a huge "baby boomers" group being left out of doldrums without a roof under their head due to price.

There are 9 local banks in Malaysia (largest 3 out of 4 are owned by government), because of pure greed did not do anything to keep the spiraling property prices in check over the last 5 years. If I may, I would go to the extent to call that it is the financial institutions that have greedily speculated the property market together with the developers at the expense of the consumers. Yes, they are the ones that provide financing for 2nd and 3rd home (etc) with almost zero upfront payment terms and up to 40 years. Beyond 30 years financing, this is basically asking for the children of the borrowers to bear some of the burden as very few can have the liberty to maintain their jobs past 60. If you are encouraging a wealthier group to own more than 1 property with ridiculously low barrier of entry, this is what happens. It becomes a massive speculation.

Then you want to charge the poor (who already cannot afford) a higher interest rate. This is pure capitalism at play! Cheaper or subsidized financing for the ones who deserve it should be from the government's coffers. A government has many sources of income. Chief among them from taxes. And for this government, they should look at education, health, affordable properties and security as their main concern.

EPF's role has for so many years been providing loans to the government by subscribing to the Malaysian Government Bonds. Yes! with the funds continue to grow at a very fast pace, EPF is finding it tougher to allocate funds and provide the returns its depositors are expecting of them. But lets not reinvent the wheel with a creative scheme where EPF will lend the money to a special purpose vehicle, with guarantees from DBKL. In financial terms, this is an "off balance sheet" item for the government which they will bear anyway. Surely one could remember the biggest "off balance sheet" trick which went wayward awry was the House of Cards created in the housing collapse in US.

While the first RM1.5 billion is a small start as opposed to the size of the housing collapse in US, I am sure if not in check the government of the day (knowing them) would create a bigger hole.

Tackle the bulls by the horn. Housing should be the problem (no matter how difficult) for the government to address, not by some creative schemes.

EPF: By far the Biggest market mover

I know most people are happy when EPF announced 6% dividend for 2011 (I am). However, here are some facts to make you feel wow (or jittery) whether you are a local or foreign investor in Bursa.

• EPF - Fund size of RM460.05 billion (as at 31 Dec 2011) with 35.6% invested into equity.
• Total investments into equity RM167 billion.
• Total market capitalization for Bursa = RM1.24 trillion. Hence, EPF probably holds 13.4% of total Bursa market value.

Note that EPF increased its investments into equity from 33.68% in 30 Sep 2010 to 35.6% in Dec 2011. How much more can they go? EPF will probably run out of ideas to put their money (or should I say our money?). They went into buying London properties recently...now Malaysians (you and I) own London properties as well. May not be a bad thing as there are such thing call diversification...as having 35% of our monies into Malaysian stocks may be a risky endeavour. You will never know, Malaysia may have a bad year or two, then what happens?

Imagine a few guys (in EPF) can make such a difference to the Malaysian market. So few can do so much! I am having the  jittery feeling now.

EPF says ‘selling spree’ was nothing unusual

KUALA LUMPUR, March 13 — The Employees Provident Fund (EPF) has denied any unusual activity in its recent surge in share disposals that dragged the share market down last week. This comes after The Star reported that the EPF along with its portfolio managers "dumped" a total 83.68 million shares on the open market on March 7, or about half the total daily trading volume which pulled down the benchmark FBM KLCI.

The move by EPF also sparked market rumours that the share disposals was timed with the next general election in mind as some analysts say that profit taking usually occurs just before the polls. Some brokers say that the reports of EPF's selldown had dampened market sentiment with many now taking a wait and see attitude on the sidelines.

When contacted EPF said that the pension fund had sold the shares in order to lock in profit so that it can pay higher dividends. Figures provided by EPF show that about 48 per cent of its gross investment income last year came from equities. It also holds 35.6 per cent of its investment portfolio in equities, or about RM167 billion, as at December 2011. Another 26.5 per cent of its portfolio is in government securities and 34.2 per cent in bonds and the two fixed income assets tend to offer lower dividends in line with the current low interest rate regime. EPF said that in order for the pension fund to pay higher dividends, it had to look to making money on equities.

It added that it sells shares based on timing and this period with the market at a high, was the right timing and noted that the disposals worth RM441 million on March 7 was only a very small portion of its giant RM167 billion equity portfolio. One broker said that EPF's move appeared to be right based on hindsight given that the market has now fallen off its near all time high since March 7. "The market is now spooked," he said.

EPF CEO Tan Sri Azlan Zainol was also reported to have said that the EPF did not intentionally distort the market but could not help making an impact due to the sheer size of the fund. “It is all unintentional. We transact over three million shares at any one time; of course the market would be distorted,” he was reported to have said. EPF paid a six per cent dividend last year, its highest in ten years.

The fund's gross investment income in 2011 was RM27.24 billion, up 13.18 per cent from 2010. The distortions, whether intentional or not, caused by EPF's size also strengthens perception that Bursa Malaysia is overly dominated by government and government linked investment institutions which analysts say hampers market liquidity.

The FBM KLCI had hit 1589 on March 6, which was close to its all time high of 1597 reached in July last year. It fell more than 15 points on March 7 however, the most since the start of the year.

My other articles on EPF:

What EPF did last quarter?

EPF significance in dictating Bursa

Serious Investing!

My top 10 wish lists to EPF

After it declares 5.8% today, I have a wish list for EPF as I know it will not be able to sustain its performance over a long period unless it changes its style of investments. Consistency will not be easy to be achieved as it now has a large proportion of its investments into equity. I do not actually mind this as long as it manages to maximise its investment.

Top 10 wish lists

1. Move more funds overseas - be careful though. Since your fund is not small, invest in only large cap companies. Companies that are tried and tested. Invest in companies that has strong dividend track record;
2. Be more transparent - do not just list down the top 30 stocks, provide the rationale for your investments. We do not ask for you to reveal your rationale pre-investments as you do not want to give away your planning and secrets but please provide your reasoning for your doing so post-investments;
3. reduce your holdings of Malaysian stocks - fundamentals are fundamentals be it overseas or local. By holding more than 10% of any company or worse still holding a controlling stake will do harm to you as an investor, more so a pension fund;
4. do not hold more than 5% of any company - be an investor rather than someone that any company deems as potentially threatening. If you hold more than 5%, companies will have to start listening to you. You do not want to be that - be a passive investor;
5. Corporate Bonds - while today bonds may not be returning that high, do look at them and consider private sector bonds - but only investment grades;
6. do allow individuals to withdraw our savings in EPF before 55 years of age if it exceeds RM500,000 as you will want those money in our pockets rather than you manage it for us;
7. reduce the employee's contribution to 5% from 11% currently if a person's annual income exceeds RM 150,000;
8. invest into assets generating income both locally and overseas - your move into PLUS is the right one. Keep it up;
9. invest into companies that has large free float;
10. try not to invests into companies that are family controlled.