Why did Shariah Savings yield a lower dividend than Conventional?

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Shariah Savings Yielded a Lower Dividend Than Conventional Savings in 2019 Due to Asset Universe Limitations and Domestic Market Performance

The Employees Provident Fund (EPF) declared a 5.45 per cent dividend for its Conventional Savings in 2019, distributing RM41.68 billion. In contrast, the Shariah Savings yielded a 5 per cent dividend, with a payout of RM4.14 billion. This disparity arose primarily because the range of Shariah-compliant investment assets is more restricted than those available for conventional investments. Furthermore, a significant portion of the Shariah Savings' investments were concentrated in domestic markets, which experienced weaker performance during 2019.
Limited Shariah-Compliant Investment Universe

The chief EPF Officer, Alizakri Alias, explained that the fundamental reason for the difference in dividends lies in the narrower scope of Shariah-compliant assets compared to the conventional investment options. This inherent limitation in the Shariah investment universe restricts the EPF's ability to diversify and capitalize on a broader spectrum of market opportunities for its Shariah Savings portfolio.
Underperformance of Domestic Markets

A key factor contributing to the lower Shariah dividend was the performance of the domestic markets, where a majority of the Shariah Savings' investments were allocated. In 2019, these domestic markets did not achieve the expected returns, thereby impacting the overall profitability of the Shariah Savings. This contrasts with the conventional savings, which likely benefited from a more diversified portfolio that included assets performing better globally or in other sectors.
Impact of Global Volatility on Domestic Investments

The year 2019 was characterized by significant global market volatility, including US Federal Reserve rate cuts, the escalating US-China trade dispute, and Brexit uncertainties. While the EPF's strategic asset allocation and decision-making structures were designed to mitigate such storms, the domestic market's underperformance, which constitutes a substantial part of the fund's assets, directly affected the returns for Shariah Savings. The EPF noted that 70 per cent of its assets are in Malaysia, with a major part in domestic equities.

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Why did Shariah Savings yield a lower dividend than Conventional?

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