Investors show interest in fixed-income choices
Hong Kong's MPF regulators and providers are well-practised and always consistent in their statements about the scheme's purpose. It is for long-term retirement needs and should be managed as such, with funds accumulating over time and structured to ride out dips and rises in the financial markets.
Reassuring as that is, it does not stop individual members suffering a nervous reaction when they see, for example, that the MPF loss averaged 8.4 per cent last year. Nor should it prevent them from taking active steps to look for better returns through regular reviews of the fund choices available and the balance of their own portfolios.
Already, 430-plus funds are registered under the MPF umbrella, so there is no shortage of choice. Mindful, though, of just how fast a downturn can erase paper gains in an equity or mixed-asset fund, investors are showing new interest in fixed-income choices in the hope of keeping their heads above water.
'The most common type of fixed-income investment is a bond fund, meant to provide periodic income - usually twice-yearly,' says Ken Wong, equity portfolio strategist with State Street Global Advisors. 'It offers a degree of stability, with an expected return of the original investment, or principal, at the stated maturity date. In my opinion, retirement savers should consider adding varying levels of fixed-income exposure depending on [how close they are to retirement].'
In this context, Wong suggests that exchange-traded funds on the MPF platform bear close consideration. They can offer a lower cost option for investors and give diversified exposure to particular market segments. The number available has multiplied in the past five years and, in certain cases, they can provide a 'triple access play'. This term refers to potential earnings from regular coupon payments; from possible currency appreciation; and from access to growth trends in Asian economies.
'This may be beneficial to investors looking for a steady stream of income,' Wong says. 'And funds which invest, for example, in bonds denominated in eight Asian currencies capture the opportunities in strong trends like growing domestic demand, capital inflows, and strengthening fiscal policies.'
For Elvin Yu, head of institutional business, Hong Kong and China, Allianz Global Investors, scheme members should make a habit of reviewing their MPF portfolio every six months. This schools them to keep close track of relative fund performance and greatly reduces the chance of missing out on new choices - fixed income or otherwise - and the prospect of better returns, purely through negligence or inertia.
'Reviewing doesn't necessarily mean switching or changing your portfolio,' Yu says. 'In fact, it is important not to be overly influenced by short-term market movements, but we do see increasing competition amongst MPF providers in terms of service enhancement and product offerings, so [investors should remain aware].'
Yu points, in particular, to the planned launch of employee choice arrangements (ECA) later this year as an occasion for all scheme members to conduct a review of their current MPF holdings and future financial needs. The new arrangements will give employees greater control of their fund choices, allowing them to select from the entire market and not, as now, just from the list offered by their employer's preferred provider.
'We do not predict a significant [shift] in the short term,' Yu says. 'MPF providers may need to introduce new fund choices, but members should still follow the golden rule and make decisions based on their own risk profile, personal needs, and stage of life.'
An attendant aim of the ECA is to prompt all investors to do a detailed '360-degree' evaluation and, along the way, engender a stronger sense of personal responsibility for MPF accounts.
'With the introduction of ECA, members will also be able to transfer accrued benefits, derived from their contributions, from one MPF provider to another, providing more choice and flexibility,' says Belinda Luk, senior vice-president, pensions and group business, Sun Life Hong Kong. 'We believe this is an important milestone for the MPF system, enabling people to make [the key decisions] about their own benefits.'
Luk says there is an inherent obligation for regulators, scheme administrators and employers to continue a range of investor education initiatives. This has to be sufficiently proactive, with information and updates available in different formats.
'We recommend that MPF providers should consider streamlining and focusing their services upon the launch of ECA,' Luk says. 'This would allow clear product differentiation, as well as help in maintaining service standards and the quality of the funds.'