Mandatory Provident Fund (MPF)

MPF disappoints with 0.63pc return

August return of 0.63pc adds pressure for the government to reform unpopular pension plan

PUBLISHED : Tuesday, 02 September, 2014, 4:52pm
UPDATED : Wednesday, 03 September, 2014, 5:56am

The Mandatory Provident Fund reported a flat return of 0.63 per cent for last month, failing to even beat the inflation rate in the city and adding to pressure for the government to reform the unpopular pension scheme.

The monthly return for the 447 investment funds under the MPF last month was far below the 3.11 per cent gain recorded during the past three months and the 3.98 per cent average gain for the first eight months of this year, data provider Lipper said.

The monthly return for the MPF, which covers 2.4 million employees in the city, was also far below the inflation rate of 3.4 per cent in the first half.

Nonetheless, the MPF last month managed to beat the Hang Seng Index, which fell 0.06 per cent during August.

The poor performance of the MPF and its high fees has led lawmakers to urge the government to reform the pension system. The Mandatory Provident Fund Schemes Authority is seeking views until the end of this month on a proposal to require all MPF schemes to introduce a low-fee core fund that caps the fees at 0.75 per cent and has a simple investment option.

Three categories of funds suffered losses during the month. Japanese equity funds fared the worst, losing 1.91 per cent on average. They were followed by China equity funds that were down 0.27 per cent and Hong Kong equity funds that lost 0.09 per cent.

The best performers were the funds under the "other equity" category, which saw average gains of 4.71 per cent; Korean equity funds with 4.68 per cent gains, and US equities, with 3.51 per cent.

Mark Konyn, chief executive of Cathay Conning Asset Management, blamed MPF's flat performance on the tepid mainland and Hong Kong markets.

"Weaker output numbers and slower credit growth in China contributed to the break in momentum while disappointing economic progress in Europe and fears of less monetary support from the US central bank also affected market sentiment."

Konyn said the Japanese stock market has been the biggest disappointment this year as measures to reform the economy have produced few tangible results. This, combined with the impact of higher sales tax on consumption in the current fiscal year, has put off foreign investors.

"MPF funds typically have the bulk of their exposure to Asian markets and global bonds. This tends to limit the positive impact of the continued performance of US stocks, which have set new records," Konyn said.

Konyn, however, is optimistic on their outlook as both the Bank of Japan and the European Central Bank are expected to provide more economic stimulus.