When Hongkongers moan about the lousy performance of their Mandatory Provident Fund schemes, they usually focus on the ruinous fees they get charged.
But while high fees have certainly weighed on MPF returns, they are not the whole story. Poor asset allocation is also to blame.
One reason why MPF equity funds have managed an annualised net return of just 2.4 per cent over the last three years - lower than Hong Kong's average rate of inflation - is that so little of their assets under management have been invested in the United States.
As of September 30, just 5 per cent of MPF equity fund assets were invested in North America, less even than in Europe.
And that's a problem because the US market has actually done rather well recently. As the first chart shows, in Hong Kong dollar terms the benchmark S&P 500 index of US stocks generated a total return of 45 per cent over the three years to September. In contrast, the total return from Hong Kong's Hang Seng Index was 9.8 per cent, while the euro-zone's Euro Stoxx 50 Index lost 16.5 per cent.
As a result, according to figures compiled by investment industry research house Cerulli Associates, six out of the 10 best performing MPF funds over the last three years were North American equity specialists. Over 12 months, that number rises to nine out of the top 10.
As always, past performance is no guarantee of future returns. And if you were to ask them, most market watchers would say this is no time to switch your MPF savings into US equities.
In just four weeks' time automatic tax hikes and spending cuts worth a combined 5 per cent of US gross domestic product are due to take effect - the dreaded fiscal cliff. And, with talks in Washington aimed at cushioning the impact deadlocked, equity analysts are expecting a choppy time for the US stock market.
But although negotiations between the White House and Congress are likely to go on right up to the deadline, the eventual result is almost sure to be a compromise.
A last-minute deal is likely to see former president George W. Bush's tax cuts rolled over, with the federal government making some spending cuts.
A compromise, however, could still result in a fiscal contraction next year equal to 2 per cent of US GDP. Given that such belt-tightening would almost certainly have a knock-on effect on the rest of the economy, the impact could wipe around 2.5 percentage points off US economic growth next year.
That means US growth in 2013 could be a paltry 0.5 per cent, compared to an expected growth rate this year of more than 2 per cent.
According to Melissa Kidd, global equity strategist at Lombard Street Research, the US stock market has yet to price in such a deep slowdown. She believes share prices need to fall by around 10 per cent fully to discount the likely impact.
That promises an ugly few months for the stock market. But beyond the immediate effect of the fiscal cliff, prospects aren't looking too bad.
Following rigorous stress tests, the US banking sector is adequately capitalised and provisioned, and is once again generating earnings growth from private credit growth.
With their debt to income ratio back down to 2003 levels, US households have largely completed the deleveraging process, and consumer confidence is high.
What's more, as the second chart shows, the housing market has stabilised and is finally showing signs of picking up.
All this bodes well for corporate earnings, especially if companies respond to clarity on the size of the fiscal cliff by pressing ahead with delayed investments.
As result, although it would be as well to steer clear of the US market for now, the end of the first quarter of next year might just be the right time to consider switching more of your MPF into US equities.