Nearly half of MPF investments lose money in last five years, study shows

Nearly half of the Mandatory Provident Fund investments ended up in the red in the past five years and employees - far from building up a retirement nest egg - could lose up to 14 per cent of the money they contributed in that period.

The losses emerged in a study by the Consumer Council of 523 funds in 39 schemes from 15 MPF providers from July to last month.

Of the 341 funds that provided data, 159 - or 46 per cent - posted an average loss in each of the past five years.

The best performer was a global bond fund with an average gain of 5.81 per cent.

A Japan stock fund performed worst - losing 14.04 per cent on average every year.

For an employee who contributed a monthly instalment of HK$2,000 to the fund, a total of HK$16,848 would have evaporated from his MPF account over the five years. And that's before management fees put a further dent in the account.

Hong Kong Investment Fund Association chief executive Sally Wong said the funds' performance should be "put into the context" of the financial turmoil hitting the world's markets.

"The global capital market has been volatile for the past few years," she said, adding that the MPF schemes remained a good way of fulfilling long-term retirement investing needs due to their disciplined nature.

The Hang Seng Index of Hong Kong blue chips fell from 21,772 at the end of June in 2007 to 19,441 this year, although it has since climbed back over 21,000.

The study also found the average annual return of the surveyed funds was 0.24 per cent in the past five years, below inflation.

Charles Li Kui-wai, associate professor of economics and finance at City University, said the average annual inflation rate had been 3 to 4 per cent.

"It's acceptable to see a positive return, given the turmoil in past years," he said. "Normally, a fund should yield 5 to 8 per cent growth to outpace inflation."

The study found bond-related funds had not suffered losses.

Professor Terence Chong Tai- leung, of Chinese University's department of economics, said the bond market beat the equity market, but uncertainties in the world market meant customers should be cautious in choosing an MPF scheme.

He said employees should also look at fees associated with different schemes.

The council found that when compared to average annual returns within their fund category, 109 funds - or about 30 per cent - performed below par, but were found to charge above average management fees.