The Government has sold HK$3 billion of its share portfolio through the Tracker Fund in the past two weeks, according to State Street Global Advisers chief executive Vincent Duhamel. State Street is the manager of the Tracker Fund, an index fund that tracks the performance of the Hang Seng Index. The Government set up the fund to dispose of the shares it bought in August 1998 to protect the Hong Kong dollar against currency speculators. The Government has recouped HK$139.7 billion from the fund, and holds about HK$77 billion in shares. It plans to hold HK$50 billion in shares for long-term investment, meaning it still needs to sell HK$27 billion worth of shares. After a HK$33 billion initial public offering in November 1999, the Government began issuing HK$12 billion worth of shares via the Tracker Fund every three months. But the Government reduced Tracker Fund sales for the first quarter of this year to HK$3 billion, after reducing the sales even further, to HK$1 billion, for last year's fourth quarter. The sales were cut because of fears larger issues would disrupt the already volatile stock market. Mr Duhamel said the HK$3 billion quota for this quarter was sold out in the past two weeks, and the Government would not make further issues from the Tracker Fund until the start of the second quarter in April. Analysts said the quick sales would encourage the Government to sell more shares next quarter. They believe the Government might switch back to the previous HK$12 billion issue. Mr Duhamel said it would be up to the Government to decide if it would increase the amount of Tracker Fund sales next quarter. Meanwhile, Mr Duhamel yesterday supported the Government's proposed law change to allow fund managers to invest up to 100 per cent of their assets in index funds, exempting them from the 10 per cent limit that applies to investments in single stocks. He said the relaxation would be a good move as it would give investors more choice. 'The index funds are suitable for pension investors, as they will only get the money back when they retire,' he said. When investors were holding a portfolio for the longer term, index funds could usually beat actively managed funds. This was partly because of the cost structures, he said. Index funds charged a management fee of less than 0.2 per cent of the net asset value of the fund. Most active fund managers would charge 1.5 per cent to 2 per cent. This lower cost enhanced the performance of index funds, he said. However, Tracker Fund returns dropped 25 per cent from the beginning of last year to mid-November, compared with the 18 MPF stock funds, which had an average return of minus 18.35 per cent, with the worst performer falling 23 per cent. Mr Duhamel said this was because the index fund could not hold cash and could not pick stocks, as it had to trace the performance of an index. He said that, instead of judging an index fund on a one-year performance, investors should take a longer-term view of five to six years. Overseas experience had shown that index funds over five to six years would usually be able to beat other kinds of stock funds, he said. He said investors could put 50 per cent to 60 per cent of their pension contributions into index funds, and the remainder into the more aggressive investment options.