Equity fund investments still better bets for HK investors

Returns from equity products far better that those from bond offerings in 2016, says Hong Kong Investment Funds Association

PUBLISHED : Thursday, 12 January, 2017, 5:38pm
UPDATED : Thursday, 12 January, 2017, 10:25pm

Hong Kong investors who opted for bond rather than equity funds may have made a ‘wrong choice’ in terms of returns as the latter continued to outperform its peers in 2016, according to a leading industry association.

According to Arthur Bacci, chairman of the Hong Kong Investment Funds Association, “2016 has been a year where we saw many investors shifting their equity funds into global and Asian bond funds. But they may have made the wrong choice as equity markets, particularly the US, performed exceptionally well last year and hence many stock funds performed well.”

All the top nine performing fund categories last year belong to equity funds, with “equity other” fund the leader with returns of 28.82 per cent. In the second position was the commodity natural resources sector funds at 25.84 per cent and was followed by Central and East Equity Europe funds at 25.45 per cent, Latin America equity funds at 23.92 per cent and Thailand equity funds at 19.86 per cent.

Hong Kong investors shift from equity to bond funds to escape rising market uncertainties

Among other funds, the North America smaller companies funds posted returns of 16.4 per cent, Taiwan equities funds at 14.31 per cent, Indonesia funds at 13.11 per cent and the global emerging market funds at 10.15 per cent.

The top performing bond funds were fixed income and high yield funds with returns of 9.97 per cent and were placed tenth in the rankings.

“Such a trend is not unusual as many investors make purchases when the markets are high and tend to sell at the low end when the market is panicking or affected by some bad news such as the Brexit vote. This is why investors need to take a long term view and have a diversified portfolio of funds,” he said.

Bacci said due to the numerous market uncertainties last year, total mutual fund sales in Hong Kong during the first 11 months of 2016 fell by 10 per cent to US$62.3 billion, the lowest since 2012 when the full year sales was just US$54.9 billion. The 2016 figures are lower than the US$72.2 billion in 2015 and US$77.7 billion in 2014 and US$71.1 billion in 2013.

Time may not be right for corporate bond funds

Market uncertainties had a major impact on sales of equity funds which slipped by about 62 per cent to US$16.3 billion, on a year-on-year basis, during the first 11 months of 2016. Net fund outflows amounted to US$7.9 billion during the first 11 months of 2016, he said. Net fund outflows happen when the amount of fund redemptions are higher than the total number of new funds units sold during the same period.

This is in sharp contrast to 2015, when net inflows of US$7.4 billion meant more number of new funds were sold than redeemed.

Bond funds in contrast saw new inflows of US$11.8 billion during the first 11 months of 2016, while the gross sales increased by 172 per cent to US$32.9 billion during the same period.

Looking ahead, Bacci is optimistic about the future as he believes that US president-elect Donald Trump’s policies would stimulate economic growth and boost the US and global economy.

“The US election results has substantially changed the market outlook and expectations. A number of key items of Trump’s policy include stimulus measures and infrastructure spending. This would led to a rise in US inflation and interest rates and we expect to see a shift from bonds back to equity products,” he said.

“While we remain optimistic about equity returns this year, geopolitics will affect the markets as there are several elections in Europe, uncertainties about Brexit negotiations and the implementation process of US policies. Investors are best advised to invest in mixed or balanced funds,” Bacci said.