Mandatory Provident Fund (MPF)

MPF achieves best first-quarter returns since 2013 at 5.89 per cent

Strong stock market performance drove growth as all 429 funds avoided losses during the first three months of 2017

PUBLISHED : Thursday, 06 April, 2017, 7:32pm
UPDATED : Thursday, 06 April, 2017, 10:57pm

Hong Kong’s Mandatory Provident Fund has delivered its best first-quarter results in four years.

The compulsory retirement pension scheme generated average gains of 5.89 per cent, thanks to a bull run in the stock markets during the quarter, according to Thomson Reuters Lipper. That was far higher than the average 1.26 per cent it returned in the whole of last year.

None of the MPF’s 429 funds suffered a loss during the first three months of the year, the data showed.

The scheme generated average profit for employees of HK$10,596 in the period, according to calculations by Convoy Financial.

It lost out to pure stock market investment, however, as Hong Kong’s benchmark Hang Seng Index rose 10 per cent during the quarter. The scheme’s average gains would have been dragged down by the relatively lower returns of bond funds and money market funds.

But the performance was still significantly better than the deposit rates offered by local banks, which are close to zero.

“The major reason behind the strong returns of the MPF was the rally of the stock markets in Asia, particularly Hong Kong,” said Kenrick Chung Kin-keung, director of MPF business development at Convoy.

“Looking ahead, we prefer Asian equity funds excluding Japan. They need to be careful when they invest in bond products as an increasing interest rate would affect the performance of the bonds. The MPF has to diversify risk in different markets and asset classes.

“Employees should also beware of the uncertainties ahead. In Europe, there are a lot of political elections this year, and in the US, President Donald Trump is carrying out reforms and we do not know if he can successfully push these reforms to boost the economy. These would bring volatilities to the markets in the US and Europe.”

Employees win, providers lose in Hong Kong MPF’s low-fee reform

The compulsory pension scheme covers Hong Kong’s 2.8 million employees and self-employed workers, and has 429 investment funds that hold stocks, bonds and currencies according to employees’ choices.

The 27 equity funds investing in Asia-Pacific, excluding Japan, were the best performers of the quarter with a return of 12.91 per cent. Next came the 14 China equity funds at 11.17 per cent, and the 50 Hong Kong equity funds were in third place with an average return of 10.42 per cent, according to the data.

Equity funds are the most popular choice in the MPF, so their strong performance would have benefited the most employees.

Mixed-asset funds, the next most popular, which invest in bonds and equities, returned 6.45 per cent in the quarter.

The worst performers in the first quarter were the 42 money market funds, which invest in bank deposits, with a return of just 0.24 per cent.

Yuan-denominated bond funds were the second worst, gaining just 1.03 per cent, while guaranteed funds were the third worst, returning 1.29 per cent.

The poor performance of yuan bonds was related to the fall in the value of the yuan against the US dollar and the increase in US interest rates.

What does the MPF reform mean for you?

On April 1, the MPF underwent the biggest reform since its introduction in 2000. Under the new rules, providers must offer a low-fee fund called a default investment strategy fund, which has an annual fee of 0.95 per cent. The current average fee is now about 1.56 per cent.

Chung said the default funds would invest in both stocks and bonds, which delivered a return lower than that of pure equity funds in the long term but were expected to beat money market funds or guaranteed funds.