Mandatory Provident Fund (MPF)

Low fee MPF funds get lukewarm response from investors during blistering equity rally

Investor survey finds 54pc favour switching to equity funds, with annual management fees roughly double those of the low-cost default option

PUBLISHED : Monday, 13 November, 2017, 4:36pm
UPDATED : Monday, 13 November, 2017, 11:02pm

Assumptions about the preferences of MPF investors are being reassessed after survey data showed policyholders favoured those funds offering higher returns over the newly launched low fee default funds.

Financial firm Convoy said in a survey result released Monday that 54 per cent of respondents favoured equity funds, with 65 per cent of this group looking to invest in the Hong Kong stock market, while 41 per cent were partial towards mainland stocks. These equity funds were popular even as their management fees were on average double those of the default funds.

One reason for the popularity is the upbeat performance of local equity funds, as the benchmark Hang Seng Index rose more than 32 per cent this year to rank among the top performing markets worldwide.

Hong Kong’s MPF pension scheme poised for best year since 2009

In contrast, the Default Investment Strategy (DIS) fund, which charges a low fee of 0.75 per cent annually, drew a lukewarm response from investors. Data showed that 80 per cent of policy holders chose to stick with their pre-existing funds. The DIS fund uses a simple investment strategy that periodically rebalances its weightings between equities and bonds according to the age of the employee.

The DIS option became available in April, after the government required all 15 MPF providers to offer a fund with management fees capped at 0.75 per cent. That compares with the 1.56 per cent average annual management fee across the 435 MPF investment funds.

Only 12.4 per cent of respondents elected the default fund option, according to the survey. Investors who do not specify how that would like their MPF funds managed are placed into the default funds automatically.

Many respondents said they did not believe that the DIS fund would have a better investment return than their existing fund choices, or that they could not understand the DIS arrangement, the survey showed.

The survey, conducted in September and October, polled 810 employees aged between 20 to 65 who are under the MPF scheme.

“DIS may be suitable for scheme members who are relatively passive in their investment approach but it is not necessarily the best MPF scheme option. Members should strive for the best investment return depending on their risk appetite,” said Henry Shin, chief executive of Convoy Financial Services.

About 70 per cent of respondents have no plan to switch their portfolio next year. About 22 per cent plan to do so, and of this group 37 per cent say they plan to move to equity funds, while 28 plan to switch into bond funds.

“The good performance of the MPF market can easily make members disregard future potential risk. It is advised that MPF scheme members who have previously benefited from equity funds should lock their profits in guarantee fund or MPF conservative fund, and make appropriate adjustments according to their risk appetite,” said Kenrick Chung, director of MPF business development of Convoy Financial Services.