Mandatory Provident Fund (MPF)

Manage your own MPF portfolio or miss out on the Hong Kong stock market bull run, say advisers

An equity fund managed by Haitong International returned 50pc last year, the best performer in the city’s compulsory pension scheme, which gained 20.6pc on average

PUBLISHED : Friday, 12 January, 2018, 3:32pm
UPDATED : Friday, 12 January, 2018, 8:45pm

Hong Kong’s stock market bull run has spilled over into gains for the city’s pension funds, making winners out of savers who put their hard-earned savings in equities.

An equity fund managed by Haitong International Asset Management returned 50 per cent to investors last year, the best performer among the 481 choices in the city’s HK$780 billion (US$100 billion) Mandatory Provident Fund (MPF), which gained 20.6 per cent on average, according to Thomson Reuters Lipper’s data. Conservative money-market funds, which invested in bank deposits, were the biggest losers, with no gains in 2017.

How Haitong gained an edge over rival MPF fund managers

The bull run illustrates how important it is for investors to keep abreast of market developments and take a more aggressive approach to managing their own portfolios, investment advisers said.

“The better the markets, the more important it is for employees to manage their own MPF investment portfolio, as the returns would be very different during a market bull run,” said Elvin Yu, the principal at pension consultancy firm Goji Consulting. “Employees should be ready to take reasonable risks in their MPF investments, or else they will miss the bull run.

Hongkongers have made the smart choice overall, with 42 per cent of the MPF’s investments allocated to equity funds, according to data from the Mandatory Provident Fund Schemes Authority. That has put them in the best position to enjoy the 36 per cent gain by the city’s benchmark Hang Seng Index.

The second-best choice has been mixed-asset funds, with investments in both stocks and bonds, which returned 23 per cent last year, followed by bond funds and money-market funds.

The better the markets, the more important it is for employees to manage their own MPF investment portfolio
Elvin Yu, Goji Consulting

The Hang Seng Index has more than doubled in 15 years, rising 221 per cent between 2003 and 2017.

Equity funds performed best, delivering returns of 415 per cent over that period, while money market funds returned a mere 10.9 per cent cumulatively, according to Thomson Reuters Lipper.

That means an employee who put HK$1 million into the MPF in 2003 would get HK$4.15 million at the end of last year, while another similar size portfolio in money market funds would grow to HK$1.1 million over the same period.

This shows that it pays to be aggressive, especially for younger employees, as they can enjoy a much better return than those who play it safe with guaranteed funds, bond funds and money market funds, who are the biggest losers in most years.

Opinion: Is Hong Kong’s MPFA a responsible regulator or shying away from making fundamental reforms?

“This is particularly the case for the young employees in their 20s or 30s, who are going to invest in the MPF for 30 or 40 years before they get their contribution and returns. If they put their contribution in money market funds, which is bank deposits, they are getting only very low returns. They lose the opportunities to gain from the stock market performance which may bring several times more than bank deposits,” Yu said.

“Employees who want to earn more from their MPF should really look at the portfolio to see if they have made the right investment choice.” Yu said only those close to retirement should opt for the money market funds.

Employees should be more cautious in their investment in MPF in the second half of this year
Louis Tse Ming-kwong, VC Wealth Management

The MPF scheme, launched in 2000, now provides pension coverage for 2.8 million of Hong Kong’s employees and self-employed residents.

The compulsory fund compels employers and their staff to each contribute 5 per cent of their staff salaries to a fund managed by any one of 14 service providers selected from banks, insurers and fund managers. Employees can decide how to allocate the contributions into different investments in equities, bonds or money-market products.

Still, the bull market may have run its course, and employees would be well advised to adjust their MPF portfolios, stockbrokers said.

The Hang Seng Index is unlikely to repeat last year’s performance, said Ben Kwong Man-bun, a director at brokerage firm KGI Asia. He sees the benchmark gaining between 10 per cent and 15 per cent in 2018.

“Investors should consider a diversified approach,” he said. “If they are investing in single market funds in Hong Kong or China, they could shift to Asian or global equity funds, or invest in mixed-asset funds with a higher proportion of stocks and bonds. These can reduce their risks while enabling them to still enjoy the gains from the stock markets.”

US bond funds may not do well amid expected interest rate rises, so Kwong still prefers equity funds to bond funds.

Louis Tse Ming-kwong, managing director of VC Wealth Management, said Hong Kong and global markets would still do well in the first half of this year but the second six months may see a turn of the tide.

An interest-rate rise in the US is going to add pressure to the investment markets while the Brexit negotiations around Britain leaving the EU may bring more uncertainty to the global stock markets. “Employees should be more cautious in their investment in MPF in the second half of this year,” Tse said.