Mandatory Provident Fund (MPF)

Far from ‘lazy’, MPF default strategy aims for low-risk, long-term returns to suit ageing investors

PUBLISHED : Friday, 29 June, 2018, 8:33am
UPDATED : Friday, 29 June, 2018, 8:33am

Some of the views expressed in ongoing media coverage of the Mandatory Provident Fund (MPF) Default Investment Strategy contain several persistent misperceptions about the important initiative which, for the benefit of those investing for retirement, should be dispelled.

Launched in April 2017, the MPF Default Investment Strategy (DIS) offers members a fee-controlled, standardised, globally diversified investment vehicle. The portfolio is de-risked to a higher fixed income allocation as investors age.

Capping fees on DIS funds is key to ensuring that scheme members can keep more of the returns their low-cost investments may generate: you can’t control the markets, but you can control the fees that you pay.

In the Chinese-language press, the DIS has been portrayed in an unduly negative light, as the “lazy fund”. However, DIS is not just for novice investors or people who don’t want to make a choice.

Meanwhile, other commentators have compared the performance of the DIS with actively managed higher-cost Hong Kong equity MPF funds, noting that the latter have outperformed since the launch of the strategy.

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But these comparisons are misleading, because they ignore investment cost, risk and volatility, and encourage investors to chase high returns, primarily via equities.

Moreover, the comparison period is too short to be meaningful, especially as investing for retirement is a long-term undertaking.

However, it’s when equities perform poorly that the bond portion of the DIS portfolio would minimise volatility.

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The purpose of MPF investment is to save for retirement, a long-term investment that is likely to experience different market cycles.

The best advice for investment success is to maintain a long-term perspective, and follow sound investment principles, such as diversification and controlling the cost of investment.

Anthony Piscitelli, head of product strategy, Asia,

Vanguard Investments Hong Kong