Europe’s Debt Crisis Flares Again as European MPF Funds Slide 5% in a Week

While Hong Kong fretted over Fukushima radiation, the European sovereign debt crisis was quietly worsening. Early-year hopes of a European recovery had put European equity MPF funds ahead of the pack — until Moody’s downgraded Portugal’s sovereign rating and reignited the crisis. The best performers slid 5% in a single week. Here is the latest mpf fund performance picture and what members should do.

How strong were European funds before the fall?

The week’s best European equity MPF funds had year-to-date returns of 6% to 8%, briefly topping the rankings. A week later, only the MassMutual MPF Scheme’s European Equity Fund still held the year’s crown; the rest tumbled out of the top ten. Managed by Franklin Templeton Investments, the MassMutual fund’s top three holdings are Roche, Vodafone and German manufacturer SAP.

What do managers say about Europe’s outlook?

They like large European firms’ global earnings power, but do not underestimate the challenges. The fund report notes euro members’ willingness to provide liquidity and defend the single currency, modest overall leverage, and the world’s cheapest regional equity valuations — reasons to stay positive on large European companies with broad global revenue. But Morningstar Asia senior analyst Donna Kwok cautions that rising European inflation adds rate-hike pressure, weighing on equities short term; even a hike would not signal genuine recovery, and first-half European equity performance looks soft.

What about Japanese equity MPF funds?

They fell hard, though Hong Kong workers have never favoured them. Of Hong Kong’s eight Japanese equity MPF funds, the MassMutual Japan Equity Fund’s defensiveness stood out with a 1.96% positive return year to date, while BOC-Prudential’s and Manulife’s Japan equity funds plunged 15% and 14%. Japanese equity and bond funds have never attracted many local workers: MPFA data to end-September last year shows they account for just 4% and 2% of total assets.

What should members take away?

Markets turn fast — do not bet everything on one region. A fund can drop from the top of the charts in a week, proof of how volatile single-market funds can be. When allocating accrued benefits, spread across regions and asset classes so no single event catches you out. Short-term trading was never MPF’s purpose; long-term diversification is.

To compare charges and returns across MPF funds, visit MPF fund comparison.