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Expensive MPF funds don’t deliver better returns, MPFA study finds

2017-11-26
Marcus Tang

Some employees believe you get what you pay for — that a pricier fund is worth it if the returns are better. An MPFA study demolishes that idea: there is no link between an MPF fund’s fund expense ratio (FER) and its investment performance. Expensive is not necessarily good.

The finding: fees and returns are decoupled

Fund categoryFee-vs-return relationship
Equity funds (most popular)No link at all — 1-year, 3-year and 5-year returns alike
Mixed-asset fundsInverse: the higher the fee, the worse the return
Bond fundsInverse: the higher the fee, the worse the return
Guaranteed fundsInverse: the higher the fee, the worse the return

For the most popular equity funds, fees and returns are completely decoupled; the other three categories show an inverse pattern — paying more and getting less.

A decade of fee cuts: FER down from 2.06% to 1.56%

DateAverage fund expense ratio
July 20072.06%
October 20161.56% (record low, down 24% cumulatively)

Expense ratios have fallen across every fund category. An MPFA non-executive director said at the press briefing: “If two funds have similar investment objectives and one charges less, that fund should deliver better returns to members.”

The myth: “expensive buys quality” is a fee fallacy

The MPFA’s point is blunt: fees are a known number, returns are an unknown one. Since the study proves expensive funds carry no performance guarantee, fees should be a primary consideration when choosing a fund — not treated as a proxy for quality.

169 of 400-plus funds are already low-fee options

  • Of more than 400 MPF funds, 40 per cent (169) are low-fee funds, including equities and mixed-asset funds
  • 70 per cent of MPF assets (about HK$450 billion) are transferable — personal-account balances and the employee-contribution portion of contribution accounts
  • The fee-capped Default Investment Strategy: its two funds carry a 0.75% of net assets management-fee cap and a 0.2% recurrent out-of-pocket expenses cap, intended as a benchmark to pull overall fees down

The MPFA also cautions against comparing MPF fund fees with retail fund fees — MPF schemes involve plan administration that retail funds do not, while most retail funds charge subscription or redemption fees that MPF funds do not. Meaningful comparisons with overseas pension fees are very difficult, given differences in scheme design, maturity and asset scale.

Action list

  • Compare fees first when choosing a fund: with similar objectives, pick the cheaper one
  • Check the MPFA website’s low-fee fund list and fee-comparison platform
  • Review your accounts: 70 per cent of assets are transferable, so there is no need to stay stuck in an expensive fund
  • Consider the Default Investment Strategy: an off-the-shelf option with fee caps

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