Fighting inflation with your MPF: switch to guaranteed funds for shelter

Gold and oil prices have fallen together lately, and markets see inflation expectations cooling; still, prices remain high, and the MPF — locked until retirement — is just “paper wealth” today, slowly eroded by inflation. To fight inflation with your MPF, you can top up contributions when stocks and bonds are under pressure, or switch into guaranteed funds. Experts say Hong Kong stocks haven’t hit rock-bottom valuations yet, so the latter looks wiser for now.

How defensive are guaranteed funds?

Up 3.99% on average over three years, beating equities’ -1.09%. Lower-risk guaranteed funds proved resilient after the financial crisis: as of April, Hong Kong’s 27 guaranteed funds averaged +3.99% over three years, beating the equity category’s -1.09%; European and Japanese equity fund buyers still sat on 10–30% losses. But guaranteed-fund performance varies — compare medium-to-long-term returns before choosing.

Which guaranteed funds look steadier?

Manulife’s 5% guaranteed annual return; Principal’s diversified holdings. Manulife’s guaranteed fund was flat last year but stellar this year, paying a guaranteed 5% annual return with twice-yearly distributions; its largest holding is US Treasuries maturing 2012 at 7.84% of assets. Principal’s guaranteed fund has also been steady, with diversified holdings — its top ten spread across bank and financial US-dollar corporate bonds at just 1–2% each.

When should you top up contributions?

When the Hang Seng falls to 17,000–18,000. BMI Fund Management CEO Samuel Shum says the best time to add MPF contributions is when a crisis leaves stocks and bonds deeply undervalued — buy more units as prices fall, then capture multiplied returns on recovery. But with no major shock hitting markets and the Hang Seng hovering at 23,000–24,000, investors should wait for 17,000–18,000 before topping up.

How do foreign pension funds fight inflation?

Thailand’s GPF goes short-term, with 1% in food and gold. Thailand’s Government Pension Fund said in March that with oil and inflation rising, pension investing must go shorter-term to stay nimble and beat inflation. About 60% of its assets sit in Thai government bonds, but inflation threatens payouts below prior years; currently about 1% of assets (around 3 billion baht) sits in food and gold commodities as an inflation hedge.

To compare guaranteed funds with other MPF fund types, visit MPF fund comparison.