First Seven Months of 2017: The Lazier the Better — Most HK Equity MPF Funds Trail the Tracker

The Hang Seng Index gained about 20 per cent in 2017 to date — but retail investors who think they must have cashed in are likely mistaken. Morningstar data to 11 July 2017 shows the 39 major Hong Kong-equity MPF funds returned between 16.65% and 24.41%, while the Tracker Fund of Hong Kong (2800) returned 20.13% — about 21% including interim dividends of roughly 0.6%. The irony: the lazier you were this year, the more you made just by holding the Tracker.

HK-Equity MPF vs the Tracker Fund

All 12 index-tracking MPF funds underperformed the Tracker Fund itself: apart from occasional tracking error, the key drag is the roughly 1% management fee. A third of the 39 funds are “lazy” Tracker clones with no stock-picking strategy at all — pure index replication.

Active Funds: Small Wins, Bigger Losses

Among the actively managed HK-equity funds, nine trailed the Tracker’s 20.1% and twelve beat it by less than one percentage point. The top performer, the Haitong MPF fund at 24.4%, beat the Tracker by about four points — but its three largest holdings, Tencent, HSBC (0005) and AIA (1299), are exactly the Hang Seng Index’s three heavyweights. It won on the same giants.

Myth-Busting: Do Fund Managers Always Beat the Market?

Fund managers, heavily overweight Tencent on the tech rally in recent years, have essentially matched the market — very few have beaten the index by much. Warren Buffett’s famous ten-year, US$1 million bet with asset manager Protege Partners, struck in 2007, wagered that index funds would beat hedge funds. From 2007 to end-2015, Buffett’s pick — Vanguard 500 Index Fund Admiral Shares — gained 66%, against 22% for the hedge-fund basket (net of fees). Buffett has it sewn up; the bet ends this year.

As managers go “lazy”, retail investors keep trading in and out — with most of the profits ending up as brokerage commissions. Working for someone else’s benefit, indeed.

What Readers Can Do

• Long-term investors: instead of chasing trades, consider low-fee index-tracking MPF funds
• Check fees: a roughly 1% management fee compounds against you — put fees first when comparing funds
• Change mindset: frequent trading mostly enriches brokers; patience is the ticket to compounding