Funds Chase Performance Into Year-End — Morningstar: Only 21 of 47 HK Equity Funds Beat the Hang Seng

This article is a rewrite of a report from October 2012.

With 2012 nearly over, fund managers chased full-year performance by buying into the market. How did MPF performance look? Morningstar’s data: of 47 Hong Kong equity funds, only 21 beat the Hang Seng Index — less than half. Some caught up into year-end; some didn’t.

How did managers chase?

Buying actively, refusing to lag. One asset-management director said managers were working hard into year-end to catch up on full-year numbers. A fund manager added that with market sentiment improving, funds were seizing chances to add positions.

How did HK equity funds do?

21 of 47 beat the index. Morningstar counted 47 Hong Kong equity funds — only 21 beat the Hang Seng. More than half couldn’t even match the market — members paid management fees for underperformance.

Why the shortfall?

Stock-picking, timing and fees ate returns. Funds lag the market through bad picks, bad timing and fee drag. Active management’s whole value is beating the benchmark; failing that, the fee is wasted.

What is the lesson from 2012?

Less than half beating the market is active management’s warning light. The 2012 number was brutal: pay someone to manage, and you’ve a coin-flip chance of trailing the index. Judge MPF performance against the market — a Hong Kong equity fund that can’t beat the Hang Seng has no business charging you.