How Do MPF Indices Tell You Whether a Fund Is Good? Convoy and FTSE Play Different Roles

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

In November 2012’s “semi-portability” era, a survey found 53% of respondents would switch MPF schemes within 12 months — 84% of them because mpf fund performance disappointed. But how do you know if performance is good? Two MPF indices served different masters: the Convoy MPF Index for the public, the FTSE MPF series for fund managers.

How are MPF returns compared? How is the Convoy index built?

Portfolio-weighted average returns covering 80% of market assets. The Convoy MPF Index comprises at least the 100 largest funds, whose combined size covers at least 80% of market assets, with mixed-asset weighting mirroring the market’s 41%; constituents and weights are reviewed half-yearly, published in the first week of each month. At September 2012 it stood at 166.76 points, up 3.66% on the month and 8.2% year-to-date — though trailing the Hang Seng Index’s 13.5%.

What is the FTSE MPF index series for?

A reference benchmark for fund managers. The FTSE series was created back in 2001 by FTSE, the Hong Kong Investment Funds Association and Towers Watson: 24 indices across regions including FTSE MPF Hong Kong and China indices; usable for building index funds and ETFs, and for comparing existing MPF funds’ performance. Constituent coverage is reviewed every three years — the Hong Kong index initially covered only red chips, later adding H-shares on advice.

How do fund managers use indices?

To benchmark, pick stocks and set weights. Towers Watson’s Cho Wai-pong said active managers mostly reference MSCI, FTSE or local equity indices; Hong Kong equity managers rarely use the Hang Seng Index (only 43 constituents — too narrow), preferring the FTSE MPF Hong Kong Index’s 230-plus companies (10% single-stock cap). Comparing a managed fund’s return against the index shows outperformance or lag at a glance.

How should workers use indices?

Put your own fund against the index — good or bad becomes obvious. The 2012 survey showed underperformance drove switching; with an objective index in hand, you know whether your fund beats or lags — before switching, not after discovering you switched wrong.