How to choose MPF funds: the 2012 warning against betting everything on Hong Kong stocks

A May 2012 survey found Hong Kong’s MPF charged about 1.74 per cent a year — above Britain and Australia — while its funds outperformed overseas peers. The outgoing chairman of the Hong Kong Federation of Insurers saw room for fees to fall as assets and members grew; the Ernst & Young executive director behind the survey had a different message: assets were overweight Hong Kong equities, and members should diversify.

How should members choose MPF funds?

The first step is not chasing the highest return, but diversifying — never betting everything on one market. As of May 2012, most MPF assets were tilted toward Hong Kong equities and stocks, leaving them exposed to short-term swings; Ernst & Young advised balanced allocation instead, alongside raising the maximum income level for mandatory contributions to grow the asset pool.

Why the MPF equity fund tilt worried analysts in 2012

A parallel industry study showed one- and five-year performance beating overseas peers, but three-year performance lagging — precisely because assets were concentrated in equities, especially Hong Kong stocks, when the financial crisis hit. About 24 per cent of assets sat in low-risk bond and money-market combinations whose returns could trail inflation long term. Either extreme made a poor retirement mix.

What did fund choice have to do with fees?

Some members held two or more MPF accounts, pushing up administration costs — consolidating accounts and lifting efficiency would leave big room for fee cuts. The investment funds association chairwoman projected 5 per cent annual asset growth to HK$1 trillion within a decade, with average fees falling from 1.74 per cent to 1.18 per cent by 2030.