How to pick MPF funds under semi-free choice: equities and mixed funds held 76%

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

With semi-free choice launching on November 1, 2012, workers gained real power to choose trustees and schemes. Hong Kong then had 19 approved trustees and over 450 approved constituent funds — how to pick the right ones?

What are the MPF fund types?

By investment category, MPF funds fall into: equity funds, mixed-asset funds, bond funds, guaranteed funds and conservative funds.

Why were equity and mixed funds so popular?

Per the MPFA’s March 2012 statistical digest, net assets in equity and mixed-asset funds exceeded HK$298 billion — about 76% of total MPF assets. The market offered 160-plus equity funds and 170-plus mixed-asset funds, the two favourite categories among workers.

What should you know about bond funds?

Bond funds invest mainly in permitted deposits and debt securities from governments, central banks, supranational and multilateral institutions — low-to-medium risk. Nearly 40 were available, but most trustees offered only international and Hong Kong bond funds; regional ones, like the then-trendy Asia-Pacific bond funds, were rare.

What is the “lazy fund”?

Workers lacking investment knowledge who were happy to delegate could consider target-date funds, nicknamed “lazy funds”: managers automatically rebalance the asset mix over time. Pick the target date nearest your retirement age and never rebalance manually. Only a few trustees offered them at the time.

What else matters when choosing?

Beyond fund type, risk tolerance and investment style, consider the trustee’s financial strength, retirement-plan experience, service quality and communications support. Before choosing, know your own risk capacity, investment orientation and years to retirement — returns track risk, so those nearing retirement should avoid high-risk funds.