Index-tracking funds cheaper than active funds; AIA to launch three at 0.99% fees in September

Encouraged by the MPFA, more MPF trustees are rolling out passively managed index-tracking funds. AIA senior vice president Bonnie Tse said such funds’ management fees are generally lower than traditional actively managed funds.

What are index-tracking funds?

Formally known as exchange-traded funds (ETFs), index-tracking funds aim to track or replicate index performance: managers use the index’s constituent mix and weightings as the investment blueprint so fund performance mirrors the index. Sometimes, though, managers cannot follow the constituents and weightings 100% for various reasons.

How cheap are the fees?

With less stock-picking and market research involved, passive funds charge less; AIA’s three index-tracking funds launching in September — covering the Americas, Hong Kong-China, and Asia-Europe — each charge 0.99% a year.

What about risk, and what should selectors watch?

Risk depends on the countries, regions and markets covered: single-market or developing-country funds carry higher risk, while regional or developed-market funds are relatively lower-risk. Tse advised workers to first assess their investment objectives and risk tolerance. Compare MPF funds on fees and risk, and consult MPF investment education.