Industry wants emerging-market funds and REITs; MPFA refuses to relax volatility cap

ETFs have become a major source of new MPF funds this year, but they still track the same old markets — Hong Kong, H-shares, US and European equities. The industry wants the MPFA to open up new fund categories; the authority reviewed the idea and decided to change nothing.

What does the industry want?

A “Greater China equity fund” as the volatility benchmark. The industry proposed replacing the “Asia equity fund” with a “Greater China equity fund” as the benchmark for the “standard deviation” test that caps how volatile a new fund may be. The MPFA rejected the change in late July, citing the need to shield members from excessive risk — dashing hopes for single-market or sector funds.

Emerging-market funds and REITs. Hong Kong Investment Funds Association retirement committee vice-chairman Cheung Wai-kit urges the MPFA to admit global emerging-market funds and real estate investment trusts: over the past two years, supposedly low-risk Western markets have swung harder than emerging markets, whose faster growth also diversifies risk; REITs, driven by rental income, deliver a relatively steady 4–7% annual yield.

Why does the industry care so much?

It fears fund choice becoming meaningless. Cheung warns that if new markets and asset classes stay barred, trustees can only offer the same existing categories — global equities, global bonds, China-Hong Kong equities — leaving little to differentiate on, and with inducements banned, only price competition remains. He argues younger members with 20–30-year horizons can stomach more volatile funds, since dollar-cost averaging smooths returns over time; but he understands the MPFA’s worry — members nearing retirement could lock in losses from short-term swings. He’ll press the case again at the regular January meeting with the authority.

To see today’s fund categories, visit MPF fund comparison.