Is one MPF switch a year enough? A 2012 interview on switching strategy

Adapted from a report published in March 2012.

Is switching trustees just once a year too little? In March 2012, a market practitioner faced exactly that question about the coming “semi-portability” regime — and answered that, at least at the start, once a year was a sensible balance. Here are the interview’s key takeaways, from dim sum bonds to index funds and the 2012 market outlook.

Is one MPF switch a year enough?

The interviewee’s view: in the early days of “semi-portability”, one MPF switch per calendar year strikes the right balance. Foreign experience suggests that the more freedom members are given to switch, the more they tend to stay put; but a fixed window makes them feel they’d be missing out by not switching. As a starting point, once a year is reasonable.

Why did MPF funds invest so little in renminbi assets?

Mostly red tape: dim sum bonds were so oversubscribed that many issuers had no credit rating, indirectly barring MPF funds from participating; A shares were technically out of reach under the QFII mechanism. The industry was, however, exploring whether local retirement money could access the mainland interbank bond market — talks were just beginning and real access could take years, but Beijing’s attitude was welcoming.

Are index funds worth picking at under 1% fees?

It depends what you want: to track the market, index funds are the natural pick; to beat the market, you need a quality active fund. An Investment Funds Association survey found Hong Kong equity funds had the highest proportion beating their benchmarks — a useful reference when choosing.

What was the 2012 outlook, and what should switchers watch?

With low rates and the currency peg expected to persist, the interviewee favoured income products for the next year or two: corporate bonds looked more promising than developed-market government bonds, while REITs and steady dividend payers were decent picks. On switching strategy, the advice was not to overreact to short-term market swings — the key variable is your time to retirement: if you’re retiring in three years, shift part of the portfolio toward steadier funds.