MPF 101: Conservative vs guaranteed funds — one character apart, worlds apart

The MPFA has renamed capital-preservation funds as MPF conservative funds so workers understand there’s no capital guarantee. The two names differ by one character and both sit at the low-risk end — but they’re entirely different fund types. And while guaranteed funds promise capital or annual-return guarantees, their expense ratios run higher. Are they worth it?

How do they differ in nature?

Conservative funds carry no guarantee; guaranteed funds restrict switching. Conservative funds are money-market funds — every MPF scheme must offer at least one by law. They may charge monthly administration fees and must beat the MPFA’s monthly prescribed savings rate, but offer no capital or return guarantee. Guaranteed funds promise capital or annual-return guarantees, but only if conditions are met: funds with return guarantees typically bar switching or withdrawals during a set period, or the guarantee lapses.

Which performs better?

Guaranteed funds return more; conservative funds can go negative near zero rates. Lipper data shows guaranteed funds beating conservative funds over three months, one year and since inception. Conservative funds mostly hold Hong Kong-dollar bonds and cash, so returns track bank savings rates — in a near-zero-rate environment, net-of-fee returns can turn negative. Among 36 conservative funds, the best one-year return was 0.94% and the worst was minus 0.05%. Guaranteed funds usually hold some equities, so risk runs higher, but the guaranteed return can be adjusted or cancelled with notice; among 21 guaranteed funds the best one-year return was about 23.02% and the worst 0.2%.

How far apart are the fees?

Conservative funds average a 1.41% expense ratio; guaranteed funds 2.43%. MPFA data shows 47 conservative funds averaging the lowest expense ratio of any MPF category — from 2.43% (AXA “Simple” conservative) down to 0.73% (Bank Consortium Trust conservative). Guaranteed funds add guarantee and reserve fees on top of management fees: 30 funds average 2.43%, with Principal’s 800-series capital guaranteed fund cheapest at 1.34% and MassMutual’s guaranteed fund at 4.03% — the highest of all 442 MPF funds.

Who suits which?

Conservative funds as parking shelters; guaranteed funds for steady returns. HSBC Insurance’s Chu Wing-yiu notes conservative funds’ lack of guarantee conditions makes them flexible — a parking fund to lock in gains by shifting from equities when markets wobble. Last year MPF lost about 26% on average and equity funds fell about 45%, yet conservative funds still averaged a 1.3% gain. KGI’s Tang Kei-yan says guaranteed funds, mostly equity-bond mixes offering 2%–5% guaranteed annual returns, suit near-retirees — but some require holding three years or more, so read the fine print.

To compare conservative and guaranteed fund fees and returns, visit MPF fund comparison.