MPF comparison: the three funds that made money in Hong Kong’s 2011 bear market

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

Global equities slid through much of 2011, and MPF performance suffered with them. But which funds proved to be the contrarian stars — making money even in a down market? A Lipper research report published around then put the MPF universe under the microscope to find out.

Which MPF funds topped the 2011 bear-market MPF comparison?

The three standouts of the 2011 bear-market MPF comparison were the AIA North American Equity Fund (2.07 per cent total return for the year), the Manulife MPF Hong Kong Bond Fund (4.5 per cent growth) and the Principal US Equity Fund – Class D (0.64 per cent positive return). All three sidestepped 2011’s worst-hit markets: the two US equity funds benefited as money sought refuge in American stocks, while the bond fund rode the flight to safety in fixed income.

How did the three winners invest differently?

The three took different paths: the Principal US Equity Fund – Class D relies on bottom-up stock picking to beat the S&P 500; the AIA North American Equity Fund picks stocks across six corporate life-cycle stages; and the Manulife MPF Hong Kong Bond Fund seeks steady wins from a Hong Kong-dollar bond portfolio. In detail:

The Principal US Equity Fund – Class D uses a bottom-up stock-picking approach, aiming to beat the S&P 500 in any economic cycle. As of end-October 2011, 19.4 per cent sat in information technology stocks, with Apple (AAPL) its largest top-ten holding, alongside financials at 13.7 per cent and healthcare at 12.6 per cent. The fund’s manager said he favoured consumer and energy stocks: high-end consumption was insulated from unemployment and inflation, while Middle East tensions supported oil prices. Note, though, that the single-country focus means higher concentration risk and volatility.

The AIA North American Equity Fund is run by a delegated manager, also benchmarked against the S&P 500, targeting long-term capital growth. The delegated manager described picking stocks across six corporate life-cycle stages: early-stage companies are judged on growth potential and market share, mature ones on valuation, revenue, dividends and cash flow.

The Manulife MPF Hong Kong Bond Fund is lower-risk, suited to investors seeking steady income, investing mainly in Hong Kong-dollar bonds. The fund manager said about 25 per cent went into government bonds, with the rest in financial bonds, quasi-government issues such as airport authority and MTR Corporation bonds, and HKD bonds from mainland China’s big four banks. He took a cautious view of Hong Kong’s relatively weak bond market: bonds under five years were popular while longer-dated paper carried higher credit risk, so only bonds from reputable large corporates made the cut.

Does one bear-market win guarantee future outperformance?

No. Past performance is not a guide to future results — topping 2011 says nothing about 2012. Fund selection should match investment objectives, risk tolerance and fees, not chase past winners. Members can run their own MPF comparison of track records and fees at browse MPF funds.