MPF equity fund outlook for 2012: three moves as valuations turn attractive

As 2011 drew to a close, a year of volatile global markets left MPF returns in the red. Lipper data showed all MPF funds down 8.67% on average over the first 11 months of 2011, with MPF equity fund returns the hardest hit at minus 15%. With the European debt crisis and slowing global growth clouding 2012, how could members protect their retirement savings?

How should MPF equity fund investors position for 2012?

MPF equity fund returns fell 15% on average in the first 11 months of 2011, yet valuations looked highly attractive from a long-term perspective. The managing director of a local MPF consultancy advised members far from retirement who can tolerate high risk to raise their equity weighting instead of crystallising paper losses, and to tilt towards Asia-Pacific equity funds with stronger fundamentals to catch the next regional rally.

Move one: raise your equity weighting

With global equities showing no strong rebound in December 2011, a full-year loss looked all but certain. Yet over the long run, equities rebound hardest when the global economy recovers. Members far from retirement were advised to raise — not cut — their equity weighting, and warned against switching everything from equity funds into bond or money-market funds: doing so locks in paper losses and forfeits the chance to accumulate more fund units at bargain prices during the downturn.

Move two: focus on Asia-Pacific equity funds

While staying invested in equities, members could rotate across regions. With US and European economic problems unlikely to resolve quickly, Asia — with its stronger fundamentals — was expected to lead the rebound, so members might trim exposure to the US, Europe and Japan and concentrate on Asia-Pacific.

Move three: stay long-term, don’t trade short-term

MPF is a long-term investment whose monthly contributions harness dollar-cost averaging; it is not for short-term trading. Market swings are unpredictable, so members need not switch portfolios on every bout of volatility. For a primer on fund risks and returns, see the MPF education hub and position according to your own risk tolerance.