MPF fund fees comparison: Hang Seng index funds in a price war

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

Hong Kong stocks rebounded more than 10 per cent in January 2012, but MPF returns were expected to lag the broader market — spurring providers to plug the gap. After BEA launched six new funds on 31 January, Principal followed with a Hang Seng index fund and a Hong Kong bond fund under its Series 800, the index fund charging just 0.89 per cent. A price war over index-tracking products had begun.

How do MPF fund fees compare?

MPF fund fees are the charges trustees and fund managers levy for running MPF schemes and funds, usually quoted as an annual percentage of net asset value. In the early-2012 price war, Hang Seng index funds charged 0.7 to 0.9 per cent — well below actively managed equity funds — because passive index tracking needs no stock-picking analysis, so it costs less to run.

Hang Seng index fund fees (February 2012)

Five Hang Seng index funds were on the market at the time; all but Bank of Communications’ charged under 1 per cent. Principal also cut some existing fund fees by 5 to 11 per cent, trimming its conservative fund from 1 per cent to 0.95 per cent and pricing the new Hong Kong bond fund at 0.99 per cent. The record showed index funds tracked the market closely and had beaten some active equity funds: Principal’s Series 600 index fund fell 18.26 per cent in 2011 yet outperformed the Hang Seng Index — down 19.97 per cent — by 1.71 percentage points.

Cheap does not always mean right

An MPF business development executive cautioned that index funds passively track constituent stocks, with no manager hunting for added value — “the difference between someone watching and no one watching” — which is why they are cheaper. Experts added that fees are not the only criterion for choosing a fund; the long-term question is whether it is worth it.