MPF fund performance: a ten-year report card — 5.1% vs the Hang Seng’s trouncing

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

A decade into the MPF, public grumbling never stopped, centred on two complaints: MPF fund performance and sky-high fees. The numbers speak — here is the MPFA’s own report set against the Hang Seng Index.

What was the ten-year average return?

5.1% a year across all MPF schemes. At end-September 2010, total net assets were HK$345.7 billion with about 2.5 million participants. Equity funds (33% of assets) averaged 5.4%, mixed-asset funds (43%) 4.5% — already the two best categories.

How far behind the Hang Seng?

More than double the gap. Put HK$1,000 a month into the Hang Seng Index from December 2000 (Tracker-Fund style) to September 2010: 8.6% a year, plus 3% dividends, minus 1% fees — a true 10.6% annual return, over twice MPF’s 5.1%. The China Enterprises Index did better still: a true 22.3%.

Of 450 MPF funds, only ten beat 10.6% over ten years; none touched 17.5%.

How heavy were MPF fees?

1.92% on average overall, up to 4.03% at the extreme. Guaranteed and conservative funds’ average fees exceeded their annual returns. Worst were Principal’s savings funds: under 1% ten-year annual returns, some negative, yet fees above 1% — a bank time deposit would have beaten them. Japan equity funds fared worse, four of them below -10% a year; BEA’s “growth” fund charged 3.38% for a -14.8% return.

Compounding widens the gap: at 10.6% a year, 20 years turns total contributions into 3.2 times the outlay, 40 years into 14 times. High fees and low returns cost not just money, but time.