MPF Fund Performance in a Sell-Off: Lessons from Hong Kong’s 2011 Mini-Crash

As of 31 August 2011, MPF fund performance took a hit along with the broader market: global equities soured in the second half of 2011, and the Hang Seng Index fell from 23,684 in early June to 20,534 at the end of August — a 13.3% drop. August alone saw a mini-crash, down 1,905 points (8.49%), the worst single-month fall since October 2008. Many assumed that owning no stocks meant immunity — but every working person holds MPF, and the vast majority are invested in Hong Kong equity funds.

Why did MPF returns still lose money in a falling market?

MPF returns are tied to the markets, so they cannot escape a sell-off. According to Lipper, for the three months to 31 August 2011, 39 Hong Kong equity funds averaged -12.55% against the Hang Seng’s -13.3%; managers could only soften losses through defensive stock picks, not profit from falling assets.

Why do managers fall with the market?

MPF funds are long-only funds: they make money only when their assets appreciate. When assets depreciate, a long-only fund can at best lose less — it cannot profit from the fall. So when global equities slump, equity funds fall too; defensive picks can only cushion the drop. A manager’s job is to read the macro picture and select stocks suited to the moment.

MPF funds also target relative returns: managers aim to beat a benchmark — a Hong Kong equity fund might use the Hang Seng as its benchmark. If the benchmark falls 10%, the fund has done its job as long as it falls no more than 10%.

Long-only vs absolute-return funds

What employees can do in a downturn

1. Switch asset classes in time: move from equity funds to bond funds when appropriate, rather than relying on the manager to keep you whole in a crash.
2. Manage your own asset mix: even with professionals picking stocks, employees should hold different asset proportions in different economic environments.
3. Consult a licensed intermediary: if short on time or expertise, seek investment advice from an MPF intermediary — after confirming they hold the licence to give it.
4. Support employee choice: letting employees choose trustees based on fund performance should sharpen competition and, with it, push fees down.

MPF has run for over a decade, and balances keep growing; understanding your MPF early and planning strategies for different market conditions makes a real long-term difference. To compare fees and performance, use the MPF fund comparison tool or browse MPF funds.