MPF lost 5% in August, worst since the financial crisis: sit tight, don’t switch

Should you switch your MPF portfolio when markets turn volatile?

When markets turn volatile, don’t reshape your MPF portfolio over short-term swings. In August 2011, MPF fund performance slumped to its worst since the financial crisis: global equities slumped and Hong Kong stocks shed 1,905 points in a single month; MPF fell 5% overall. Hong Kong MPF assets shrank by HK$20.26 billion in the month — over HK$8,000 per member. Analysts stress MPF is a long-term investment to be planned around age and risk tolerance, not short-term market calls.

MPF equity fund performance in August 2011

Equity funds were August’s biggest losers.

Why did experts say “better to sit tight”?

William Chou, Hong Kong head of investment consulting at Towers Watson, argued that despite the sharp volatility, investors should not alter their portfolios over temporary ups and downs; MPF is a long-term investment whose mix should have been set at the outset based on age and risk tolerance. Shirley Tse, AIA’s senior vice-president and executive director for pensions, likewise said investors should choose according to personal risk tolerance and finances rather than trying to time short-term price moves.

Some analysts saw a high chance of MPF losses for 2011 as uncertainties in US and European markets persisted into the second half. Chou noted that while the European debt crisis was unresolved, funds held relatively little troubled European sovereign debt — and European bonds were delivering decent returns — so there was no need to deliberately cut European bond exposure; global bond funds could also spread risk.

The market expected MPF “semi-portability” (the Employee Choice Arrangement) to launch in the second half of 2012; Chou believed competition would push providers to cut fees and broaden product ranges. For pointers on switching funds, see the MPF fund switching guide.