MPF Returns Follow the Market: Review Investments to Improve Returns

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

The Employee Choice Arrangement launched on 1 November 2012. A commentary of the day argued: before quarrelling over fees, understand what drives MPF returns — the market, not fees. The Consumer Council studied 523 funds: 159 were negative over five years, but of 264 funds with ten-year records, 263 were positive.

How big is the market’s influence?

Far bigger than fees. The Hang Seng peaked at 31,958 in October 2007 and sat below 22,000 in 2012 — weak five-year returns reflected a weak economy, not high fees. Example: Sun Life’s First State Hong Kong equity fund fell 48.07% in the 2008 crisis, then surged 74.67% in 2009’s coordinated central-bank rescue. Its ~1.62% annual fee was dwarfed by market moves.

Which category did best?

Bond funds. Forty-three bond funds averaged 4.41% annualised over five years — the top category — and generally charge less than equity funds. The best ten-year fund annualised 15.32%; the only ten-year loser was a Japan equity fund (-1.47% annualised).

What is semi-portability good for?

Narrowing fee gaps — but not fixing “can’t manage”. The author argued competition should compress fee dispersion among similar funds; the real problem was users who couldn’t manage their accounts — hard even for university graduates outside business, let alone grassroots workers. Government should teach the public: MPF needs managing, from stock-bond splits to comparing providers.

What is the lesson from 2012?

Fees are the small number; the market is the big one. This 2012 piece’s lasting point is ordering: ask about markets and allocation before fees. The percentage point you save by switching is nothing next to one bear market — diversification and staying invested are the real route to better MPF returns.