MPF up 6.6% in October, year’s best: Lipper report dissected — Hong Kong equity funds trail the Hang Seng

After a brutal second half, global equities rebounded across the board in October 2011, and workers’ favourite number followed: MPF averaged 6.6% for the month, the year’s best, with equity funds up 10%. But year to date MPF was still down 5.3% — one great month could not rescue a losing year.

Which MPF funds led in October?

Thomson Reuters Lipper reported MPF up 6.6% in October, powered by equity funds’ 10%+ rebound: Hong Kong and Greater China equity gained over 12%, China equity hit 16%. Mixed-asset funds managed 6%, beating guaranteed funds’ ~1%; the equity rally squeezed bonds — 36 bond funds averaged just 0.9%, Hong Kong-dollar bond funds lost 0.8%. The city’s sole sector fund, pharma and healthcare equity, returned 8.2%.

Hong Kong equity trails the index: active management’s defeat?

The full-year numbers deflated the mood: ten-month MPF averaged -5%, equity funds fell 10%, Greater China and Korea funds dropped 15%–16%. Thirty-nine Hong Kong equity funds averaged -14.6%, worse than the Hang Seng’s -13.8% — actively managed Hong Kong funds could not even beat the market. Bonds, though dull in October, were up over 4% for January–October, in both Hong Kong-dollar and global flavours.

The outlook: Greek referendum, QE3 hopes

Lipper’s Hong Kong research director 黃澤銘 credited October’s bounce to better-than-expected US data, peaking mainland inflation plus Premier Wen Jiabao’s easing signals, and the EU’s new rescue package. But Greece’s referendum on the bailout shocked markets — rejection would mean full default — and November equities slid. Hopes for a third US quantitative easing round (QE3) were overdone, he said: QE3 was a last resort the US economy did not yet need. With the euro crisis unresolved, low-risk investors should prioritise capital preservation.

What members can do

“Year’s best” coexisting with “still down for the year” was 2011 in a nutshell: one month’s bounce could not lift the euro-debt gloom. Rather than celebrate 6.6%, check your portfolio’s defences — bonds’ +4% proved diversification’s worth in turbulent years. The MPF education hub explains balancing offence and defence.