Switching MPF? Better Stubborn About Quality: Why Avoid Japan Equity Funds?

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

In November 2012’s “semi-portability” era, Tung Chi fund management managing director Pong Po-lam wrote a column on mpf fund performance arguing for being “stubborn about quality”: surveys showed over half of respondents would switch schemes within 12 months, 80% over disappointing performance. But switch to what? His answer was specific: buy healthcare funds, avoid Japan equity funds — based on three-year return rankings.

MPF performance ranking: which fund led over three years?

Manulife MPF Healthcare Fund — up 43.4% over three years, the category’s best. As of 2 November 2012, it topped its peer group on three-year returns. The case: ageing populations lift biochemical and pharmaceutical demand; drug sales stay stable or climb even in downturns, giving healthcare companies steady cash flows resilient to credit squeezes and external recessions.

Why avoid Japan equity funds?

The three worst-performing MPF funds over three years were all Japan equity funds, down 11.3% on average. Japanese equities had clearly lagged for two years, a strong yen hurting export competitiveness; with heavy government debt, severe ageing and reliance on imported natural resources, Pong said investors should steer clear of Japan equity funds. Some US equity funds’ 35% average gain over the period also deserved attention.

How should tactical asset allocation work?

For growth investors: 70% equities, 30% bonds, plus 10% gold. Tung Chi proposed this as the medium-to-long-term target mix, with tactical adjustments around market conditions (±20% bands). Market valuations were still very cheap then; the suggested equity sleeve covered the US, China, emerging small-caps and global property, the bond sleeve global and US high-yield.

Does the 2012 advice still hold?

The framework does; the name list needs updating. “Pick the strongest by three-year rankings, avoid chronic laggards” remains valid; but fund rankings change yearly — 2012’s champions are history for reference, not a list to copy blindly.