The Hotter the Fund, the Less You Keep: Morningstar Finds a 2.5pp-a-Year Investor Gap in International Equity ETFs — the Real Cost of Chasing Asia’s 24.5% Rally

Track 1 數據照妖鏡 · data X-ray | 2026-10-05

The core proposition

The star performer of Hong Kong’s MPF system in 2026 is Asian equity funds. GUM’s data through 18 September: Asian equity funds fell just 0.8% in September and are still up 24.5% year to date, leading every equity fund category. The fund-flow data in the same report says it all — US equity funds have taken in net inflows of more than HK$12 billion year to date (five straight months at the top of the inflow table), while Hong Kong equity funds have seen net outflows of about HK$10.26 billion. Members are voting with their feet: chase international equities, dump Hong Kong.

But Morningstar’s Mind the Gap 2026, published in August 2026, reveals the cruel other side: the hotter the category you chase, the wider the investor gap. International equity ETFs carry an investor-return gap of negative 2.5 percentage points per year — the widest of any category. Jeff Ptak, managing director of Morningstar Research Services, put it in one line: “The hotter a fund is to handle, that is, the more volatile its returns… the less of that fund’s total returns investors capture. They get rattled.”

24.5% is the fund manager’s report card. Minus 2.5 percentage points is yours.

Through the data: published returns vs what you actually pocket

Morningstar tracked nearly 23,000 US mutual funds and ETFs over the decade ended 2025. Its core finding is the gap between two return numbers — the published fund return, which assumes buy-and-hold, and the dollar-weighted investor return, which reflects real behaviour: adding money after strong performance, cutting exposure during declines.

Hong Kong’s local fund flows show MPF members replicating exactly the widest-gap behaviour. GUM’s August report (carried 18 September): the top five net-inflow categories were US equity funds, the DIS Core Accumulation Fund, global equity funds, Asian equity funds, and the DIS Age 65 Plus Fund — three of them international equity categories. Meanwhile Hong Kong equity funds, down 2.9% year to date (the only equity category in negative territory this year), suffered net outflows of about HK$10.26 billion: sold at the lows. The MPFA chairman warned as early as December 2025 that “trying to time the market easily ends in buying high and selling low”; BCT’s early-September programme revealed the extreme case — within a single scheme, first-half returns ranged from +32% to -19%, a spread of more than 50 percentage points.

In other words: members are piling into precisely the category Morningstar has proven to be the hardest to handle — and the least kept.

The compounding toll: what -2.5pp looks like in Hong Kong dollars

Minus 2.5 percentage points sounds abstract until it is converted to dollars. Against the average MPF balance of HK$343,242 (MPF Ratings, 24 September), about HK$8,581 vanishes every year — the equivalent of 1.7 months of HK$5,000 monthly contributions. Nearly two months of contributions, gone each year.

An illustrative calculation — HK$5,000 a month for 30 years at a 7% gross return:

• Zero gap: about HK$6.10 million
• Less the 2.5pp chase tax (4.5% net): about HK$3.80 million
• The 30-year cost: about HK$2.30 million — 6.7 times the average balance, roughly 38 years of total contributions

Broken down by horizon: about HK$110,000 over 10 years, HK$670,000 over 20 years, HK$2.30 million over 30 years. Even against the ordinary open-end fund investor’s 1.2pp gap, the extra 1.3pp paid by international-equity chasers still costs about HK$1.04 million over 30 years. Chasing is not a free emotional indulgence — it is priced by compounding.

The way out

First, know the rules of the arena. MPF operates on forward pricing (T+1/T+2): every switching instruction is a blind buy and a blind sale — market timers do not even know the price they are buying at, so the expected value is negative from the start. There is no day trading here, only monthly discipline.

Second, automate everything. Ptak’s prescription is one sentence: “automate as much as you can.” Fix the monthly contribution, rebalance once a year on a fixed date, cancel all discretionary “market-view” switches. Morningstar also found that funds sitting on retirement-plan menus — where choice is simplified — show significantly narrower investor gaps. Fewer choices, lower behaviour tax.

Third, fight human nature with the default menu. The MPF answer is the Default Investment Strategy: the Core Accumulation Fund has annualised about 7.3% since its April 2017 launch, with fees capped at 0.85%. It is not the most exciting option. It is the narrowest-gap one.

Fourth, three questions before every switch. Is this switch a scheduled rebalance, or a chase? How many times have I switched in the past 12 months? If the answer is “a chase” — the “stop and think” nudge the MPFA has promised inside the eMPF platform exists for you.

Asia’s 24.5% deserves respect, but it belongs on the fund manager’s report card, not yours. Your report card has exactly one number: the return you actually kept. And Morningstar’s data is unambiguous — the widest gap sits in the hottest fund of all.

Data notes: Morningstar figures from Mind the Gap 2026 (10 years ended 31 December 2025); GUM figures from its August report (carried 18 September 2026) and September data (through 18 September 2026); MPF Ratings figures through 21/24 September 2026. Compounding illustrations assume a 7% gross return, HK$5,000 monthly contributions, annuity-due timing; actual returns vary by member.