The “lazy fund” explained: MPF conservative funds and target-date funds

Adapted from a report published in March 2012.

Target-date funds were already nicknamed “lazy funds” in 2012: each one carries a year in its name, and the manager automatically shifts the equity-bond mix as that date approaches — buy it and barely think about it again. This piece also clears up the endlessly misunderstood MPF conservative fund, so investors stop matching the wrong shape.

Is the MPF conservative fund really capital-guaranteed?

No — the MPF conservative fund carries no guarantee; “capital preservation” was simply its original name, changed after too many people took it literally. The law pins down its strategy: it must invest in Hong Kong-dollar assets, limited to short-term bank deposits and bonds, with minimum credit-rating requirements. Returns therefore track passbook savings rates and can easily lag inflation in a low-rate environment.

How does a target-date fund work, and why “lazy fund”?

A target-date fund adjusts its equity and fixed-income mix automatically according to how far away the target date is: the further out, the higher the equity weighting; the closer in, the higher the fixed-income weighting. The design follows the basic risk-management rule that younger investors can bear more risk. Because members need not lift a finger to rebalance, the market dubbed them “lazy funds”.

How do target-date funds differ from life-cycle funds?

The two concepts are very similar, except that a target-date fund rebalances automatically on a schedule, while a traditional life-cycle or mixed-asset fund keeps its mix fixed.

What should you watch when picking a target-date fund?

Check the equity weighting the fund will still hold on the target date itself — some keep 20–30% in equities, so ask whether you can stomach that risk at 65. And remember: risk tolerance should never rest on age alone; it also depends on your investment knowledge, experience and how much loss you can bear. You can read more in the MPF education guides.