Following the implementation of the Employee’s Choice Arrangement (ECA) on 1 November, 2012, Mandatory Provident Funds (MPFs) have spurred a lot of interest among investors and therefore have become increasingly important to us at Morningstar. As part of our MPF initiative, we have recently launched the re-classification of the MPF universe to help investors better compare their investment options within relevant peer groups. In addition to the monthly MPF performance tables, we will be publishing quarterly commentaries to assist Hong Kong investors in assessing the performance of their MPF options. We look forward to delivering more research and tools for the MPF sector in 2013.
Market Overview
Global equities fared well in the first quarter of 2013; the MSCI World index was up 7.73% for the quarter. The MSCI Europe index, representing European equities, also recorded a gain of 2.71%, despite Cyprus falling as the latest victim of the Eurozone’s debt crisis and the inconclusive Italian parliament election. As U.S. lawmakers temporarily avoided the ‘fiscal cliff’, which is a combination of expiring tax cuts and government spending reductions, U.S. stocks continued their rally in 2013; the S&P 500 index reported a record high and a 10.61% gain for the quarter.
The major Asian stock markets slumped in Q1 except for Japan. China’s series of property cooling measures, such as the strict enforcement of a 20% capital gains tax and higher down payments for second-home buyers, have dragged the Shanghai Composite down by 1.43% given property’s heavy weighting in the index and the sector’s close ties with building materials (such as cement and steel) as well as banks. Similarly, Hong Kong’s Hang Seng Index dropped 1.58% in the first three months this year.
In contrast, Japan’s Nikkei 225 index clocked a robust quarterly gain of 19.27% on the back of the Yen’s weakness. To revive the Japanese economy, Prime Mininster Shinzo Abe has urged the Bank of Japan to set a 2% inflation target within two years. Under the new leadership of Governor Haruhiko Kuroda, who came on board in March, the Bank will also pursue a series of bold monetary easing measures, including the aggressive purchase of long-term bonds. This has caused the Yen to depreciate against major world currencies. Being an export-reliant country, the cheap Yen raises competitiveness of Japanese products in the global market and boosts profits for Japanese exporters.
MPFs
On the back of the weak Yen, the Japan Equity category has rallied as a whole, delivering the highest average absolute returns out of our 17 MPF categories, with a return of 12.85% in Q1 2013. Within the category, Manulife GS MPF Japan Equity was the best performing fund, with a quarterly gain of 14.66%.
With the U.S. economy recovering at a slow but steady pace, MPFs in the U.S. Equity category gained a healthy 9.09% on average, with Hang Seng MPF – Value Choice – US Equity and HSBC MPF – Value Choice – US Equity being the best performers of the category.
Conversely, China & Greater China Equity and Hong Kong Equity, two of the the most popular MPF categories among Hong Kong investors, were among the weakest performing categories. The two categories averaged a loss of 0.89% and 0.30% respectively in the first three months of 2013.BEA (MPF) BEA China Tracker posted the biggest loss out of all MPFs with -5.29%, while Principal MPF Scheme Series 800 - Hong Kong Equity Fund Class: D offered Hong Kong equity investors some consolation under a falling Hang Seng Index by posting a positive quarterly return of 2.68%.
The Eurozone debt crisis continued to erode returns on global bond funds and, unsurprisingly, Global Bond was the worst performing category for the quarter. The category made a loss of 1.50% on average.
A word of caution: investors should bear in mind that MPFs should be used as long term investment vehicles, and should by no means rely on simple performance data when making their investment decisions. At Morningstar, we believe fees have a significant impact on future performance and should be one of the key factors considered by investors when evaluating their investment options. Fund managers cannot control the future returns they will be able to generate on a fund, but they can control their fees, and high fees erode future returns potential. Hence, investors should be wary of paying too much for their MPFs.
*Single-country market indices are quoted in their respective base currencies, while regional indices are quoted in USD. Category averages and fund performance are measured in HKD.
Best Q1 2013 Performing MPFs by Category
|
MPF Category |
MPF Name |
Q1 2013 Return (%, HKD) |
Total Expense Ratio (%) |
|
Asia Equity |
Mass MPF Asian Pacific Equity |
5.55 |
1.89 |
|
China & Greater China Equity |
My Choice China Equity Provident |
1.12 |
1.15 |
|
Europe Equity |
Manulife Global Select MPF - European Equity |
5.19 |
1.98 |
|
Global Equity |
AIA MPF - Basic Value Choice Green Fund |
8.47 |
0.77 |
|
Hong Kong Equity |
Principal MPF Scheme Series 800 - Principal Hong Kong Equity Fund Class: D |
2.68 |
1.34 |
|
Japan Equity |
Manulife Global Select MPF - Japan Equity |
14.66 |
1.99 |
|
US Equity |
Hang Seng MPF - ValueChoice - US Equity |
10.65 |
1.09 |
|
|
HSBC MPF - ValueChoice - US Equity |
10.65 |
1.11 |
|
Other Equity |
Manulife Global Select MPF - Healthcare Fund |
12.47 |
2.01 |
|
Global Bond |
My Choice Global Bond Provident |
-0.04 |
1.14 |
|
Other Bond |
Manulife Global Select MPF - Pacific Asia Bond Fund |
0.46 |
NA |
|
Aggressive Allocation |
Mass MPF Global Growth Fund |
4.39 |
1.65 |
|
Cautious Allocation |
Standard Chartered MPF Advanced Plan - Legg Mason Stable Growth |
1.80 |
1.80 |
|
Moderate Allocation |
Mass MPF Asian Balanced Fund |
5.03 |
1.82 |
|
Guaranteed Funds |
Mass MPF Guaranteed Fund |
1.25 |
3.86 |
|
Target Date |
AMTD Invesco Target 2048 Retirement |
4.03 |
4.32 |
|
HKD Money Market |
BCOM Joyful Retirement MPF Scheme BCOM MPF Conservative Fund |
0.24 |
0.85 |
|
Other Money Market |
Sun Life MPF RMB and HKD Fund Class: B |
0.33 |
NA |
To review the full March 2013 MPF Performance Report, please click here.
Germaine Share is a research analyst with Morningstar
