2013 MPF Commentary

The euro-zone showed tepid signs of recovery but worries remain over the stubbornly low inflation of about 1%, which is well under the European Central Bank’s target of just below 2%. This may push weaker countries close to deflation and make it harder for them to bring down their debt levels. The ECB responded by cutting interest rates in November but its effectiveness has yet to be seen. Nonetheless, the MSCI Europe index was up a robust 25.28% in 2013.

Japan arose from a decade-long recession in 2013 under the leadership of Prime Minister Shinzo Abe, who set out a three-pronged policy to revive the Japanese economy. Commonly known as “Abenomics”, the plan has monetary, fiscal and structural components. Most notably, Bank of Japan implemented a massive bond-buying program which aims to achieve 2% inflation in two years by doubling the country’s monetary base. This also caused the Japanese Yen to depreciate around 20% against the US dollar last year, partly dampening the yearly return of the Nikkei 225. Nonetheless, the index gained 28.97% for the year.

China had a rocky 2013. Concerns over slower economic growth emerged, and the one-month Shanghai Interbank Offered Rate (SHIBOR), which represents Chinese interbank lending rates, soared to a record high in June as banks dealt with a liquidity crunch. Although the Chinese stock market rebounded into positive territory in the third quarter as GDP growth picked up, the CSI 300 index slumped again in the last quarter. Fears of a potential liquidity crunch resurfaced as the one-month SHIBOR rate continued to rise in the fourth quarter and factory activity grew at a milder pace in November. China’s Third Plenum was also announced in the fourth quarter, which specified a more market-based method of resource allocation to reform the economy. The CSI 300 index slumped by 4.92% in 2013. Despite the close ties between Hong Kong and China, the Hang Seng index managed to stay afloat, ending the year in the black with a 2.87% gain.

MPF Performance
MPFs overall had a good year, with most of our MPF categories posting positive returns in 2013. In general, equity funds did well while bond funds suffered. In the light of Abenomics, the highest returning MPF category last year was Japan Equity, averaging a 32.83% gain. Within the category, BEA (MPF) Japan Equity was the top performer, recording an annual return of 35.46%. We note that the Franklin Templeton MPF Japan Equity fund, which was previously available from AXA and MassMutual, was liquated in Q4 of 2013.

US Equity MPFs was the second-strongest category of the year on the back of continual quantitative easing, having returned 28.25% on average. Moreover, Mass MPF US Equity was the winner out of the entire MPF universe in 2013, delivering a staggering annual gain of 36.52%.

As Europe moves out of recession in 2013, the European stock market rallied and similarly, MPFs which invested in European Equity posted an attractive average return of 27.18%. In particular, BCT (Pro) European Equity Fund led the pack and recorded an impressive 36.35% gain for the year.

Despite a rough start to the year, China & Greater China Equity MPFs delivered a respectable average return of 6.57% in 2013. Within the category, Allianz Greater China Fund – B was the best performer, outperforming the category norm significantly by registering a 14.61% gain. On the other hand, BEA (MPF) BEA China Tracker was the biggest loser in the category, having made a 3.81% loss. While disappointing, this is consistent with the performance of the Hang Seng China Enterprises Index (or the “H-shares Index”), which the MPF aims to match. Similarly, Hong Kong Equity MPFs posted a decent return of 5.99% on average, with AIA MPF – PVC Hong Kong Equity being the category winner.

All bond MPFs made an absolute loss in 2013 against the backdrop of tapering expectations. As the market expects higher interest rates, 10-year Treasury yield has been steadily rising. With the US being a major bond market globally, the negative effect spilled over to the international fixed interest market. Emerging market bonds were the worst hit, as widening spreads and weakening currencies weighed on returns. Unsurprisingly, the worst-performing MPF in 2013 was a bond fund – AXA Smart Plan – JPMorgan Asian Bond, which posted a 6.06% loss.

As always, we believe investors are best served to adhering to their long-term investment plans and avoid being swayed by short-term changes in the macroeconomic environment. Furthermore, investors should by no means rely on simple performance data when making investment decisions. A key factor to consider is fees, as high fees will certainly erode an MPF’s future returns potential. Different MPFs bear different degrees of risk; for example, equity funds are generally riskier than bond funds, and investors should select their MPFs according to their own risk appetite and tolerance. We look forward to delivering more MPF-related products and solutions in 2014.

2013 Best Performing MPFs by Category

To review the full 2013 MPF Performance Report, please click here.