Members of Hong Kong’s Mandatory Provident Fund (MPF) scheme must learn to compare performance of scheme providers as well as to read investment return, says Philip Tso of consultancy Towers Watson.
The theme of performance underscores the third edition of MPFexpress.com, the quarterly magazine and website launched by Towers Watson in March, which hits Hong Kong’s streets today via an expanded circulation of 70,000 copies (from 50,000 previously).
In its funds focus feature, Towers Watson starts what it says will be a series of articles looking at Hong Kong equity – by far the most popular asset class in the MPF universe.
There are 39 Hong Kong equity funds, out of 135 such funds available to MPF members, which collectively have delivered an average 10.3% return since 2001 – the highest among the 19 fund types within MPF.
Towers Watson includes a league table of Hong Kong equity fund performance over the past one, three and five years – which are all topped by Sun Life First State MPF HK Equity Fund.
“We know the audience would love to see who has performed best and how the universe compares to the benchmark,” says Tso. “What we want to show the reader is that there are a number of ways you can look at return and performance delivered by the providers.”
Beyond pure returns, the article seeks to highlight how performance is closely linked to the level of risk, with Tso noting that the average Hong Kong investor tends to focus too much on return.
The consultancy publishes a chart in the magazine that takes into account risk and return, which again shows Sun Life First State MPF HK Equity Fund in a positive light.
“This fund has delivered a strong 16-17% return per annum over the past five years, but the risk element is relatively low compared to peers,” says Tso. “So from an efficiency perspective, this fund looks like a pretty good option, although past performance is no guarantee of future performance.”
MPFexpress.com will publish league tables and charts to measure the performance of different asset classes in forthcoming editions, while it has shifted its ‘how to’ section from the magazine to its website. “This is a bit more technical, but we try to educate people how to read charts in terms of different measurements,” says Tso.
In this edition’s cover story, the consultancy examines an investor’s MPF voyage from start to finish and interviews Sally Wong, CEO of the Hong Kong Investment Funds Association, on asset allocation.
The message is that a savings journey involves three phases like the changing colours in the life-cycle of a Chinese white dolphin (hence the cover image): black, grey and white/pink. There is aggressive investing when young, a more balanced strategy in mid-career and a conservative approach for life’s sunset years.
It also examines the compound affect of contributions and their relationship to return. “Hopefully we give readers a few dimensions to manage their portfolio over a long time-horizon,” adds Tso.
“There are a few factors that people should be considering in terms of adopting different strategies, including years of retirement, living standards, level of contributions and personal wealth. In future we will talk about how different factors affect these strategies.”
Tso adds that the next edition of the magazine, due out in December, will focus on risk. “We need to educate people how to understand risk in terms of the funds they are investing in,” he says. “When they select a fund they should understand what kind of risk exposure it has.”