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Hong Kong's MPF default funds post “satisfactory” returns

By Asia Asset Management  
Nov 5, 2019

Hong Kong’s largest retirement plan’s two default funds had “satisfactory” returns in the 12 months through September, according to the head of the plan’s supervisory body, who also says voluntary contributions by employers rose 13% year-on-year in 2018.

Contributions to the city’s Mandatory Provident Fund (MPF) are channeled into the Core Accumulation Fund and Age 65 Plus Fund if members are unfamiliar with investing or have no time to manage their pension accounts. This default investment strategy (DIS) was introduced in April 2017.

The Core Accumulation Fund posted a return of 3.4% and the Age 65 Plus Fund returned 7.7% in the 12 months to September 30, 2019, Mandatory Provident Fund Schemes Authority Chairman David Wong writes in a blog post on November 3.

He says the returns beat that of mixed asset funds with similar asset allocations, but did not provide figures for comparison.

He also urged employees to put greater effort into risk management and to regularly review their portfolios in the face of market uncertainties.

The default funds did better because they have higher allocations to US stocks, according to Billy Wong, executive director of MPF consultancy firm Gain Miles Group, who notes that the US market outperformed most other regions in the past year.

“This is the major driver for the DIS funds’ outperformance against other mixed asset funds over the last 12 months, since the former’s allocations to US equities are generally higher than the latter,” he tells Asia Asset Management. “Investors should be reminded that if US equities [were] not outperforming, the performance of DIS funds and mixed asset funds [could have been] quite different.”

Meanwhile, the blog post says 16,100 employers made voluntary contributions totaling HK$10.07 billion (US$1.28 billion) for more than 350,000 employees in 2018, up from HK$8.9 billion in 2017.

Employers and employees both have to compulsorily contribute at least 5% of an employee’s monthly salary into their MPF account.

The MPF had around HK$910 billion of total assets as of end-June 2019.