22 July 2020
But latest fund flow data suggests members missed a big opportunity
MPF assets are forecasted to surpass $1 trillion for the first time ever, but a leading independent MPF commentator has also warned that as MPF balances swell to record levels, the behaviour of members is placing their retirement at risk.
According to MPF Ratings’ latest quarterly Fund Flow and Market Share (FMS) report, MPF attracted $14,317m in Net Inflows (See Table 1) during the 2nd quarter of 2020 and at $967,772m in size may, subject to favourable market conditions, surpass an unprecedented $1 trillion dollars in assets within the 3rd quarter of 2020, but of concern to Francis Chung (叢川普), MPF Ratings’ Chairman, is the data also suggests members are attempting to second guess markets in the short term rather than adopting a long term and diversified investment approach.
Table 1: Industry Share of MPF Assets as of 30 June 2020 and MPF Fund Flows for Q2 2020 (by Fund Types)
Source: MPF Ratings
“MPF is approaching $1 trillion, a historic level, but as member accounts grow, fund flows suggest MPF members are actively but unsuccessfully timing markets. An extraordinary 54.1% of MPF inflows went into Money Market and Bond Funds largely at the expense of Hong Kong and China equities (See Chart 1) during a quarter when HK and China equities produced one of their best quarterly return periods (12.94%) since MPF’s inception. Members who switched missed this opportunity and the impact of this misguided decision will have a compounding effect resulting in relatively smaller MPF account balances at retirement.”
Chart 1: Industry Share of 1-Month Net Inflows of MPF Conservative Fund, Bond Fund and Equity Fund (HK & China Equity) for Q2 2020 vs Cumulative Return of MPFR Index – Equity Fund (HK & China) since 31 March 2020
Source: MPF Ratings
When asked if he believed changing MPF members’ investment behaviour would lead to better investment outcomes, Mr Chung was critical but constructive, “Absolutely. Timing markets is imprudent. If there’s one thing the past 12 months should have taught MPF members it’s that time in markets, not market timing that is important,” before suggesting a solution, “MPF is long-term so members should remain invested, diversified and focus on their retirement objectives. All MPF schemes are obliged to offer the Default Investment Strategy (DIS) Fund options. They’re low cost, well diversified and take away the burden and risk of chasing short term performance.”