Each quarter MPF Ratings releases its MPF Fund Flows Summary, data that (owing to its independence) is the industry’s trusted source.
Since every Hong Kong worker has an MPF account, economic and market commentators see MPF fund flow data as a good indicator of employment participation and economic health. MPF scheme sponsors, trustees and fund managers covet the data as it illustrates how their businesses are performing against their competitors, and journalists appreciate the data because it helps tell a story. As the former Hewlett Packard CEO Carly Fiorina once said (and that was before the invention of Artificial Intelligence (AI) made life easier), “the goal is to turn data into information, and information into insights”.
The third quarter of this year saw MPF attract estimated net inflows of $11.51bn (see Table 1), this number reads impressively but is around 11% lower than MPF’s 5 year quarterly average. A combination of COVID disruptions, early retirement, permanent departures and a general decline in employment participation have all contributed to this shrinkage.
Amongst the MPF sponsors and trustees, Manulife had the biggest cause to celebrate, attracting around $5.16bn in net inflows, or 44.8% of the MPF system’s total net inflow market to rank No.1. Such was Manulife’s dominance, approximately $45 out of every $100 flowing into the MPF system went into a Manulife scheme (see Table 1). While Manulife dominated, there was also positive news for HSBC, Sun Life, AIA and BOCI-Prudential who attracted net inflow shares larger than their own overall market share (see Table 2), a Key Performance Indicator (KPI) demonstrating growth in their respective MPF businesses. Data is being turned into information, and information into insights, but did journalists miss the biggest insight from MPF’s Q3 fund flow data?
MPF members’ “double loss”.
In early August, the US Nasdaq Index fell into correction territory (see Chart 1) while Japan’s Nikkei 225 Index (see Chart 2) experienced its largest single day points drop ever. Numerous MPF members reacted by switching into Money Market funds, Guaranteed and Bond funds (see Table 2) as they’re perceived to be “less risky”. Indeed 7 out of the top 10 highest net inflow fund winners in Q3 2024 were such funds (see Table 3) while Money Market Funds attracted almost 65% of MPF’s net inflows (see Table 2), its highest share of net inflows in over 5 years. Bluntly speaking, MPF members panicked and in doing so crystalized losses, and by investing proceeds in so called “less risky” Money Market Funds, they compounded the error.
No sooner had markets fallen they then rebounded. The US market is now at near all-time record high territory, and the Nikkei 225 is up around 25% since that drop. MPF members who sold crystalized losses and, by moving the proceeds into cash when markets rose again they suffered a second loss, the opportunity to recoup the initial losses. A “double loss”.
How much did MPF members really lose?
Circumstances will vary amongst individuals but let’s assume a member has the average MPF account balance, which is $260,300, and reacted to the US Nasdaq Index falling into correction territory by switching into Money Market Funds. By selling when US equities at the low point, and then remaining in cash, the account member would have forgone 10.6% by end of September so instead of an account balance of $289,200 the member now only has $261,600 for a first loss of $27,600. Compound that difference over 20 years using (say) the median DIS Fund (Core Accumulation Fund) annualized return of 6.01% and the cost of not diversifying and remaining invested over the long term would be almost $90,000! The second loss (see Chart 3). A very costly but easily avoidable mistake if MPF members follow the basic rules of investing for retirement. Diversification and time in market, not market timing, is key. MPF members have no excuse not to follow these basic rules because the MPF system makes it easy with the MPFA’s mandated Default Investment Strategy (DIS) Funds. Every MPF scheme must offer DIS. It has low fees, is well diversified, and by offering automatic risk reduction it takes the stress away from market timing decisions. It is THE ideal fund option for most MPF members.
This article was written by MPF Ratings, Hong Kong’s independent provider of MPF research, views and education.
The information contained in this blog is general in nature and does not take into account your personal situation. You should consider whether the information is appropriate to your needs, and where appropriate, seek professional advice from a financial adviser.
Table 1: 2024 Q3 MPF Scheme Sponsor Net Inflows
Source: MPF Ratings
^ Orientiert Group, the scheme sponsor of AMTD MPF Scheme, has been renamed as oOo Group
Table 2: 2024 Q3 MPF Asset Class Net Inflows
Source: MPF Ratings
Table 3: 2024 Q3 Top 10 Highest MPF Constituent Fund Net Inflow Winners
Source: MPF Ratings
Chart 1: S&P 500 Index Performance since end of June 2024
Source: MPF Ratings
Chart 2: Nikkei 225 Index Performance since end of June 2024
Source: MPF Ratings
Chart 3: Impact of compound interest and opportunity cost on projected average account balance over 20 years after switching from US equities to the Money Market Fund (MPF Conservative Fund)
Source: MPF Ratings
