Passive investing with a diversified portfolio still best for most
- Hong Kong’s pension fund is on track for an unprecedented third straight year in the red. What should account holders do? Nothing may not be the worst advice
For investors in Hong Kong and mainland China stocks, the past few years have been brutal. That unfortunately has been the position of many account holders of the Mandatory Provident Fund (MPF), the pension fund covering 4.7 million people in the city. The headline losses are discouraging. An investment loss of HK$35.2 billion (US$4.5 billion) in the third quarter has wiped all gains made in the first half of the year. Unless things turn for the better in the fourth quarter, an unlikely prospect given the mainland’s economic downturn as well as high interest rates, the retirement fund will have an unprecedented three straight years in the red.
The MPF offers 413 investment funds, which have reported an average loss of 3.1 per cent in the July-to-September quarter, or HK$7,500 per person. On average, each MPF account holder has lost HK$600 over the past three quarters. Last year, the MPF reported a 15.7 per cent decline. Hong Kong and mainland stock funds – the most popular that account for 25 per cent of all MPF assets – have been the worst performers, losing 8.6 per cent in the first nine months after a loss of 4.2 per cent in the third quarter.
The city’s benchmark Hang Seng Index dropped 10 per cent in the first nine months of this year, after a decline of 6 per cent in the third quarter. On the mainland, the CSI300 gauge of the biggest firms listed in Shanghai and Shenzhen fell 4.7 per cent during the same period after a loss of 3.5 per cent in the last quarter.
Hong Kong’s MPF poised for unprecedented third year of losses
However, if you are lucky or have the foresight to diversify your portfolio outside China, you may fare better. Global funds were second best with an average gain of 9 per cent from the same period, with a loss from the last quarter at 3.54 per cent.
US equities were the best performers, with an 11.9 per cent return in the first nine months, after a loss of 3.5 per cent in the last quarter. European stock funds gained 7.6 per cent in the first nine months after a loss of 4.4 per cent in the third quarter.
Generally, though, emerging markets – including those of China – have done poorly so far this year. What to do then? Nothing may not be the worst advice. Trying to time the market is a fool’s game. Your losses are only on paper after all – unless, of course, you are retiring, in which case, ouch!
A report by Manulife Provident Funds Trust found that switches made by its own MPF account holders between fund choices last year increased by 60 per cent from before the pandemic in 2019. But most were too ill-timed to take advantage of market conditions to rebalance their portfolios.
Passive investing with a diversified portfolio over a long period is still the best strategy for most people.
