Focus on long term MPF performance, not short-term volatility

Cheng Yan-chee March 29, 2022 16:33

Despite concerns about the recent volatility of the equity markets and its impact on MPF return, the long term performance of the MPF System has proved to be robust.

The MPF System aims to provide basic retirement protection for Hong Kong’s working population and has grown continuously and steadily since its inception in December 2000.

As at end of 2021, MPF assets amounted to $1.18 trillion which have grown 232% over the past 10 years, and the average MPF assets held by each MPF scheme member amounted to $258,000, an increase of 164% from 10 years ago.

MPF performance is always a key concern of MPF scheme members, in particular in times of market fluctuations. The fact is that after going through several economic cycles over the past 21 years, MPF recorded positive returns in 14 of those years, and always rebounded after the years with negative returns. The annualized net rate of return of MPF since its inception was 4.3%, which was higher than the annualized inflation rate of 1.8% over the same period, reflecting that the MPF has stood the test of time in the long run.

In general, there has been a higher proportion of MPF investment in equities, accounting for 67% of total MPF net assets. Hence, volatilities in the equity market would certainly impact on returns of MPF funds. Having said that, as at end of 2021, all MPF fund types recorded a positive annualized return over the past three years, the past five years as well as since the inception of the MPF System.

The MPF is a long-term investment, spanning 30 to 40 years, so scheme members should not be overly concerned about short-term volatility. Their MPF is accumulated through regular contributions, and their MPF retirement reserve is built by leveraging the compounding effect and the power of dollar cost averaging. In fact, dollar cost averaging is a prudent investment technique, which helps mitigate the effect of short-term market fluctuations on investments by averaging out the costs of the fund units over time.

MPF scheme members are advised to review their MPF portfolio regularly and to take into consideration factors such as their personal investment goals and risk tolerance level when adjusting their investment portfolio. Scheme members who are not familiar with investing or have no time to manage their MPF should consider the default investment strategy (DIS), which features a fee cap, a globally diversified investment approach and “automatic de-risking”. Since the implementation of the DIS in April 2017, the annualized returns of the Core Accumulation Fund and Age 65 Plus Fund under the DIS were 8.7% and 4.5% respectively, out-performing inflation of the same period.

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Cheng Yan-chee

Acting Managing Director, MPFA