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2013 MPF Commentary
Germaine Share 2014-01-10

All market indices, category averages and fund performances are quoted in HKD for comparison purposes. Only MPFs with at least a full year’s track record are included in the discussion below.

Market Overview
2013 has been an eventful year for the global economy. Here, we take a look at major macroeconomic events which occurred over the past year and how they have affected MPFs’ performance.

The US quantitative easing and when the Federal Reserve would start tapering was arguably one of the biggest stories of 2013, having dominated headlines throughout the year. The Fed’s aggressive stimulus program entailed the monthly purchase of US$85 billion worth of debt securities to stimulate a sluggish economy. Although concerns over the Fed winding down such program intensified mid-year, US stocks continued to rally. Finally, after months of rampant speculation, the Fed announced on 18 December that it will reduce its monthly bond purchases by US$10 billion to $75 billion effective January 2014 as the US economy showed signs of recovery. Amidst tapering worries, the US Government was on the brink of breaching the debt ceiling and was temporarily shut down in October as lawmakers failed to agree on a budget. A temporary resolution came as the deadline to raise the debt ceiling was postponed to 7 February 2014, and a two-year budget agreement was approved in December, averting near-term shutdown threats. The S&P 500 index soared 29.65% for the year.

The euro-zone showed tepid signs of recovery but worries remain over the stubbornly low inflation of about 1%, which is well under the European Central Bank’s target of just below 2%. This may push weaker countries close to deflation and make it harder for them to bring down their debt levels. The ECB responded by cutting interest rates in November but its effectiveness has yet to be seen. Nonetheless, the MSCI Europe index was up a robust 25.28% in 2013.

Japan arose from a decade-long recession in 2013 under the leadership of Prime Minister Shinzo Abe, who set out a three-pronged policy to revive the Japanese economy. Commonly known as “Abenomics”, the plan has monetary, fiscal and structural components. Most notably, Bank of Japan implemented a massive bond-buying program which aims to achieve 2% inflation in two years by doubling the country’s monetary base. This also caused the Japanese Yen to depreciate around 20% against the US dollar last year, partly dampening the yearly return of the Nikkei 225. Nonetheless, the index gained 28.97% for the year.

China had a rocky 2013. Concerns over slower economic growth emerged, and the one-month Shanghai Interbank Offered Rate (SHIBOR), which represent Chinese interbank lending rates, soared to a record high in June as banks dealt with a liquidity crunch. Although the Chinese stock market rebounded into positive territory in the third quarter as GDP growth picked up, the CSI 300 index slumped again in the last quarter. Fears of a potential liquidity crunch resurfaced as the one-month SHIBOR rate continued to rise in the fourth quarter and factory activity grew at a milder pace in November. China’s Third Plenum was also announced in the fourth quarter, which specified a more market-based method of resource allocation to reform the economy. The CSI 300 index slumped by 4.92% in 2013. Despite the close ties between Hong Kong and China, the Hang Seng index managed to stay afloat, ending the year in the black with a 2.87% gain.

MPF Performance
MPFs overall had a good year, with most of our MPF categories posting positive returns in 2013. In general, equity funds did well while bond funds suffered. In the light of Abenomics, the highest returning MPF category last year was Japan Equity, averaging a 32.83% gain. Within the category, BEA (MPF) Japan Equity was the top performer, recording an annual return of 35.46%. We note that the Franklin Templeton MPF Japan Equity fund, which was previously available from AXA and MassMutual, was liquated in Q4 of 2013.

US Equity MPFs was the second-strongest category of the year on the back of continual quantitative easing, having returned 28.25%on average. Moreover, Mass MPF US Equity was the winner out of the entire MPF universe in 2013, delivering a staggering annual gain of 36.52%.

As Europe moves out of recession in 2013, the European stock market rallied and similarly, MPFs which invested in European Equity posted an attractive average return of 27.18%. In particular, BCT (Pro) European Equity Fund led the pack and recorded an impressive 36.35% gain for the year.

Despite a rough start to the year, China & Greater China Equity MPFs delivered a respectable average return of 6.57% in 2013. Within the category, Allianz Greater China Fund – B was the best performer, outperforming the category norm significantly by registering a 14.61% gain. On the other hand, BEA (MPF) BEA China Tracker was the biggest loser in the category, having made a 3.81%loss. While disappointing, this is consistent with the performance of the Hang Seng China Enterprises Index (or the “H-shares Index”), which the MPF aims to match. Similarly, Hong Kong Equity MPFs posted a decent return of 5.99% on average, with AIA MPF – PVC Hong Kong Equity being the category winner.

All bond MPFs made an absolute loss in 2013 against the backdrop of tapering expectations. As the market expects higher interest rates, 10-year Treasury yield has been steadily rising. With the US being a major bond market globally, the negative effect spilled over to the international fixed interest market. Emerging market bonds were the worst hit, as widening spreads and weakening currencies weighed on returns. Unsurprisingly, the worst-performing MPF in 2013 was a bond fund – AXA Smart Plan – JPMorgan Asian Bond, which posted a 6.06% loss.

As always, we believe investors are best served to adhering to their long-term investment plans and avoid being swayed by short-term changes in the macroeconomic environment. Furthermore, investors should by no means rely on simple performance data when making investment decisions. A key factor to consider is fees, as high fees will certainly erode an MPF’s future returns potential. Different MPFs bear different degrees of risk; for example, equity funds are generally riskier than bond funds, and investors should select their MPFs according to their own risk appetite and tolerance. We look forward to delivering more MPF-related products and solutions in 2014.


2013 Best Performing MPFs by Category

MPF Category

MPF

2013 Return
(%, HKD)

Total Expense
Ratio (%)

Aggressive Allocation

Allianz Oriental Pacific Fund - T

21.42

Asia Equity

Allianz Asian Fund - T

12.25

1.36

Cautious Allocation

Fidelity RMT-Capital Stable

4.56

1.56

China & Greater China Equity

Allianz Greater China Fund - B

14.61

Europe Equity

BCT (Pro) European Equity Fund

36.35

1.73

Global Bond

My Choice Global Bond Provident

-0.76

1.14

Global Equity

AIA MPF - BVC Green

28.06

0.71

Guaranteed Funds

AXA Smart Plan-Guaranteed

3.75

2.08

HKD Money Market

BCOM Joy MPF Conservative

1.00

1.35

Hong Kong Equity

AIA MPF - PVC Hong Kong Equity

11.38

2.04

Japan Equity

BEA (MPF) Japan Equity

35.46

2.74

Moderate Allocation

BCT (Industry) E70 Mixed Asset Fund

11.27

1.82

Other Bond

Principal 800 Hong Kong Bond N

-2.61

Other Equity

Manulife GS MPF Healthcare

31.62

2.01

Other Money Market

Sun Life MPF RMB & HKD B

2.48

Target Date

Fidelity RMT-Fidelity SaveEasy 2030

17.84

1.66

US Equity

Mass MPF US Equity

36.52

1.66


To review the full 2013 MPF Performance Report, please click here.


Germaine Share is a research analyst with Morningstar.