15-year Investment Performance Review of the MPF System · 2016. 4. 12. · Rates of return of...
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15-year Investment Performance Review of the MPF System
26 January 2016
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MPF: 2nd pillar
2
Mandatory, privately
managed, fully funded contribution
system
3
Voluntary savings
4
Informal support,
other formal social
programmes, other
individual assets
1
Mandatory, contributory and publicly
managed system
0
Non-contributory,
publicly financed and
managed system
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MPF is a long-term investment, its return is characterized by the compounding effect
I.
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Objectives of the MPF System
• Employment-based system set up to assist working people to save for retirement
• It takes 40 years for a retirement savings system to mature
• MPF System in operation for only 15 years, still in the development stage
• After 40 years, will start to see comprehensively the benefits that such a system can produce
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MPF’s compounding effect
• With a contribution of $1,500 each month, the savings will be:
Assumed Rate of Annual Return
20 years 30 years 40 years
2% $442,000 $739,000 $1,102,000
3% $492,000 $874,000 $1,389,000
Total Contribution
$360,000 $540,000 $720,000
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Cont’d MPF’s compounding effect
360,000
540,000
720,000
442,000
739,000
1,102,000
492,000
874,000
1,389,000
0
200,000
400,000
600,000
800,000
1,000,000
1,200,000
1,400,000
1,600,000
0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39
($)
Contributions Made
Contributions + 2% Return per Year
Contributions + 3% Return per Year
40
Investment Horizon (Number of Years)
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II.
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MPF invested in financial instruments in the market investment performance affected by the cycles of the financial market
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MPF performance affected by the market
• The MPF is invested in financial instruments in the market
• Investment performance is inevitably affected by the cycles of the financial market
• Financial market can be very volatile at times
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Dollar cost averaging
$10
$8
$5
$4
$6
$5
Jan Feb Mar Apr May Jun
Average price:$5.8 Fund prices
Fund units
100 units
125 units
200 units
250 units
166 units
200 units
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III. Scheme members should not try to time the market
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Risk of “buying high and selling low”
• Anticipating market rises and falls is impossible
• If you switch funds simply based on short-term market performance, may result in “buying high and selling low”
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IV.
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Scheme members should look at the System’s return with care
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Look at System’s return with care
• System’s return≠ Individual member’s return
• System’s return reflects:
collective investment choices of all members
the results of their investments across many different asset classes and regions
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MPF and Tracker Fund
Tracker Fund MPF System (as at 30 September 2015)
Asset Class
Equities ─ 100%
Equities ─ 65%
Debt Securities ─ 19%
Deposits & Cash ─ 16%
Geographical Region
Hong Kong ─ 100%
Hong Kong ─ 62%
North America ─ 14%
Europe ─ 11%
Asia ─ 8%
Japan ─ 5%
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V.
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Different scheme members have different investment portfolios; when comparing fund performance, compare like with like
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Comparing like with like
• Different scheme members have different investment portfolios
• They should compare their portfolios’ performance with that of the same type of product
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VI.
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Different types of funds have different returns; saving outcome hinges on members’ investment decisions
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Saving outcome hinges on various factors
• Different types of funds different returns
• Not all scheme members have the same return, depending on: their choice of fund the timing of their participation the performance of the markets the funds invest in
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Fund Type
Timing of participation
Market performance
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Fund performance in line with those of the markets they invest in
Stock Markets
Equity
Funds
HKD Savings Rate
MPF Conservative
Funds
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VII. MPF has added value to members’ retirement savings
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100
200
300
400
500
600
700
Dec 2000 Dec 2001 Dec 2002 Dec 2003 Dec 2004 Dec 2005 Dec 2006 Dec 2007 Dec 2008 Dec 2009 Dec 2010 Dec 2011 Dec 2012 Dec 2013 Dec 2014
HK
$ b
illio
n
Accrued Benefits Total Net Contributions Received
MPF accrued benefits and total net contributions received (Dec 2000 - Nov 2011)
$590 billion (Investment returns: $114 billion)
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Nov 2015
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MPF System’s return
3.1%
1.8%
0.0%
0.5%
1.0%
1.5%
2.0%
2.5%
3.0%
3.5%
15-year annualized rate of return of the MPF System
Average inflation rate over the same period
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VIII.
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A high proportion of MPF assets are invested in equities, the performance of the stock markets has a great impact on the System’s performance
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MPF: >60% invested in equities
Other equities 27%
Debt Securities
19%
Deposits & Cash 16%
Hong Kong equities
38%
The MPF System (September 2015)
Equities 40%
Others60%
Private pensions in OECD countries (2012)
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-30.0%
-20.0%
-10.0%
0.0%
10.0%
20.0%
30.0%
40.0%
-80000
-60000
-40000
-20000
0
20000
40000
60000
80000
12
.20
00
-3.2
00
2
4.2
00
2-3
.20
03
4.2
00
3-3
.20
04
4.2
00
4-3
.20
05
4.2
00
5-3
.20
06
4.2
00
6-3
.20
07
4.2
00
7-3
.20
08
4.2
00
8-3
.20
09
4.2
00
9-3
.20
10
4.2
01
0-3
.20
11
4.2
01
1-3
.20
12
4.2
01
2-3
.20
13
4.2
01
3-3
.20
14
4.2
01
4-3
.20
15
4.2
01
5-1
1.2
01
5
Net Investment Return Annualized Internal Rate of Return
80
60
40
20
-20
-40
-60
-80
Yearly performance of MPF H
K$
bill
ion
Highest:30.1%
SARS
25
Financial Tsunami Lowest: -25.9%
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Annualized Internal Rate of Return
Period
($million)
Annualized Internal
Rate of Return
Net Asset Values Total Net
Contributions
during the Period
Net Investment
Return during the
Period
Period-
Beginning Period-End
(a) (b) (c) (b)–(a)–(c)
1.12.2000 – 31.3.2002 - 42,125 43,878 - 1,753 -4.9%
1.4.2002 – 31.3.2003 42,125 59,305 23,016 - 5,837 -10.7%
1.4.2003 – 31.3.2004 59,305 97,041 22,133 15,604 22.0%
1.4.2004 – 31.3.2005 97,041 124,316 22,205 5,070 4.7%
1.4.2005 – 31.3.2006 124,316 164,613 23,435 16,862 12.3%
1.4.2006 – 31.3.2007 164,613 211,199 24,684 21,901 12.4%
1.4.2007 – 31.3.2008 211,199 248,247 26,844 10,205 4.5%
1.4.2008 – 31.3.2009 248,247 217,741 38,503iv - 69,010 -25.9%
1.4.2009 – 31.3.2010 217,741 317,310 29,484 iv 70,086 30.1%
1.4.2010 – 31.3.2011 317,310 378,280 31,864 iv 29,106 8.7%
1.4.2011 – 31.3.2012 378,280 390,744 34,687 -22,224 -5.6%
1.4.2012 – 31.3.2013 390,744 455,331 38,321 26,267 6.4%
1.4.2013 – 31.3.2014 455,331 516,192 40,898 19,963 4.2%
1.4.2014 – 31.3.2015 516,192 594,847 44,126 34,529 6.4%
1.4.2015 – 30.11.2015 594,847 589,546 31,118 -36,420 -5.9%v
v
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IX. Rates of return of different MPF funds differ
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Fund Type
1 Dec 2000 – 30 Nov 2015
Annualized Return Cumulative Return
Equity Funds 4.1% 83.0%
Mixed Asset Funds 3.9% 77.1%
Bond Funds 2.8% 52.2%
Guaranteed Funds 1.3% 20.6%
MPF Conservative Funds
0.8% 12.9%
Money Market Funds 0.6% 8.8%
Returns of different types of funds
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15-year annualized return of MPF funds by fund type
4.10% 3.90%
2.80%
1.30%
0.80% 0.60%
0.00%
0.50%
1.00%
1.50%
2.00%
2.50%
3.00%
3.50%
4.00%
4.50%
Equity Funds Mixed Assets Funds
Bond Funds Guaranteed Funds
MPF Conservative
Funds
Money Market Funds
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83.00% 77.10%
52.20%
20.60%
12.90% 8.80%
0.00%
10.00%
20.00%
30.00%
40.00%
50.00%
60.00%
70.00%
80.00%
90.00%
Equity Funds Mixed Assets Funds
Bond Funds Guaranteed Funds
MPF Conservative
Funds
Money Market Funds
30
15-year cumulative return of MPF funds by fund type
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X. Return figures vary even for the same type of funds
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Performance depends on strategy and markets invest in
• Even for the same type of funds, the performance can vary significantly, depending on:
their investment strategy
the markets they invest in
• Example:
Fund Type 15-year Annualized Return
Asia Equity Funds 6.1%
Europe Equity Funds 0.9%
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XI.
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Funds with higher expected returns come with higher potential risks
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Highest and lowest returns (Dec 2000 - Nov 2015)
Highest and Lowest Monthly Returns of MPF Funds (1 Dec 2000 - 30 Nov 2015)
Fund Type Highest Lowest
Equity Funds 15.39% -20.63%
Mixed Asset Funds 9.10% -13.70%
Bond Funds 4.31% -2.76%
Guaranteed Funds 1.58% -2.24%
MPF Conservative Funds
0.48% -0.05%
Money Market Funds 0.96% -0.93%
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Cont’d
Highest and lowest returns (Dec 2000 - Nov 2015)
5.42%3.47%
1.15% 0.62% 0.19% 0.10%
15.39%
9.10%
4.31%
1.58%0.96% 0.48%
-20.63%
-13.70%
-2.76% -2.24% -0.93%-0.05%
-25%
-20%
-15%
-10%
-5%
0%
5%
10%
15%
20%
Equity Fund Mixed Assets Fund Bond Fund Guaranteed Fund Money Market Fund
& Others
MPF Conservative
Fund
Mo
nth
ly R
etu
rn
Standard deviation of monthly returns Highest monthly return Lowest monthly return
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XII. Diversified portfolios help reduce investment risk
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Diversification
• Diversification across regions or asset classes may lower investment risk
• Volatility: Global equity funds < Single market equity funds
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6.00% 5.72% 5.20%4.39% 4.41%
17.82%14.63% 13.41%
10.94% 10.06%
-21.48% -20.23% -20.71%-17.87% -18.24%
-25%
-20%
-15%
-10%
-5%
0%
5%
10%
15%
20%
Hong Kong Equity Funds Asia Equity Funds Europe Equity Funds North America Equity
Funds
Global Equity Funds
Mo
nth
ly R
etu
rn
Standard deviation of monthly returns Highest monthly return Lowest monthly return
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XIII. Scheme members should review their MPF investments regularly
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Review MPF regularly
• Review MPF portfolio regularly
• Take into account investment goals and risk-tolerance level and consider adjusting asset allocation approach
• Adjust the risk return tradeoff if appropriate
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XIV
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Past performance not indicative of future performance
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XV. Default Investment Strategy to be launched at year end
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Default Investment Strategy (DIS)
• Expected to be launched at the end of 2016
• Though its return not guaranteed, DIS is a simplified investment option and is consistent with the overall objectives of retirement savings
• Key features: Globally diversified investment strategy
Automatic de-risking with age increase
Statutory fee control (Fund’s management fee≤0.75% of fund’s net asset value)
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Conclusion
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• System level:
The MPF is a long-term investment, its return is characterized by the
compounding effect
MPF funds invest in financial instruments in the market, and a high
proportion of the MPF assets are invested in equities, which means the
performance of the equity market has a great impact on the System’s
performance
The System’s return does not represent what individual scheme members
will get
The MPF System as a whole has added value to scheme members’
retirement savings
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• Individual level:
Each scheme member has a different investment portfolio,
and his savings outcome hinges on his investment
decisions
Different funds have different returns, so comparison
should be made with the same type of funds
Even funds of the same type have different returns
Past performance is not indicative of future performance
Cont’d Conclusion
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Tips for managing MPF
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3
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Cont’d
4 5
6
Tips for managing MPF
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Tools for managing MPF
• The MPFA website has: Various platforms providing information:
Fee Comparative Platform
Low Fee Fund List
Trustee Service Comparative Platform
Detailed information on MPF investment
Tools to help scheme members calculate their retirement needs
• Newly launched retirement planning mobile application
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Q&A
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