Five common MPF account questions under volatile market conditions

Q: Which MPF category performed the best in the 1st Quarter of 2020? Why?

A: Hong Kong Bond category performed the best during the quarter with a positive return* of roughly 4%. Bond prices generally benefit from the fall of interest rates and that contributed greatly to the performance during the quarter. The Hong Kong and United States (US) treasury yields declined by more than 100 bps during the quarter. At the same time, the Hong Kong credit spread widened less compared to the U.S. This created less volatility during the quarter and Hong Kong bonds outperformed as a result.

*Return refers to the peer group median return of the specified MPF category. Source: MorningStar. Data as of 3/31/2020.

Q: Which MPF category performed the worst in the 1st Quarter of 2020? Why?

A: European equity category performed the worst during the quarter with a negative return* of more than 24%. COVID-19 triggered global recession concerns and especially for Europe which had the most confirmed cases globally. While its economy was not in good shape before the crisis, Christine Lagarde, the President of European Central Bank, warned that the Euro-area economy may shrink as much as 15% this year as a result of the pandemic. In terms of investment outlook, we are slightly underweighting Europe in the 2nd quarter.

*Return refers to the peer group median return of the specified MPF category. Source: MorningStar. Data as of 3/31/2020.

Q: My MPF account balance has dropped a lot. What happened and what can I do?

A: Normal market has its ups and downs, you should not switch a fund simply because of short-term price fluctuations, nor try to predict market movements. When choosing an MPF fund, you should not only consider its past performance, but also consider your personal circumstances, such as risk tolerance and life stage. In general, it is good to review your fund choices at least once every six months or once a year, and consider making adjustments if necessary. If you have any doubts on your MPF account, always talk to your Principal professional adviser. 

Q: What are the relatively safe choices within the MPF investment horizon?

A: Money Market Funds, Guarantee Funds, and Bond Funds are generally considered to be a lower-risk investment. However, these MPF Funds cover different features. For example, Money Market Funds invest exclusively in Hong Kong-dollar assets either in short-term bank deposits or short-term bonds. Under some occasions (historically in times of high inflation), the returns on that Fund might not be able to beat inflation and may even be negative. Therefore, you may refer to the fund fact sheet provided by trustees when reviewing your MPF investment portfolio.

Q: Do all the guarantee funds guarantee capital?

A: The majority of Guarantee Funds in the MPF market are conditional guarantees, which require fulfillment of a set of conditions. It is important to pay special attention to the guarantee or qualifying conditions, which may include minimum investment period, withdrawal requirement like after holding the fund for a minimum period (e.g. three years or above), making a minimum number of contributions (e.g. 90 contributions), holding the fund for a minimum period after making the last contribution (e.g. five years or more), etc. Failing to meet the guarantee or qualifying conditions of a GF can mean that the guarantee may not apply to you.

Investment involves risks. This information is for general reference only.