The MPF Market Update November 2019

November 2019

During HK’s political turmoil, MPF finds a new home…… Canada.

Manulife and Sun Life dominate the race to win MPF assets but investors risk losing money chasing investment performance.

Canadian insurance companies, Manulife and Sun Life attracted two thirds of all net MPF fund inflows in the 3rd quarter of 2019 and are now the fastest growing MPF players in a polarizing market says a leading independent MPF analyst.

According to Francis Chung, Chairman of MPF Ratings, an independent provider of MPF data, research and insights, the MPF market runs the risk of being divided into “leaders and laggards”.

In releasing MPF Ratings’ September quarter Fund Flow and Market Share (FMS) report Mr Chung noted, “in a quarter where net inflows were swamped by investment losses, only two public MPF Scheme Sponsors, Manulife and Sun Life, grew their assets under administration (AUM)”.

The report highlighted the two Canadian insurers had attracted an almost unprecedented share of MPF fund inflows by winning almost two thirds of the MPF market’s quarterly net fund inflows, approximately double their 32.3% combined market share (Table 1), leading Mr. Chung to point out that, “by attracting net inflows greater than their share of AUM both Manulife and Sun Life are not only increasing their market share, but the magnitude of difference is also polarizing the market between asset winners and laggards.”

Table 1: Industry Share of MPF Assets and Rank of Quarterly Net Inflows by Scheme Sponsor as at 30 September 2019

In addition to analyzing MPF fund flows, MPF Ratings’ FMS also tracks member investment behaviour with the 3rd quarter data suggesting MPF members chase short term performance.

Despite being only the 12th largest investment fund category, non-Asian MPF equity funds attracted over 20% of net inflows, the 2nd highest level of net inflows for the September quarter and a 200% increase from the previous quarter.  Conversely, the largest investment fund category, Hong Kong and China equity funds, a category where performance has suffered under the weight of trade wars, slowing growth and domestic protests recorded the 2nd largest outflows in the corresponding period. “This fund rotation by members is consistent with buying high while selling low. Not a great long term wealth creation strategy where minimizing volatility and diversification critical to successful long term saving and investing,” cautioned Mr. Chung.

Positively, the report did highlight the ongoing success of the compulsory low cost MPF Scheme Default Investment Strategy (DIS) Fund options which were launched just over two and a half years ago. The DIS Core Accumulation Fund, which offers a well balanced portfolio at a total fee cap of 0.95% attracted over 19.5% of all net MPF inflows in the third quarter, placing it 3rd amongst all fund options (Table 2).  Whether by accident or by design, by taking the headache out of choosing funds, DIS has also removed some of the burden and risk MPF members will experience when attempting to chase short term performance by rotating funds.

Table 2: Industry Share of MPF Assets and Rank of Quarterly Net Inflows by Fund Types as at 30 September 2019