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Article | MPFexpress

Refining MPF benchmarks - a more valid measure of your MPF's performance

By Elaine Hwang and William Chow | June 28, 2023

Understand the recent MPF benchmark refinement, and how it can help assess MPF performance more accurately. This article in English and Chinese is available for download.

Members evaluate MPF fund performance in different ways. Some compare against Hong Kong or US stock market performance, whilst others take a simpler approach and see whether a positive or negative return has been achieved. However, a more legitimate method to evaluate fund performance and determine if the manager has outperformed or underperformed is to compare against asset class benchmark performance.

Losses are inevitable during market turndowns

Investment managers must invest in permissible investments based on the investment objectives stated in the MPF Scheme Brochure. If the market value of a certain asset class falls, even the best investment managers cannot avoid suffering losses in their investment portfolios. For example, in Hong Kong, the Hang Seng Index slumped by more than 15% in 2022, and none of the Hong Kong equity funds in the MPF universe were able to successfully “dodge the bullet” and achieve a positive return.

The investment manager is the key to whether funds outperform

The investment industry usually evaluates investment managers based on their ability to generate excess returns or “Alpha”. For example, if a fund's return in 2021 is 10%, while its asset class benchmark return in that year is 8%, the fund's performance is better than the benchmark return by 2%. The 2% outperformance is the “Alpha”. Positive Alpha means that the fund has outperformed the market, while negative Alpha means that the fund has underperformed the market.

Outstanding investment managers can make informed investment decisions and astutely select stocks to accomplish better returns on their investment portfolios. Benchmark returns serve as helpful market indicators and are crucial for assessing fund performance. If over time the composition of a benchmark is no longer representative of the underlying assets and does not fully match the asset's investment allocation, it is necessary to refine the benchmark to more accurately evaluate and measure fund performance.

Refining benchmarks by including China A-shares

Since the inception of the MPF system in Hong Kong more than two decades ago, WTW has worked to maintain a representative set of MPF industry benchmarks for investors to measure and compare funds under the same category. In 2021, WTW and the Hong Kong Investment Funds Association (HKIFA) conducted a review of the MPF benchmark indices. After communicating with industry stakeholders, it was decided to refine the benchmark indices for mixed-asset and global bond fund categories to better match changes in their underlying assets.

In view of the MPF Authority adding Shanghai and Shenzhen Stock Exchanges to its list of approved stock exchanges, it was decided to adjust the mixed-asset fund benchmark index to allow for the removal of the upper allocation limit to Chinese A-shares. The adjustment to the benchmark index will be carried out in four tranches from July 2023 to April 2024.

In addition, to better account for certain regulatory investment guidelines faced by MPF managers, adjustments will also be made from 1 July 2023, to the reference indices for both global bond funds and the global bond component of mixed asset funds.

It is believed that these and other refinements will help to maintain benchmark relevance to enable investors to more accurately assess and compare fund managers’ performance.


Senior Director & Business Development Lead, Greater China

Head of Retirement, Hong Kong & Macau

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