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2017 Best MPF Scheme Finalist Q&A - Hang Seng Mandatory Provident Fund - ValueChoice

To help our readers better observe what makes a winner fund, we asked the winning teams to shed lights on some major changes they made to the portfolio over the course of 2016, how various risks affect their investment decisions and their investment team structure, etc. 

Nelly Poon 27/03/17

Best MPF Scheme finalist -- Hang Seng Mandatory Provident Fund - ValueChoice

M: Morningstar H: Hang Seng MPF

M: Could you highlight any major changes made to the scheme over the course of 2016? In particular, please outline the investment options that were added to the scheme and/or any changes that helped facilitate a better client experience for scheme members.

H: Hang Seng MPF restructured its MPF schemes in 2016 by merging its four existing MPF schemes into two schemes. As a result of the merger, we expanded the choice of funds under the Hang Seng Mandatory Provident Fund – ValueChoice (ValueChoice) by adding the Global Equity Fund, which increased the number of funds offered from nine to 10. The annual management fees for the ValueChoice scheme remained unchanged at 0.79% of the net asset value (NAV). The number of funds under Hang Seng Mandatory Provident Fund – SuperTrust Plus (SuperTrust Plus) remains at 14, providing a comprehensive range of funds for our members.

Apart from a wider variety of choice of constituent funds offered to clients of specific Hang Seng MPF schemes, the consolidation has enhanced the client experience by providing a clear and simple choice between two comprehensive Hang Seng MPF schemes. The reorganisation also supports improved economies of scale as the overheads of the schemes are now spread over a larger asset base. This will help to lower the fund expense ratio (FER) in the long term.

We have also been busy preparing for the launch of Default Investment Strategy (DIS). Instead of launching new DIS funds, we are converting three of our constituent funds in the two MPF schemes into DIS funds. This will help to provide a larger asset base at the launch of DIS on 1 April 2017, and to lower the FER of our DIS funds so that members can enjoy the benefits of the DIS right after its launch. In fact, we lowered the management fees for the three funds to 0.75% p.a. of NAV on 1 October 2016 so that members can be benefited even earlier.

M: What are some of your more popular MPFs? Why do you think that is?

H: Constituent funds under Hong Kong equity sector, such as the Hang Seng Index Tracking Fund and the Hong Kong and Chinese Equity Fund and mixed asset funds, such as the Balanced Fund and Growth Fund are the more popular Hang Seng MPF funds and account for the highest portions of our MPF portfolio in terms of fund size under management. (Source: Hang Seng MPF Fund Fact Sheet as at 4th Quarter 2016). For Hong Kong equities, this may reflect a home-bias preference of MPF investors. Mixed asset funds are popular because they provide diversification benefits for investors.

These funds have consistently performed well and that also contributes to their continuing popularity.

M:  Can you comment on how the scheme’s underlying investment options are put together? How do you determine the appropriate product types (e.g. equities, fixed income, target-date) for the scheme and subsequently, the most suitable investment strategy/mandate for each type of product(s)?

H: Hang Seng MPF schemes offer a range of diversified and comprehensive constituent funds that enable our clients to tailor their MPF portfolios to meet their specific retirement needs. The SuperTrust Plus offers greater flexibility in investment choice, ranging from conservative to aggressive investments, including equity funds that focus on specific market(s). Compared to the SuperTrust Plus, the ValueChoice provides a greater choice of constituent funds with underlying investments focused on index-tracking collective investment schemes (ITCIS).

M: How do your fees compare with your peers? Are there any initiatives to reduce fees?

H: We have proactively lowered our management fees five times since the launch of the MPF in Hong Kong. The latest of these was on 1 October 2016, when we substantially lowered the management fees of three constituent funds to 0.75% p.a. of NAV for contribution accounts and personal accounts. The reduction in fees was as much as 55% compared with the previous fee level.

Currently, of the 24 Hang Seng MPF constituent funds of, 15 (or over 60%) are regarded as ‘Low Fee Funds’ under the definition set out by the Mandatory Provident Fund Schemes Authority, meaning we offer one of the widest choices of Low Fee Funds in the MPF market.

As at 28 February 2017, the average scheme FER of the SuperTrust Plus and the ValueChoice were below the market average of 1.57%† at 1.34%† and 0.83%† of NAV respectively.

*Source: Fee Comparative Platform of Mandatory Provident Fund Schemes Authority (last updated on 28 February 2017)

M: With the Default Investment Strategy (DIS) launching on 1 April 2017, can you briefly describe the DIS in your scheme? What advice do you have for scheme members considering investing in the DIS?

H:As mentioned, Hang Seng MPF will change the investment objectives and asset allocations of three existing constituent funds to convert them to the corresponding DIS funds. We will also set up one additional DIS constituent fund to complete the suite.  

This conversion approach means, there will already be a sizable pool of funds under management (FUM) when DIS is launched. This will help facilitate a lower FER, to the benefit of our members, by simplifying investment choices under the Hang Seng MPF schemes and enhancing operational efficiency. In addition, the arrangement will help streamline our offerings and maintain a cleaner product shelf. 

In terms of investment styles, we will adopt a low-active-risk approach and will look to add value in both asset allocation (within prescribed bands) and stock selection from our global equities and global bond portfolios.

When members are considering whether to invest in the DIS, they should consider the associated risks. They should consider their own risk profile, and whether the investment objectives and features of the DIS suit their risk appetite and investment goals. 

The automatic de-risking feature of the DIS may also be attractive to some members, especially those who have no time or who do not know how to actively manage their MPF investments.

If members would like to know more about the DIS and how they will be affected by it, they should consult their MPF trustee to obtain the relevant details.

 

View all Morningstar Hong Kong Fund Awards 2017 articles here

作者簡介 Nelly Poon

Nelly Poon  

Nelly Poon is an editor with Morningstar.