In the previous post, I have shared with you how to scrape MPF performance data in AAStocks. I have also raised some questions on the claims from MPF agents that their fund managers can beat the market: Is it true? Am I better off by investing in low-fee and passive funds?

In the post, I will try to answer that by comparing the risk-adjusted return on 2 market indexes, SPY and HSI using Sharpe Ratio using data from 31/01/2019 – 31/01/2020 since AAStocks MPF data is up to 31/01/2020.

Sharpe Ratio is calculated as \frac{Stock Return - Risk-Free Rate}{Standard Deviation of Return}. Risk-Free Rate is set as 2. It does not matter that much on what is the correct risk-free rate since we use the same rate for all funds. The reason to set it as 2 is just to punish the bond funds which may have unusually high Sharpe Ratio if we do not adjust it for the risk-free rate. (For example, 2% return but the price is very stable)

  • 31/01/2019 – 31/01/2020 pricing data is downloaded.
  • Then daily return is calculated based on adj. close price.
  • Calculate the standard deviation of daily return.
  • Multiply it by the square root of 252 to get the yearly standard deviation of return.
  • To calculate the year return, just calculate the percentage difference between 31/01/2020 and 31/01/2019.

Using Yahoo Finance Data, SPY Sharpe Ratio is 1.85

Std of ReturnStd of Return YearYearly ReturnSharpe Ratio
0.0073815276910.11717811940.23693153851.851297321

This is the Sharpe Ratio of HSI: -0.46

Std of ReturnStd of Return YearYearly ReturnSharpe Ratio
0.010153622590.1611837617-0.05344337156-0.4556499413

Observations

  • Only 2 out of 503 MPFs can beat U.S. Index in the same period.
  • A few MPFs can beat HSI in the same period. While HSI is loss-making, those MPFs show a decimal point return. The illusion of beating HSI is probably due to time delay in the valuation of MPFs.
  • Bonds perform better (risk-adjusted) when the market is down.
  • You are better off by investing in low fee, index-tracking funds.
  • Allocate more percentage of bond funds against equity funds if you are pessimistic on the market and vise versa.

If you are interested in data and the reasonings behind, please read the followings:

Data

Can MPF beat SPY risk-adjusted return? Let’s look at the top 20 MPF sorted by Sharpe Ratio.

provider Constitutent Fund Type Price 1 year return 6 month return 3 month return 1 month return year to date return risk sharp ratio
193 HSBC Mandatory Provident Fund – SuperTrust Plus Age 65 Plus Fund Mixed Assets 12.6702020/01/31 8.57 3.34 1.36 1.12 1.12 3.15 2.085714
179 Hang Seng Mandatory Provident Fund – SuperTrus… Age 65 Plus Fund Mixed Assets 12.6702020/01/31 8.57 3.34 1.36 1.12 1.12 3.15 2.085714
239 Manulife Global Select (MPF) Scheme Manulife MPF European Equity Fund Equity 11.9522020/01/31 21.17 8.74 4.83 -1.99 -1.99 11.84 1.619088
359 SHKP MPF Employer Sponsored Scheme Manulife Career Average Guaranteed Fund – SHKP Guaranteed 13.3742020/01/31 6.27 1.90 0.80 1.38 1.38 2.77 1.541516
267 MASS Mandatory Provident Fund Scheme US Equity Fund Equity 25.4332020/01/31 23.08 7.25 9.57 3.77 3.77 13.76 1.531977
146 Fidelity Retirement Master Trust Global Equity Fund Equity 29.2202020/01/31 17.52 7.62 4.66 -0.88 -0.88 10.64 1.458647
114 BOC-Prudential Easy-Choice Mandatory Provident… BOC-Prudential North America Index Tracking Fund Equity 22.0512020/01/31 18.85 6.92 6.05 -0.19 -0.19 11.87 1.419545
203 Sun Life MPF Basic Scheme Sun Life MPF Basic Scheme International Equity… Equity 23.0402020/01/31 17.01 7.41 4.58 -0.86 -0.86 10.61 1.414703
210 Sun Life MPF Comprehensive Scheme Sun Life MPF Comprehensive Scheme Internationa… Equity 21.4102020/01/31 16.93 7.37 4.59 -0.83 -0.83 10.62 1.405838
175 Hang Seng Mandatory Provident Fund – SuperTrus… North American Equity Fund Equity 18.5202020/01/31 18.19 7.42 5.83 -0.05 -0.05 11.95 1.354812
189 HSBC Mandatory Provident Fund – SuperTrust Plus North American Equity Fund Equity 18.5202020/01/31 18.19 7.42 5.83 -0.05 -0.05 11.95 1.354812
88 BEA (MPF) Master Trust Scheme BEA (MPF) North American Equity Fund Equity 21.4662020/01/31 17.83 7.53 5.43 -0.33 -0.33 11.70 1.352991
394 Principal MPF – Smart Plan Principal Dynamic Global Equity Fund Equity 14.7602020/01/31 16.04 7.03 4.38 -1.01 -1.01 10.66 1.317073
385 Principal MPF – Simple Plan Principal Dynamic Global Equity Fund Equity 13.3802020/01/31 16.05 7.04 4.37 -1.04 -1.04 10.67 1.316776
158 Fidelity Retirement Master Trust Hong Kong Bond Fund Bond 13.2792020/01/31 5.72 2.09 1.14 1.49 1.49 2.83 1.314488
333 Allianz Global Investors MPF Plan Allianz Flexi Balanced Fund – Class T Mixed Assets 24.8602020/01/31 5.83 2.56 0.89 -0.36 -0.36 3.03 1.264026
321 Allianz Global Investors MPF Plan Allianz Oriental Pacific Fund – Class B Mixed Assets 28.6702020/01/31 19.51 13.95 2.28 -4.34 -4.34 14.31 1.223620
320 Allianz Global Investors MPF Plan Allianz Oriental Pacific Fund – Class T Mixed Assets 28.7102020/01/31 19.48 14.02 2.35 -4.30 -4.30 14.31 1.221523
176 Hang Seng Mandatory Provident Fund – SuperTrus… Core Accumulation Fund Mixed Assets 19.6602020/01/31 10.70 5.70 2.45 -0.41 -0.41 7.17 1.213389
190 HSBC Mandatory Provident Fund – SuperTrust Plus Core Accumulation Fund Mixed Assets 19.6602020/01/31 10.70 5.70 2.45 -0.41 -0.41 7.17 1.213389

Answer: Only two out of 503 MPFs beat SPY risk-adjusted return and they are low absolute return funds.

There are of course imperfections in the analysis. For example, only one-year historical data is considered; the U.S. market performs exceptionally well in the year 2019; the Risk-Free rate can be more carefully set, time delay in MPF valuation, etc. But I would argue, this is not too far from the real picture. Maybe there are a few MPF that can beat the market if we adjust for more factors.

How about HSI? We cannot use the above table to compare with HSI since all of the MPFs are international funds or U.S. funds. We need to compare HSI with MPFs operate in the Hong Kong market.

Here are the top 20 MPFs ranked by Sharpe Ratio:

provider Constitutent Fund Type Price 1 year return 6 month return 3 month return 1 month return year to date return risk sharp ratio
158 Fidelity Retirement Master Trust Hong Kong Bond Fund Bond 13.2792020/01/31 5.72 2.09 1.14 1.49 1.49 2.83 1.314488
258 Manulife Global Select (MPF) Scheme Manulife MPF Hong Kong Bond Fund Bond 14.8542020/01/31 5.35 1.73 0.97 1.72 1.72 3.00 1.116667
307 Principal MPF Scheme Series 800 Principal Hong Kong Bond Fund – Class N Bond 11.1712020/01/31 3.80 1.41 0.82 1.52 1.52 2.25 0.800000
70 BCT (MPF) Pro Choice BCT (Pro) Hong Kong Dollar Bond Fund Bond 1.2222020/01/31 4.19 1.83 1.28 1.72 1.72 2.76 0.793478
213 Sun Life MPF Comprehensive Scheme Sun Life MPF Comprehensive Scheme US & Hong Ko… Equity 15.9002020/01/31 9.13 2.51 2.25 -2.99 -2.99 12.14 0.587315
205 Sun Life MPF Basic Scheme Sun Life MPF Basic Scheme US & Hong Kong Equit… Equity 15.8402020/01/31 9.02 2.46 2.19 -3.00 -3.00 12.16 0.577303
371 Sun Life Rainbow MPF Scheme Sun Life MPF Hong Kong Dollar Bond Fund – B Bond 1.4742020/01/31 3.22 1.10 0.68 1.53 1.53 2.56 0.476563
372 Sun Life Rainbow MPF Scheme Sun Life MPF Hong Kong Dollar Bond Fund – A Bond 1.4222020/01/31 3.01 1.00 0.62 1.51 1.51 2.56 0.394531
425 Sun Life MPF Master Trust Schroder MPF Hong Kong Portfolio – Class B Equity 38.3702020/01/31 2.05 -0.90 0.34 -5.49 -5.49 16.10 0.003106
426 Sun Life MPF Master Trust Schroder MPF Hong Kong Portfolio – Ordinary Equity 36.6502020/01/31 1.83 -1.00 0.30 -5.49 -5.49 16.10 -0.010559
145 China Life MPF Master Trust Scheme China Life Hong Kong Equity Fund Equity 16.4282020/01/31 1.47 -1.57 -0.11 -5.93 -5.93 15.30 -0.034641
209 Sun Life MPF Basic Scheme Sun Life MPF Basic Scheme Hong Kong Equity Por… Equity 44.8202020/01/31 1.43 -1.30 0.16 -5.58 -5.58 15.97 -0.035692
219 Sun Life MPF Comprehensive Scheme Sun Life MPF Comprehensive Scheme Hong Kong Eq… Equity 43.4002020/01/31 1.33 -1.34 0.16 -5.57 -5.57 15.94 -0.042033
171 Haitong MPF Retirement Fund Haitong Hong Kong SAR Fund – Class T Equity 63.9602020/01/31 1.23 -3.05 -2.68 -6.45 -6.45 14.57 -0.052848
138 My Choice Mandatory Provident Fund Scheme My Choice Hong Kong Equity Fund Equity 15.9942020/01/31 1.12 -2.94 -0.26 -6.05 -6.05 15.64 -0.056266
172 Haitong MPF Retirement Fund Haitong Hong Kong SAR Fund – Class A Equity 57.6602020/01/31 1.14 -3.09 -2.70 -6.47 -6.47 14.57 -0.059025
163 Fidelity Retirement Master Trust Hong Kong Equity Fund Equity 34.6482020/01/31 0.72 -2.06 -0.35 -6.08 -6.08 15.47 -0.082741
381 Sun Life Rainbow MPF Scheme Sun Life MPF Hong Kong Equity Fund – B Equity 6.3422020/01/31 0.76 -3.54 -2.65 -6.16 -6.16 14.20 -0.087324
56 BCT (MPF) Industry Choice BCT (Industry) Hong Kong Equity Fund Equity 4.1902020/01/31 0.47 -2.20 -0.45 -6.09 -6.09 15.40 -0.099351
382 Sun Life Rainbow MPF Scheme Sun Life MPF Hong Kong Equity Fund – A Equity 6.1172020/01/31 0.56 -3.64 -2.70 -6.18 -6.18 14.20 -0.101408

All of them beat HSI Sharpe Ratio at a first glance since HSI is loss-making while those funds are not. But a few of them included equity in U.S. and Bonds which probably are not suitable for comparison. And the remaining equity funds show a decimal point return. There may be a time delay in the valuation.

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