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Impact Investing

IPE special report May 2018

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Adding higher-yielding assets to portfolios

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The trick is to find a strategy that offers exposure to such assets under Hong Kong’s restrictive Mandatory Provident Fund retirement scheme. Raymond Chan, Allianz’ chief investment officer for Asia Pacific said: “We still believe equity is the most attractive asset class in the world.”

 The MSCI World Index fell 7.7% in 2011, creating good buying opportunities, particularly when looking at Asian shares as well as industrials and materials companies, he said.  Chan is also bullish on commodities due to emerging market demand. On fixed income, he suggested high grade credits over US Treasuries.

That should give food for thought to employees contributing to their MPF retirement scheme, particularly as they will soon have a greater range of choices available to them.

 There have been no real changes to Hong Kong’s Mandatory Provident Fund regime since it was introduced 11 years ago, until now. The Mandatory Provident Fund Authority (MPFA) is expected to introduce the Employee Choice Arrangement (ECA) in November, allowing employees to manage their retirement funds more actively by allowing them to choose their fund provider, rather than have their employer choose it for them. However, Allianz said the MPFA is only expected to extend that flexibility to the employee contributions, while employers will still choose the fund provider for their own contributions.

 Another recent amendment, effective from June 1, is that the maximum level of relevant income for MPF contributions will be raised to HK$25,000 ($3,222) from HK$20,000 per month. The minimum level of relevant income was raised to HK$6,500 from HK$5,000 in 2011.

“With the launch of the MPF ECA expected on 1 November 2012, we encourage every employee in Hong Kong to manage their own MPF investments more actively,” said Elvin Yu, head of institutional business at Allianz.

 However, the choices remain limited, particularly in times like these when financial advisors point towards higher-yielding, riskier investments in order to ensure that returns remain above the high inflation rate.

 “There is limited scope to find yield with all the restrictions regarding high yield, sub-investment grade investments,” Yu acknowledged.

 Yu suggested investors pick funds that offer more exposure to Asian equity and fixed income, where they may also pick up some gains from currency appreciation.

 He did not expect the ECA to put pressure on MPFA to loosen its investment guidelines to allow for higher-yielding and more creative investments. Instead, he predicted the MPFA will first wait to see how investors react to having a choice in providers before making further changes.

“We do not expect to see a wide opening of the product range to include sector specific funds or emerging market funds,” Yu said, adding that he feels there are currently “sufficient fund choices” for long-term investment planning. He suggested that investors frustrated by the lack of variety in MPF offerings should look at funds outside the scheme.

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