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November 2019

Opt for the Default Investment Strategy (DIS) to diversify investment risk

In view of the recent market uncertainty because of Brexit stalemate, the lack of consensus of the US–Sino trade negotiations, and the intensifying downward pressure on the Hong Kong economy, risk-aversive employees may want to consider adjusting their MPF portfolio.
There are different types of MPF funds available in the market for scheme members to choose from, according to their risk tolerance level. Scheme members who are unfamiliar with investing or have no time to manage their MPF should consider the Default Investment Strategy (DIS).
Comprising two mixed assets funds: the Core Accumulation Fund (CAF) and the Age 65 Plus Fund (A65F), the DIS adopts a diversified investment approach. In addition to having fee caps, the DIS invests in global equities and bond markets to diversify the investment risk instead of overly relying on a single market or asset class. The “automatic de-risking” feature of the DIS automatically adjusts the allocation between bonds and equities as scheme members age, reducing their exposure to investment risk as they approach retirement age.
Since its inception in 2017, the performance of DIS has been satisfactory. As at the end of September 2019, the CAF and A65F under the DIS had a return of 3.4% and 7.7%, respectively, in the past year, outperforming the corresponding mixed assets funds. According to MPFA figures, as at the end of June 2019, there were about 2 million MPF accounts (about 20% of the total number of MPF accounts) invested in the DIS or funds under the DIS, with a total asset value of close to $40 billion; 60% of the accounts were actively invested. On average, one out of four newly open MPF accounts invested in the DIS.
Since the MPF is a long-term investment for retirement, spanning 30 to 40 years, it is inevitable that there will be many economic cycles over such a long period. Scheme members should therefore not be overly concerned about short-term market fluctuations and should not try to time the market.

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