At any time in an economic cycle, keeping watch on how retirement portfolios are positioned is good practice. On the back of the relentless swings in asset prices, which investors have endured for so many months, it is vital.

Recent market sentiment, as well as fund flows and performance, can attest to this. Take China and Hong Kong equities, for instance. In April, the Hong Kong and Greater China equity markets were the only asset classes posting positive returns, with the rest being impacted by worries about the uncertain timeline for the US Federal Reserve (Fed) to start cutting rates. Notably, US equity was the worst performing fund category, according to data from Lipper.

Yet over the 12 months to the end of the same month, Japan equity and North American equity were the best and second best performing categories, respectively, for Hong Kong-based Mandatory Provident Fund (MPF) schemes. At the same time, for the first four months of this year, the best performing fund was Japan equity, followed by China Equity and US equity.

In line with this, Manulife MPF Japan and North American equity funds have proven to be a solid choice.

For example, at 9.18% return year-to-date its Japan equity fund ranked fifth, the same fund ranked second over a one-year period, with a 26.87% return. Meanwhile, Manulife’s North American equity fund ranked first over a 12-month period to end-April 2024, with a 27.03% return.

The Morningstar table further below is evidence of this robust performance for North American stocks.

In line with these outcomes, Tak Chi Wong, chief executive officer of Manulife Provident Funds Trust Company, pointed to the importance of diversification. “Amid the negative performances of Hong Kong and China equities for most of the past 12 months, coupled with significant compensation from developed market equities, investors should heed the stark reminder of the need to ensure portfolios are well-diversified.”

Standing the test of time

A regular “health check” of individual holdings and overall strategy is especially important for retirement investing.

Perhaps most strikingly, portfolios cannot underestimate the value of diversification. Volatile times require exposure across various economies, businesses, countries and popular investment classes. This approach can help ease investors’ minds by spreading risk, creating more consistency and reducing the potential for underperforming assets to impact portfolios. In turn, the focus becomes about the long term.

A new Manulife initiative – the firm’s first MPF Robo-Advisor – aims to foster proactive portfolio management as a way to put this into habit.

The interactive digital portal aims to educate and encourage regular reviews and management of MPF investments through a collaboration with two innovative WealthTechs Syfe and AutoML Capital.

Collectively, investors have sought after personalised insights and advice to their portfolio, in turn teaching them more about asset allocation which suits their personal needs and risk profiles.

Another important benefit of making careful investment choices is reducing shortfall risk.

This is evident in the process of retirement planning, where investing goes beyond just putting money aside for a future purpose, and instead helps individuals optimally grow their money. Put another way, by not capturing sufficient growth over the longer term, investors expose themselves to shortfalls, explained Tak Chi Wong.

Manulife’s analysis shows that undiversified, conservative assets such as cash or near-cash instruments increase shortfall risk by as much as 84% – and even higher if investing starts later than 25 years old, or if the total contribution rate is less than 10%.

A new reality for retirement investing

Investors in Hong Kong should bear these timeless principles in mind as they review the annual benefit statements of their MPF account.

In parallel, portfolios also need to consider the impact of inflation, in particular the effects of rising inflation on retirement costs. In response, they need to adapt asset allocation to try to ensure the return of their retirement assets is on par with that of the market overall.

For the Manulife Global Select (MPF) Scheme, this is evidenced by overall 2023 fund performance of 5.46% being better than the market average of 3.54%, according to Mercer’s quarterly market share report. Over the past 12 calendar years, the scheme outperformed the market in nine of these years.

“This potentially reflects efforts by Manulife to improve financial education, which fosters informed and prudent investment decisions.” Investors are able to navigate trending investment topics, opportunities and risks to keep their retirement portfolios on track.” This further reflects and reinforces why investors need to pay close attention to their MPF portfolio – an objective which can be achieved through regular account management with a commitment to diversifying,” Tak Chi Wong concluded.

This potentially reflects efforts by Manulife to improve financial education, which fosters informed and prudent investment decisions. “Investors are able to navigate trending investment topics, opportunities and risks to keep their retirement portfolios on track. This further reinforces why investors need to pay close attention to their MPF portfolio – an objective which can be achieved through regular account management with a commitment to diversifying,” Tak Chi Wong concluded.

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