Topic: How to choose the funds of MPF? Group 2 Topic: How to choose the funds of MPF?

Agenda Objective Introduction to MPF The considerable factors in choosing MPF funds Cases of Fidelity to analyze the risk and return of each fund Conclusion

Objective

Objectives Give a better understanding of the details of MPF Introduce them with different fund of MPF Suggest them to choose the fund base on risks and returns

Introduction to MPF

Introduction to MPF Before MPF 1/3 of the workforce had retirement protection Problem of Aging Population 1995 enacted the Mandatory Provident Fund (MPF) Schemes Ordinance

Introduction to MPF 1 December 2000  fully implemented After the implementation of MPF  90% of the working population enjoys retirement protection Aims: provide retirement protection

Key Features of the System Targets  18 and 65 employed and self- employed  full-time and part-time employee employed for 60 days or more  causal employee (construction and catering industries) employed for less than 60 days

The considerable factors in choosing MPF funds

The considerable factors in choosing MPF funds a) Investment Target b) Risk Tolerance c) Estimation on Retirement Age d) Characteristics of Funds e) Performance of the Funds f) Types of Funds and Portfolio Ratio g) Financial and Family Situation h) Fees and Charges

Investment Target There should have a clear investment target in MPF investment Start from the investment target and think about suitable MPF investment strategy Scheme members can decide using a more radical or conservative target strategy More well-to-do retirement lifehave more savings e.g. voluntary savings Do whatever everybody does to change their investment portfolio

Risk Tolerance Choose different MPF investment portfolios according to different ages and the extent of individual risk tolerance Young scheme membersthe equal cost method of MPF Funds can ride out the short-term ups and downs of the investment and the risk tolerance could be higher e.g. equity fund and balanced fund Retirementinvest on low-risk funds Scheme members should know more about the funds and choose the most suitable investment portfolio

Estimation on retirement age Estimate their retirement ages in order to have proper MPF investment planning Withdraw their accrued benefits in a lump sum at the age of 65 according to the MPF scheme Employees’ retirement lives can last for more than 10-20 yearsprepare enough savings Retire earlierretirement lives would be longer and more savings are needed Retire earlier plan financial strategies as soon as possible and prepare well MPF investments e.g. voluntary contributions or choose proper investment portfolios

Characteristics of Funds Know well the characteristics of each fund in choosing investment portfoliosmake wise investment decisions Capital Preservation Fund, the Guaranteed Fund, the Money Market Fund, the Bond Fund, the Balanced Fund, the Equity Fund and the Index-tracking Fund Each funds have various characteristics, including investment strategies, risks and returns, investment items and elements, and other clauses Characteristics of funds are all listed in fund description documents Seek advice from MPF trustees in case of any queries

Performance of the Funds Review the investment performance of the fund whether need to adjust the investment strategies Publications of the data about the MPF investment return provided by different organization The investment return price of the funds market fluctuations of the market e.g. more units of funds → when the price is low fewer units of funds → when the price is high

Performance of the Funds The characteristic of the investment of the MPF long-term investment short-term fluctuations in the market → a limited effect on the overall return of the MPF investment should not over emphasize the short-term market performance

Types of Funds and Portfolio Ratio Funds portfolio: grasp different investment opportunities spread the investment risk Different MPF funds → different characteristics e.g. Capital Preservation Fund (CPF) invest in bank deposit and short-term bonds have lower risk Equity Fund invest in local or international equity involve high risk

Financial and Family Situation Depends on their financial and family situation e.g. single young member → fewer family burdens → can contribute more MPF (voluntary contribution) at this stage, or invest funds with higher return → can have more retirement protection as age grow → family burden increase → should invest in balanced or conservative fund to prevent high risk

Fees and Charges People concentrate on the past experience & the expected return Fees and charges → also important → affect the return of the MPF investment → should aware the information about the charges Objective standard of the charges that can reflect the cost of investment → charges: main reference for choosing the investment mix and calculating the return

Cases of Fidelity to analyze the risk and return of each fund

Cases of Fidelity to analyze the risk and return of each fund a) Hong Kong Equity Fund b) Global Equity Fund c) Balanced Fund d) Hong Kong Bond Fund e) World Bond Fund f) Capital Preservation Fund (CPF)

Hong Kong Equity Fund Launch date :01/12/2000 Investment Objectives & Strategy: aims to produce returns that are related to those achieved on the major stock market indices of Hong Kong to focus the investments into the equity markets and companies of Hong Kong and Greater China growth-oriented

Hong Kong Equity Fund Fund Asset Allocation as of 30/09/2005 95.6% Hong Kong Equities 4.4% Cash & others Source: Fidelity Investments, NAV to NAV

Analysis of Hong Kong Equity Fund

Hong Kong Equity Fund Analysis of Hong Kong Equity Fund price has risen from $11.641 to $12.540 of 7.72% gains a profit from the launch date 29.7% The risk is high the price has a few declines in 1/11/2005 still have growth trend

Global Equity Fund Launch date : 30/6/2003 Investment Objectives & Strategy: aims to produce returns that are related to those achieved on the major world stock market indices to focus investments into global equity markets growth-oriented

Global Equity Fund Fund Asset Allocation as of 30/09/2005 0.79% Hong Kong Equities 0.08% Cash & Others 10.66% Japan Equities 6.51% other Asia Pacific Equities 50.98% US Equities 30.98% European Equities Source: Fidelity Investments, NAV to NAV

Analysis of Global Equity Fund

Global Equity Fund Analysis of Global Equity Fund the price is $12.781 and grows to $13.788 growth rate is 7.78% gains a profit from the launch date 36.1% the price raise 0.06% more than Hong Kong Equity Fund Global Equity Fund has higher risk the price has a few declines, but the overall price has been increased

Balanced Fund Launch Date: 01/12/2000 Investment Objectives & Strategy: aims to build capital value over the long-term by maintaining a balanced, global portfolio of bond funds and equity funds with a bias towards Hong Kong for investors who are willing to accept medium-term volatility to achieve higher returns

Balanced Fund Fund Asset Allocation as of 30/09/2005 24.53% Hong Kong Equities 11.18% Japan Equities 10.79% other Asia Pacific Equities 13.12% US Equities 15.15% European Equities 20.25% Bonds 4.98% Cash & Others Source: Fidelity Investments, NAV to NAV

Analysis of Balanced Fund

Balanced Fund Analysis of Balanced Fund more diversified including the world's stock and bond markets Price: a bit fluctuated moved within $11.525 and $12.401 (range: $0.876) Since stock price is so fluctuated, the higher the proportion invested in stock, the higher the risk about 75% of asset is allocated to the equities need to bare a higher risk but may have higher return

Hong Kong Bond Fund Launch Date: 30/06/2003 Investment Objectives & Strategy: aims to produce returns that are related to the major bond market indices to achieve stable returns with a minimum capital risk invests primarily in the bond markets of the world with a focus on HK dollar denominated bonds and issuers. conservative investment

Hong Kong Bond Fund Fund asset allocation as of 30/09/2005 82.89% Hong Kong Bonds 17.11% Cash & Others Source: Fidelity Investments, NAV to NAV

Analysis of Hong Kong Bond Fund

Hong Kong Bond Fund Analysis of Hong Kong Bond Fund Price: lower than $10 & decrease slowly In 2005, decreased every month except May $9.525(01/01/2005) $9.213 (01/12/2005)  the variation is not large moved within $9.15 and $9.55 (range: $0.4 ) growth –oriented funds like Hong Kong Equity Fund($11-$13, range: $2.0) Hong Kong Bond Fund is very conservative and stable

World Bond Fund Launch Date: 30/06/2003 Investment Objectives & Strategy: aims to produce returns that are related to the major bond market indices to achieve stable returns with a minimum capital risk invests primarily in the bond markets of the world to limit the volatility of returns in the short term Conservative investment

World Bond Fund Fund asset allocation as of 30/09/2005 99.94% Global Bonds 0.06% Cash & Others Source: Fidelity Investments, NAV to NAV

Analysis of World Bond Fund

World Bond Fund Analysis of World Bond Fund Price: higher than $10, decrease slowly in 2005, decrease every month except May and September $10.874 (01/01/2005)$10.216 (01/12/2005) the variation is not so large moved within $10.2 and $10.9 (range: $0.7) growth –oriented funds like Hong Kong Equity Fund ($11-$13, range: $2.0) World Bond Fund is very conservative and stable

Capital Preservation Fund (CPF) Launch Date: 01/12/2000 Investment Objectives & Strategy: aims to provide a position return each month equal to or better than the Hong Kong savings account rate invests primarily in Hong Kong Dollar short-term deposits and money market instruments to ensure the minimal risk to the capital conservative investment

Capital Preservation Fund (CPF) Fund asset allocation as of 30/09/2005 88.49% HKD Money Market Instruments 11.51% HKD Fixed Deposits Source: Fidelity Investments, NAV to NAV

Capital Preservation Fund (CPF) Analysis of Capital Preservation Fund

Capital Preservation Fund (CPF) Analysis of Capital Preservation Fund Price: continuous growth beneficial for investors the rate of return in Fidelity is higher than the average bank savings rate in banks  very conservative the risk is relatively low, the return may be stable the investment time is short

Conclusion

MC Questions

MC Questions 1) Which of the following is(are) not the factor(s) a scheme member should consider when choosing MPF funds? a) Investment target and estimation on retirement age b) Risk Tolerance and performance of the funds c) Characteristics of funds and fund managers d) Types of Funds and Portfolio Ratio e) Financial and Family Situation

MC Questions 1) Which of the following is(are) not the factor(s) a scheme member should consider when choosing MPF funds? a) Investment target and estimation on retirement age b) Risk Tolerance and performance of the funds c) Characteristics of funds and fund managers d) Types of Funds and Portfolio Ratio e) Financial and Family Situation

MC Questions 2) What is/are the characteristic(s) of Hong Kong Equity Fund in Fidelity? a) Low risk b) High risk c) Invests primarily in equities with a bias towards Hong Kong and Greater China d) Only b) & c) e) All of the above

MC Questions 2) What is/are the characteristic(s) of Hong Kong Equity Fund in Fidelity? a) Low risk b) High risk c) Invests primarily in equities with a bias towards Hong Kong and Greater China d) Only b) & c) e) All of the above

MC Questions 3) If now, an employee is 21years old and has not married yet, which fund(s) is(are) relatively suitable for him? a) Hong Kong Equity Fund b) Conservative Fund c) Capital Preservation Fund d) Global Equity Fund e) Only a) & d)

MC Questions 3) If now, an employee is 21years old and has not yet married, which fund(s) is(are) the most suitable for him? a) Hong Kong Equity Fund b) Conservative Fund c) Capital Preservation Fund d) Global Equity Fund e) Only a) & d)

Member list: 033089 Ng Yuen Ling, Annie 033090 Ng Yuen Ching, Serena 033107 Chan Hing Chung, Dennis 033108 Wong Wing Yin, Joyce 033113 Ng Man Ching, Irene 033114 Ho Yan Lun, Elaine