Jake'S View | Guess again if you think the MPF has outperformed inflation

Hong Kong’s Mandatory Provident Fund reported a 4.8 per cent annualised net return in the 17 years since its launch, beating inflation of 1.8 per cent over the same period, the city’s pension regulator said yesterday.

SCMP, February 9

There are some things that these MPF people forgot to mention in their little outbreak of chest-beating. We shall start with one of the more obvious ones.

The first chart reminds you (some people need reminding) that from mid-1998 we went through a seven-year period of deflation. The MPF opened for business in December 2000, during this deflation episode. Only seven years later did the consumer price index again rise to where it had stood at that time.

Thus do not be impressed by this boast that the MPF’s annualised net return since its launch has been so much in excess of inflation. The difference is only evidence of an anomaly in the inflation figures.

But I am not sure anyway quite what a 4.8 per cent annualised return means in the context of the MPF. For instance, are the initial performance figures, when the total net asset value was less than a fiftieth of the present value, given the same weight as the performance today? Have adjustments been made for the profit element of the benefits paid over the period?

There are a thousand ways of playing jiggery with fund performance numbers. That’s how your personal investment adviser (if you’re fool enough to rely on one) can always supply a glowing report on himself.