For peace of mind, try in­dex tracker funds

China Daily (Hong Kong) - - HK | BUSINESS -

Ev­ery in­vestor knows that Hong Kong’s stock mar­ket is heav­ily in­flu­enced by the H shares of the heavy­weight main­land en­ter­prises. These be­he­moths’ for­tunes, in turn, are highly de­pen­dent on gov­ern­ment poli­cies which can change quite fre­quently to cope with var­i­ous eco­nomic and fi­nan­cial con­tin­gen­cies.

Un­der such cir­cum­stances, it’s un­der­stand­ably hard for even pro­fes­sional fund man­agers to beat the in­dex in the longer term. In­deed, many Hong Kong peo­ple have been ask­ing why they should be pay­ing high fees for the ex­perts to man­age their pen­sion funds when they can do bet­ter by just putting their sav­ings in the low-fee in­dex track­ing funds.

One such fund is the Tracker Fund of Hong Kong, cre­ated in 1998 by the gov­ern­ment which bought about HK$100 bil­lion worth of a mix of con­stituent stocks of the bench­mark in­dex, to counter the dis­rup­tive short selling by in­ter­na­tional hedge funds seek­ing to take ad­van­tage of the un­cer­tain­ties aris­ing from the Asian fi­nan­cial cri­sis.

There’s noth­ing sexy about these in­dex track­ing funds. But, if you think you can do bet­ter by pick­ing your fa­vorite stocks, take the ad­vice of War­ren Buf­fett, the world’s r i c h e s t i n v e s t o r. B u ff e tt ’s in­struc­tion to his wife on how to in­vest af­ter his death is to put al­most ev­ery­thing into “a very low-cost S&P 500 In­dex fund”.

Ac­cord­ing to a BBC re­port, more than 40 per­cent of US stock funds are pas­sive track­ers. That per­cent­age is con­sid­er­ably lower in Hong Kong. Be­fore Tracker Fund of Hong Kong was cre­ated, many in­vestors who were not ac­tive traders would sim­ply buy a few blue-chip stocks in the bank­ing, util­i­ties and prop­erty sec­tors for div­i­dend in­come as much as for longterm price ap­pre­ci­a­tion.

That strat­egy worked well be­fore the mar­ket was hit by the great global re­ces­sion. Since then, ab­nor­mally low in­ter­est rates and the un­rav­el­ing of the bank­ing sys­tems in some de­vel­oped economies have rat­tled in­vest­ment mar­kets around the world. That has greatly com­pli­cated the choice for many long-term in­vestors look­ing for a safe haven to park their sav­ings.

For those who want some peace of mind more than any­thing else, the in­dex tracker fund is re­ally a vi­able op­tion they should be con­sid­er­ing.


Low-fee in­dex track­ing funds might be a wiser choice for in­vestors who’re not will­ing to put up with pro­fes­sional fund man­agers.

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