For peace of mind, try index tracker funds

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 richest investor. Buffett'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 long-term 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.

(HK Edition 07/21/2017 page9)