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recovery of bond and equity prices in 2004 and 2005 indicates that these were temporary factors and suggests that the average return performance should continue improving in coming years. However, the improvement in performance will only be sustained in the longer-run if MPFs diversify further their portfolios, holding larger amounts of higher yield securities issued in Hungary, the EU, and in other markets.

33. Net rates of return have been generally similar across MPFs, reflecting their fairly similar portfolios. This is due to herding and the fact that some asset management companies manage the assets of more than one MPF. However, there are also some noteworthy differences. As shown in Table 14, the average net rate of return of MPFs sponsored by employers and independent MPFs was slightly higher than the return of MPFs sponsored by financial institutions, and the standard deviations and coefficients of variation were smaller. The larger standard deviation of the returns of MPFs sponsored by financial institutions reveals that some of these MPFs performed significantly below the average during the period.

**Table 14: Annual Net Rate of Return by Type of MPF, 1998 – 2004**

||**1998**|**1999**|**2000**|**2001**|**2002**|**2003**|**2004**|**Av.**|
|---|---|---|---|---|---|---|---|---|
|**Total MPF Market**|||||||||
|Average Rate of Return|15.7|17.1|7.9|8.0|7.4|3.4|16.3|10.8|
|Average Rate of Return (weighted)|13.2|17.4|6.6|6.8|6.7|3.6|17.0|10.2|
|Standard Deviation|3.9|2.6|2.7|2.0|1.9|1.5|1.9|2.4|
|Coefficient of Variation|0.30|0.15|0.42|0.29|0.29|0.41|0.11|0.28|
|Corr. Coeff. (Contribution fee)|-0.13|-0.52|-0.17|-0.21|-0.08|0.37|0.21|-0.08|
|<br>Corr. Coeff. (AM fee)|-0.42|0.00|-0.27|-0.41|-0.51|-0.19|0.05|-0.25|
|**Sponsored by Employers**|||||||||
|Average Rate of Return|16.4|16.3|8.7|9.0|8.0|3.0|16.2|11.1|
|<br>Average Rate of Return (weighted)|17.0|16.2|8.8|9.0|8.0|3.1|16.3|11.2|
|Standard Deviation|2.0|1.7|1.7|1.1|1.8|2.2|2.3|1.8|
|Coefficient of Variation|0.12|0.10|0.19|0.12|0.23|0.71|0.14|0.23|
|Corr. Coeff. (Contribution fee)|-0.31|-0.64|-0.16|-0.29|0.16|-0.03|0.00|-0.18|
|<br>Corr. Coeff. (AM fee)|0.79|0.07|-0.44|-0.56|0.20|0.35|0.65|0.15|
|**Sponsored by Financial Institutions**|||||||||
|Average Rate of Return|14.8|17.5|8.0|7.6|6.8|3.2|16.1|10.6|
|Average Rate of Return (weighted)|12.6|17.4|6.6|6.6|6.6|3.5|17.1|10.0|
|Standard Deviation|5.3|3.4|2.8|2.4|2.0|1.1|2.0|2.7|
|Coefficient of Variation|0.42|0.20|0.42|0.36|0.31|0.32|0.12|0.31|
|Corr. Coeff. (Contribution fee)|-0.36|-0.52|0.04|-0.28|-0.27|0.74|0.47|-0.02|
|Corr. Coeff. (AM fee)|-0.43|-0.09|-0.43|-0.25|-0.52|-0.59|0.15|-0.31|
|**Independent**|||||||||
|Average Rate of Return|16.9|17.4|6.1|7.5|8.3|4.5|16.9|11.1|
|Average Rate of Return (weighted)|17.2|18.0|4.8|7.0|7.4|4.7|16.4|10.8|
|Standard Deviation|1.9|1.0|4.2|1.0|1.7|0.5|0.8|1.6|
|Coefficient of Variation|0.11|0.06|0.86|0.15|0.23|0.10|0.05|0.22|
|Corr. Coeff. (Contribution fee)|-0.33|-0.39|-0.75|-0.71|-0.90|0.92|-0.97|-0.45|
|Corr. Coeff.(AM fee)<br>Source: HFSA raw data|0.77|0.64|0.74|-0.87|-0.72|1.00|-0.97|0.09|

34. The MPFs sponsored by financial institutions charge on average higher asset management fees, as shown in the next section. Moreover, there is a negative correlation between net rates of return and asset management fees, driven precisely by this group of