Progress with some apprehension — Endowus cash management solutions (January 2024)

For the first time in 6 months, rates were not described as “unacceptably high” in the most recent minutes, suggesting a diminishing risk of renewed inflation. While progress in fighting inflation was acknowledged during the latest Fed meeting minutes, apprehension seemed to take a central theme on the outlook this year. 

Although there have been no signals to when cuts will begin, industry watchers predict cuts to happen as soon as March. Improvements in employment rates will further bolster the economy on top of controlled inflation, with an update due later this week. 

The tension between market uncertainty and inflationary risk amid other factors has not eased into the new year. While most banks continue to lower projected rates for their fixed deposit products across SGD and USD for longer tenures, investors should be mindful of locking in their cash to remain nimble for opportunities. 

The S&P 500 closed off at a high of 24% in 2023, while fixed deposit rates for SGD hovered around 3% p.a. While one should not be trying to time the markets, the flexibility and liquidity in cash management solutions can help you maximise your cash assets as opportunities arise.

On Endowus, you can select from a list of cash management or liquidity funds available on our Fund Smart platform, or consider our Cash Smart portfolios that allow you to earn higher yields with no penalties on redemptions. 

More importantly, enjoy daily liquidity for full flexibility. The funds on the Endowus platform are well diversified and enable you to take advantage of high yields in the current environment, while minimising concentration risks to single issuers.

We have these solutions available in SGD, USD, and other major currencies. With Endowus, you can invest in funds and advised portfolios using Cash, CPF, or Supplementary Retirement Scheme (SRS) savings. Endowus also has corporate cash solutions, which you can find out more about here.

With higher interest rates, net yields as of 31 December 2023 now range from 3.79% to 5.26% p.a. for cash management funds available on the Endowus platform.

Cash management solutions on the Endowus platform

Here are the key money market or liquidity funds available on the Endowus platform:

• Fullerton SGD Cash Fund
• LionGlobal SGD Money Market Fund
• United SGD Money Market Fund
• LionGlobal SGD Enhanced Liquidity Fund (*ultra-short duration)
• Fullerton USD Cash Fund 
• Amundi Cash USD Fund

As with all investments, investors are reminded that putting your money into money market or liquidity funds come with some degree of risk, and that the yield is not guaranteed. If you do not wish to be subject to the risk of capital loss, we recommend you to consider capital-protected vehicles such as bank deposits, or government-backed instruments such as Singapore Savings Bonds (SSBs) and Treasury bills (T-bills). To find out more about each fund’s historical track record, click on the fund names above.

Bond yields vs returns — what’s the difference?

Many of the cash management funds highlighted above invest primarily in fixed-income securities, which include bonds. 

Simply put, fixed-income securities are debt instruments. An investor lends money to the issuer (basically, the borrower), and in return the investor receives coupons — or interest payments — on a regular basis. Entities that issue bonds include governments and corporations.

By investing your money in a fund that includes fixed-income securities, you are essentially lending your money to the issuers that the fund management company has chosen based on its analysis.

Here are quick definitions of yields and returns in this context:

• Yields: These refer to the payouts — that is, the interest payments — generated by a fixed-income security. Yields are based on the total annualised future returns that you would have received by the end of the security’s tenor (i.e. reflecting all the payments you would’ve received by maturity).
• Returns: These are generated by the increase or decrease in the value of a fixed-income security during the lifespan of the security. Returns are based on what you would have already earned up to the present day if you were to sell the security today.

A fundamental difference between yields and returns lies in the timeframe.

To illustrate this, let’s use a simple example of a one-year bond. You invest $1,000, which is the principal amount, in the bond of Company X and the company promises to repay this sum plus 5% interest (yield) at the end of one year. After a year, you would have earned a 5% return in total. 

In other words, as long as (i) you hold your fixed-income security until it matures, and (ii) the borrower does not default on the debt — the yield is very likely to be the total return you will earn. This is why yields are important in assessing the implied future return of cash management funds (and even longer-duration fixed income funds).

This scenario, of the yield equating to the return, changes when you choose to trade the bond. 

Let’s say the same Company X runs into financial difficulties. You’re not willing to stomach the increased risk of the company failing to repay the principal by the maturity date or missing the interest payment. Therefore, you decide to sell your bond investment in the secondary market. There, you are quoted a trading price that will mean you sell the bond at less than the principal of $1,000. If we assume this sum to be $900, that means you incur a loss of $100, or a return of -10%.

In other words:

• You would care about the “return” if you trade the fixed-income security before it matures.
• The value of fixed income securities are subject to various factors, including the financials of the companies, or even the broader market environment. Put simply, this value is what you will get if you choose to sell the security to a third party.
• This value changes on a daily basis, and is reflected as the returns.

Comparing fixed deposits, T-bills, SSBs, and cash management funds

The world of cash management spans a wide variety of yield enhancement products. Investors in Singapore who are looking for a higher interest rate may turn to fixed deposits from Singapore banks, Singapore government Treasury bills (T-bills), Singapore Savings Bonds (SSBs), or unit trusts, for example.

However, it is important for investors to have a clear understanding of the pros and cons of each of these instruments — they often come with trade-offs involving yield, lock-ups, duration, minimum or maximum investment amounts, and transaction fees. 

And if you’re looking to invest your CPF Ordinary Account (OA) savings, bear in mind that not all cash management products are available for OA investments.

The table below shows key details about Singapore fixed deposits, T-bills, SSBs, and cash management unit trusts on the Endowus platform, including the latest available information on their yields (as of the time of writing). For fixed deposits, please note that the range of current yields should be taken as a guide only, given that fixed deposit interest rates in Singapore change frequently. 

‍An overview of key cash management products available in Singapore

The smart and flexible way to earn more on your cash

Looking to build your own investment portfolio? The Fullerton SGD Cash Fund, with a net yield of 3.83% p.a.*, could be a great addition depending on your needs and objectives. You can add it to your portfolio by following these steps. 

If you’re interested in advised portfolios, Cash Smart Secure is another good option, with projected yields ranging between 3.5% and 3.8% p.a**. Cash Smart Enhanced is available as well for investors who are willing to take more risk relative to the Cash Smart Secure solution. Critically, Endowus offers our cash management solutions at fees of just 0.05% (as of 31 December 2023), making our offerings highly competitive for your low-risk investments. This is on top of our longstanding practice to rebate any trailer fees back to our clients. Learn more about our Cash Smart offerings here.

Make your cash work smarter for you. If you have money set aside for an upcoming expense, earn higher returns on it instead of letting it sit idle in your current or savings account. To get started with Endowus, click here. 

*As of 31 December 2023. Net yield after deducting fund-level fees and Endowus access fee, and adding back rebates. Note: The Endowus Fee is subject to GST from 1 April 2023 onwards. Source: Endowus Research, Fullerton Fund Management.

**As of 31 December 2023. Net yield after deducting fund-level fees and Endowus access fee, and adding back rebates. Note: The Endowus Fee is subject to GST from 1 April 2023 onwards. Source: Endowus Research, Fullerton Fund Management, Lion Global Investors

Read more:

• What should I do with my cash now?
• Should you invest your CPF money in T-bills?
• Seeking higher yields for your corporate cash management needs
• A focus on fixed income — curated bond funds (Fund Digest)

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