Not all robo-advisors are created the same — Part II

We published an article “Not all robo-advisors are created the same” in March this year to help clients understand the differences in investment philosophy, product offering, and implementation among the different digital wealth platforms that have emerged in Singapore. We have continued to receive a lot of interest from both clients and other interested parties on this comparison to aid people in making an informed decision on picking the right wealth partner. 

Why do we reference third party comparisons for returns?

Knowing that you have invested in a platform with fair, or great returns is important. As a discerning client of robo-advisory platforms, it is also expected that you compare the returns across the different solutions to make the most informed decision.

Figures shown by different platforms, unfortunately, do not make for like-for-like comparisons as these may not account for all layers of costs. This is especially so for robo-advisors that use US-domiciled ETFs. These costs may include:

1. Additional Dividend Withholding Tax chargeable for US ETFs
2. Prices transacted for ETFs
3. FX transaction fees
4. Fee differences among platforms

At Endowus, we are fully accountable for the historical performance that we transparently disclose on our website, and are confident that the historical returns shown are as close to our clients experience. However, the same level of transparency for robo-advisors that use US-ETFs would be difficult to attain. 

This comparison of returns from Seedly — an independent financial comparisons site — is borne from the author of the article who has invested in these platforms, and shows his actual portfolio returns. It therefore takes into account implicit and explicit costs in implementing these portfolios. 

We recognise that investment returns are a very important part of a client’s decision-making process, but would like to re-emphasise that the data here is short, and we believe it is far more important that you understand the drivers and investment strategy behind the returns, so that you can grow your wealth in a way that can withstand the test of time. 

Endowus continues to outperform peers and benchmarks in a tough market

In 2021, the difference in the performance among the three most popular robo-advisors in Singapore was over 20% when comparing the highest risk equities portfolios offered. The latest numbers updated on Seedly as of May 2022 show that on a compounded basis, the total returns since January 2021 is now +10% for Endowus, compared to +2% and -11% for the other two players, which means the difference in returns remains at over 20%. 

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The data series commences from January 2021 because it starts from the creation of the portfolios, which comprises actual returns from a client who has invested on the different platforms — it was not chosen to exclude other periods of performance and was not cherry-picked. While this data series is valuable for transparency, and is now running at a decent length of 17 months, we don’t think short-term outperformance is any guarantee of long-term investment performance. Nevertheless, with a dispersion in performance of over 20% over a short time period, it is worth getting a better understanding of the drivers of this huge performance gap. 

When assessing robo-advisory platforms and their performance, It is important to establish whether they have taken into account the all-in costs of investing, such as bid/ask spreads on ETFs, FX transaction costs, cash drag, potential withholding taxes, exchange and brokerage fees, and other charges that can make a significant difference in actual realised returns. 

Endowus performance figures for our advised portfolios across Core, Satellite and Income are updated on a monthly basis.

Strategic versus tactical, passive versus active 

At Endowus, we believe that the key to long-term investment success is taking an evidence-based approach backed by decades of empirical data and focusing on things we can control, rather than reacting to short-term market trends. That is why we choose to use a Strategic and Passive Asset Allocation (SPAA) approach to portfolio construction and optimisation for our advised portfolios, including the Core-Flagship Portfolios that we offer across the risk spectrum from 100% equities to 100% fixed income, and for cash, CPF, and SRS. 

As a result, the Endowus Core-Flagship 100% Equities Portfolio (shown in the figure above) tracks with a high correlation to the MSCI All Country World Index, the most common global benchmark for equities (as opposed to the MSCI World Index, which is a developed market-only index), demonstrating its resilience against market volatility.

This differentiates us from other platforms and robo-advisors, which attempt to make tactical active asset allocation decisions that try to time the market, and as a result, are overweighting or underweighting specific countries or sectors under different economic conditions. While this may seem like a rational approach, in practice the odds are against such players as they have to repeatedly outguess the market to succeed.

Endowus Core Portfolios exist across the risk spectrum from 100% equities to 100% fixed income, in various styles, but all remain SPAA with similar geographical and asset class breakdowns to stay globally diversified, track global benchmarks, and remain optimised for risk-adjusted returns and low cost. 

Strategic and Passive Asset Allocation (SPAA) does not try to time the market by keeping your exposure to sectors, asset classes, and geographies steady through the cycle so that your portfolio remains at the prescribed level of risk-return to reach your goals. This is critically important as academic studies using decades of empirical data show that up to 90% of historical returns over time are accounted for by asset allocation. Our portfolios can stand the test of time as they rely on proven academic theories, Nobel-prize winning research and empirical evidence.

Making a meaningful difference to the industry and the investment experience through innovative solutions and lowering costs

Especially in times like these when markets are very volatile, how you are advised, and having confidence in your investment plan, is important to your success. It is a good time to reassess your investment plan, what you are paying in total cost, and position yourself with a wealth partner suitable for your future. 

One of the easiest ways to improve returns is to lower cost, and Endowus remains the lowest cost way to systematically invest on autopilot. Left unchecked, a seemingly small cost of an extra 1% per year will compound into hundreds of percent in lost returns in a few decades.

As the leading and largest independent digital wealth platform in Singapore, we pride ourselves on not only lowering cost at every layer possible but also continuing to innovate on solutions, products, and services. In trying to serve our clients better and improve the industry, we:

• introduced 100% cashback on trailer fees among the digital platforms, thereby reducing costs to a fraction of the industry average;
• provided access to previously unavailable institutional share classes of funds for retail investors starting from just $1,000; and
• introduced the first passive index fund into the CPF-Investment Scheme lowering cost for all CPF members. 

We are also excited to share that we have just introduced the new Amundi passive index funds for MSCI World, MSCI Emerging Markets, US Markets and Global Aggregate Fixed Income index funds at the lowest cost in Singapore. These index funds are in fact even cheaper than SGX-listed ETFs and most of the UCITs range of ETFs. In particular the Amundi US Prime index fund at just 0.05% TER is the lowest cost equities fund (including ETFs and unit trusts and index funds) in Singapore. All of these funds are registered in Singapore and tradable in SGD at the lowest cost possible, exclusively on the Endowus Fund Smart platform. 

In the grand(er) scheme of things, we are here because we believe wholeheartedly that what we are doing for the industry is for the greater good of everyone, including our competitors and the incumbent players. By persistently pursuing the highest standards from the fund managers whom we partner with, by demanding institutional share class fees and returning 100% cashback on all trailer fees to our clients, by introducing time and time again, the lowest cost option to access high performing investment solutions — we are committed to improving your investment experience and outcomes, and we want the industry to follow suit to help everyone invest better today, so they can live better tomorrow.

Thank you for putting your trust in us, and we can only do better by you, and for you. 

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Investment involves risk. Past performance is not necessarily a guide to future performance or returns. The value of investments and the income from them can go down as well as up, and you may not get the full amount you invested. Rates of exchange may cause the value of investments to go up or down. Individual stock performance does not represent the return of a fund.

Any forward-looking statements, prediction, projection or forecast on the economy, stock market, bond market or economic trends of the markets contained in this material are subject to market influences and contingent upon matters outside the control of Endow.us Pte. Ltd (“Endowus”) and therefore may not be realised in the future. Further, any opinion or estimate is made on a general basis and subject to change without notice. In presenting the information above, none of Endowus Pte. Ltd., its affiliates, directors, employees, representatives or agents have given any consideration to, nor have made any investigation of the objective, financial situation or particular need of any user, reader, any specific person or group of persons. Therefore, no representation is made as to the completeness and adequacy of the information to make an informed decision. You should carefully consider (i) whether any investment views and products/ services are appropriate in view of your investment experience, objectives, financial resources and relevant circumstances. You may also wish to seek financial advice through a financial advisor or the Endowus platform and independent legal, accounting, regulatory or tax advice, as appropriate.

Investment into collective investment schemes: Please refer to respective funds’ prospectuses for details of the funds, their related fees, charges and risk factors, The listing of units of the fund on a stock exchange does not guarantee a liquid market for the units. Before making an investment decision, you are reminded to refer to the relevant prospectus for specific risk considerations.

For Cash Smart Secure, Cash Smart Enhanced, Cash Smart Ultra: It is not a bank deposit and not capital guaranteed, and is subject to investment risks, including the possible loss of the principal amount invested. Investment products are not insured products under the provisions of the Deposit Insurance and Policy Owners Protection Schemes Act 2011 of Singapore and are not eligible for deposit insurance coverage under the Deposit Insurance Scheme. Interest rates are indicative and subject to change at any time.

Product Risk Rating: Please note that any product risk rating (the “PRR”) provided by us is an internal rating assigned based on our product risk assessment model, and is for your reference only. The PRR is subject to change from time to time. The PRR does not take into account your individual circumstances, objectives or needs and should not be regarded as advice or recommendation to purchase, hold or sell any fund or make any other investment decisions. Accordingly, you should not solely rely on the PRR in making your investment decision in the relevant Fund.

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