Endowus Q2 2022 Performance Review

Endowus core portfolio — Q2 2022 performance comparison

The Endowus Core Portfolios consist of globally diversified portfolios suitable for long-term wealth accumulation, available across 6 different risk spectrums (100% equity to 100% fixed income) to suit your investment objectives and risk tolerance. While there are divergences due to the different ways portfolios are constructed, they are all built to be a core allocation in your portfolio to provide global diversification at a low cost. We provide commentary and performance drivers below for each of the core portfolios from Endowus.

Endowus Flagship Portfolio — Cash/SRS

Key performance highlights: The Flagship Cash/SRS Portfolios posted negative returns in the second quarter, alongside the global equity and fixed income markets.

The 100% Equity Portfolio outperformed the broad equity market. While it is built to be a broadly passive portfolio, the portfolio also outperformed the broad MSCI All Country World index mostly as a result of its tilt to value via the Dimensional funds.

The Flagship Cash/SRS 100% Fixed Income Portfolio slightly underperformed the broad global fixed income market, as represented by the Bloomberg Global Aggregate Index. The PIMCO Emerging Markets Bond Fund continues to be one of the largest detractors for the portfolio in the second quarter as EM debt faced additional challenges from a rising US dollar and a spate of defaults from countries such as Sri Lanka.  The portfolio was also negatively impacted by widening credit spreads.

Endowus Flagship Portfolio — CPF

Key performance highlights: While the Endowus Flagship CPF Portfolios also posted negative returns in the second quarter of 2022, both the 100% Equity Portfolio and the 100% Fixed Income Portfolio outperformed the broad global equity and fixed income markets. 

The 100% Equity Portfolio has about slightly less than a third of its assets allocated to the Schroders Global EM Opportunities Fund and the FSSA Dividend Advantage Fund. This proved beneficial as both funds outperformed the MSCI ACWI. As for the 100% Fixed Income Portfolio, the major contributor to relative performance came from the significant allocation to the more conservatively positioned and lower duration (i.e. less sensitive to interest rate movements) UOB United SGD Fund.

Endowus ESG Portfolio

Key performance highlights: The Endowus ESG 100% Equities Portfolio underperformed the MSCI ACWI in the second quarter. The primary detractor from relative performance came from the underweight to energy stocks as the energy sector outperformed the market again during the quarter. The portfolio’s growth bias also had a negative impact on relative performance against the broad MSCI ACWI, but it managed to outperform the MSCI ACWI Growth Index.

Similar to the 100% Equities Portfolio, the 100% Fixed Income Portfolio registered underperformance against the broad fixed income benchmark in the second quarter. The portfolio’s larger exposures to corporate investment grade and high yield credit, as well as EM credit, relative to the index, detracted as credit spreads widened during the quarter. The portfolio’s shorter duration was able to partially offset the negative impact.

Endowus Factor by Dimensional Portfolio

Key performance highlights: The Endowus Factor 100% Equity Portfolio outpaced the MSCI ACWI again in the second quarter. The primary driver of relative performance was the portfolio’s value bias as value stocks continued to do better than growth stocks in Q2. 

The Factor 100% Fixed Income Portfolio underperformed the broad fixed income markets, as represented by the Bloomberg Global Aggregate Index. A large portion of this underperformance came from the Dimensional Global Core Fixed Income Fund. The fund’s overweight to corporates, relative to the index, hurt performance as investors gravitated to the safety of government debt and investment-grade bonds over corporate debt and high-yield bonds.

Endowus’ Flagship Portfolio continues to outperform the competition and market

A common request from our clients is to understand how we compare against competitors and other investment robo-advisors in Singapore. Endowus is much more than just a robo-advisor, as it has a broad suite of solutions on its total wealth platform. That includes being the first to offer CPF digital investing, as well as offering the innovative and cost-efficient Fund Smart platform. Still, from the clients’ perspective, we understand the call for a comparison. It should be noted that there is no official way to track performance across investment platforms — Endowus is the only digital wealth platform to publish all portfolio returns transparently. 

We were able to leverage the efforts of our broader investment community to gather data on other platforms — this Seedly post is an example of actual investors using longer-term performance tracked monthly and over time. We share the table below to show where the Endowus Flagship 100% Equity Portfolio (Cash/SRS) stacks up versus the others and the benchmark. Here, we provide both the MSCI All Country World Index — the broadest global index — and the MSCI World — the developed market index:

Passive vs Active Investing 

While many of these robos stake claims on the passive investing style by using ETFs as underlying products, they in fact implement an active and tactical investment strategy that attempts to beat the market by timing it. Endowus, on the other hand, is the only investment platform that utilises its Strategic Passive Asset Allocation (SPAA), to do passive investing in the right way. The performance is meant to track the overall market movements, with some excess returns being possible due to the factor tilts in the portfolio. 

The optimal threshold based automated rebalancing does not take any active views about markets or any tactical asset allocation decisions trying to predict which market will outperform each quarter unlike other players in the market. This is the professional and institutional asset allocation framework that works over the long term. As the table above shows, an investment strategy that starts with the right strategic asset allocation can deliver consistent returns in line with the broad market with less volatility, while a tactical approach results in a highly volatile performance over time. 

Endowus Satellite Portfolios

Launched in November 2021, Endowus Satellite Portfolios are designed to supplement the core portfolios and offer clients specific exposure to opportunities in selected regions, themes, asset classes, and trends. In taking a core-satellite approach, most investors should allocate the bulk of their asset allocation to the core portfolios.

Endowus Satellite Portfolio

We provide commentary and performance drivers for each of the Satellite Portfolios from Endowus below.

China Equity and Fixed Income Portfolio

Key performance highlights: The Endowus China Equity Portfolio returned 2.3% over the second quarter of 2022, outperforming the offshore MSCI Golden Dragon index while underperforming the MSCI China A Onshore Index. This is in line with expectations, given that the portfolio is intended to provide exposure to the A-share market, with some allocation to companies within the Greater China region.

From a sector perspective, the portfolio’s allocation to industrial and consumer sectors boosted performance, benefiting from China’s pledge to boost infrastructure spending. The portfolio’s consumer staples holdings also had a positive impact on performance. While most of the portfolio’s underlying funds registered positive returns, the FSSA Regional China Fund was a key drag on performance. The fund’s higher allocation to Taiwanese stocks detracted from relative performance, reflecting inflationary pressures and fears that global supply chain bottlenecks would threaten demand for the companies’ technology products. 

The Endowus China Fixed Income Portfolio posted negative returns in the second quarter of 2022, with the Neuberger Berman China Bond Fund detracting the most. The fund’s allocation to real estate bonds, alongside exposure to select agency bonds, hurt performance. The BlackRock China Bond Fund, on the other hand, showcased resiliency over the quarter, inching out positive returns amid broad market woes.

Global Real Estate Portfolio

Key performance highlights: The Endowus Global Real Estate Portfolio underperformed the benchmark, returning -16.0% in Q2 as concerns over the impact of rising credit spreads and slowing economic growth were a drag on performance. The majority of the negative performance came in the last two months of the quarter, with the industrials sector lagging behind the other sectors in May.

The Janus Henderson Horizon Global Property Equities Fund was the worst-performing fund for the quarter. The fund's exposure to industrial REITs hurt performance as the sector retracted 15.6% in May. In June, the negative performance was widespread across the REIT sector as economic data in June indicated that consumer sentiment had turned negative with retail spending contracting.

Low Volatility Fixed Income Portfolio

Key performance highlights: The Endowus Low Volatility Fixed Income Portfolio returned -4.9% in the second quarter of 2022, similar to the first quarter, as the bond markets continued to sell off sharply amid elevated inflation and hawkish central bank policies. Corporate bonds were hit hard as credit spreads widened, leading to underperformance against government bonds. High-yield bonds were particularly weak in June, weighed down by fears that the Fed’s rapid rate hikes will drive the US economy into a recession.

The worst performing fund in the portfolio for the quarter was the Legg Mason Brandywine Global Income Optimiser Fund, which returned a disappointing -7.6%. The fund’s exposure to longer-duration US holdings along with US high-yield corporate bonds proved to be a drag on performance.

Megatrends Portfolio

Key performance highlights: The Endowus Megatrends Portfolio underperformed the benchmark, as its growth tilt was negatively impacted by the ongoing sell-off of growth stocks. As with the first quarter, the absence of traditional energy names was a detractor from relative performance. Performance in the industrials and materials sectors also faltered as fears over demand led to a slump in raw material prices and manufacturing activity.

Technology Portfolio

Key performance highlights: The Endowus Technology Portfolio was down -23.8% in the second quarter, lagging the MSCI AWCI/IT Index. Similar themes as seen in Q1 persisted — the portfolio’s exposure to small and mid-cap companies proved detrimental to relative performance as investors sought the safety of large-cap stocks amid recession scares. However, the portfolio’s allocation to the Fidelity Global Technology Fund, with its contrarian and more value-oriented approach, continued to provide some protection against the growth and technology sector sell-off backdrop.

Some of the underlying funds’ managers are taking advantage of the sell-off to increase their exposures to compelling companies that are now trading at more attractive valuations.

Endowus Cash Smart Portfolios

Key performance highlights: The Endowus Cash Smart Portfolios have generally performed in line with relevant indices of similar durations, such as SIBOR rates and the Markit iBoxx ABF Singapore Government 1-3 Year Index.

The Endowus Cash Smart Secure Portfolio recorded another quarter of consistent, positive returns. The portfolio’s allocation to institutional bank deposits, as well as ultra short duration instruments and money market funds makes it an attractive option for investors seeking a high quality and highly conservative investment with the potential to provide relatively higher returns than a pure cash instrument.

The Endowus Cash Smart Enhanced Portfolio ended the second quarter flat, while the Endowus Cash Smart Ultra Portfolio registered a negative return of -1.0%. The Cash Smart Enhanced and Cash Smart Ultra Portfolios’ allocations to bonds and other short-dated fixed income instruments have subjected these portfolios to mark-to-market adjustments of fixed income markets. They have also been impacted by the unprecedented speed at which interest rates have moved up, which triggered a repricing of bonds.

Despite the allocation to the shorter-duration and amortised performance of the LionGlobal Enhanced Liquidity Fund, which anchors most of our Cash Smart solutions, the Cash Smart Enhanced and Cash Smart Ultra Portfolios’ remaining allocations were negatively impacted by rising interest rates and elevated inflation. Moreover, the exposures to the Asian credit market hurt performance as that market continues to be challenged.

Endowus Income Portfolios

Key performance highlights: All three Endowus Income Portfolios performed in line with expectations, continuing to meet their payout targets.

The Endowus Stable Income Portfolio underperformed the Bloomberg Global Aggregate Index in the second quarter. The portfolio, which has more exposure to the credit market relative to the index, was hurt by widened credit spreads in Q2. Its exposure to the short duration segment of emerging markets debt provided some buffer. 

The Endowus Higher Income Portfolio underperformed the 20-80 Equity-Fixed Income Composite Index by 4.3% over the second quarter. The portfolio’s greater allocation to credit, in particular high-yield credit, relative to the index, impacted performance negatively. The portfolio’s exposure to the listed real assets sector, which includes real estate and infrastructure, also underperformed the broader market. 

The Endowus Future Income Portfolio underperformed the 40-60 Equity-Fixed Income Composite Index by 4.3% in Q2. Similar to Stable Income and Higher Income, the Future Income Portfolio’s larger exposure to credit detracted from relative performance. That said, the portfolio benefited from its equity allocation, in particular its exposure to the Asian equity market as well as European dividend-paying names. 

Read more: Endowus Q2 2022 Market Update and Outlook — Recession or Recovery?

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