Flagship CPF Portfolios are further enhanced with funds from Dimensional, the factor investing giant

In our latest Recommended Portfolio Change (RPC) made to the Flagship CPF Portfolios, Endowus is adding three funds managed by Dimensional Fund Advisors, recently approved and included in the CPF Investment Scheme (CPFIS).

If accepted, these proposed changes to the Flagship CPF Portfolios will:

1. Lower fund-level fees of the portfolios,
2. Balance out the geographical exposure of the equity sleeve, and
3. Improve the long-term return potential of the overall portfolio series

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The latest RPC is part of Endowus’ commitment to source for mutual funds that will optimise your portfolios. Clients may choose to accept or reject the recommended changes.

Key improvements to the Endowus Flagship CPF Portfolios

New allocations for each portfolio

The table below summarises the new allocations for each of the six Flagship CPF Portfolios.

Changes to the equity portion:

1. Introducing exposure to the systematic factors. Factors in use include value, small-cap and profitability with two funds: Dimensional Global Core Equity III Fund and Dimensional Emerging Markets Large Cap Core Equity III Fund.
2. Reducing the relative overweight to Asia and emerging markets by removing the FSSA Dividend Advantage Fund, and reducing the underweight to Europe

‍Intended outcome: Reduce the underweight to the US, and reduce the underweight to developed Europe and Japan.

Changes to the fixed income portion:

1. Introducing the Dimensional Global Core Fixed Income III Fund, a globally diversified bond portfolio that also offers exposure to developed markets corporate credits, which diversifies the current portfolio.
2. Reducing the relative overweight to SGD bonds by lowering the allocation to the Eastspring Singapore Bond Fund. 
3. Removing the Franklin Templeton Western Asset Bond Fund to reduce the overlap of holdings in government bonds and reduce cost. 

Intended outcome: Unlock higher portfolio returns potential for the long term.

Lower investment cost 

Investment costs matter. This is one aspect investors can control and it can make a big difference to the returns. Read about how a mere 1% difference in fees can lead to an astounding extra 152% return over 30 years.

The latest upgrade to the Flagship CPF series has the goal of reducing cost, as shown in the below graph. 

Comparison of the total expense ratio before and after the upgrade

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More balanced sectoral and geographical exposure for equities

Geographical allocation relative to the global equity markets

As mentioned, the new Flagship CPF Portfolios reflect a more balanced geographical exposure relative to the global equity markets. 

Sectoral allocation comparison (%)

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In terms of sector allocations, the new portfolio also strives to pare down on the larger deviations from MSCI ACWI, namely the overweight allocations in Real Estate and Technology.

Market cap allocation comparison (%)

Comparing the two portfolios and the index across the different market cap segments, we see that the updated portfolio would have a reduction to giant market-cap stocks versus the index. However, when compared to the index, which only focuses on giant, large and mid-cap stocks, the portfolio is much more diversified with allocations to small and micro stocks as well.

Improved long-term return potential for fixed income component 

With the inclusion of the Dimensional Global Core Fixed Income III Fund, we have increased the portfolio’s beta exposure to the global fixed income market. This means the portfolio is now better equipped to capture the full potential return of the global fixed income market. 

Moreover, we anticipate that the new portfolio is well-positioned to generate alpha, which represents the ability to achieve excess returns above the global fixed income market benchmark. This points to a higher long-term return potential of the fixed income component of the portfolio.  

Beta exposure to the Bloomberg Global Aggregate Index

This is achieved through strategically reducing the allocation to SGD bonds, to which the portfolio was overweight, as well as global government bonds, and increasing exposure to global developed market corporate credits.

Sector allocation of Flagship CPF Portfolio fixed income component 

Long-term performance comparison 

The table below compares the trailing return and volatility (measured by standard deviation) of the fixed income and equities components of the Flagship CPF Portfolio. Both components have shown outperformance compared to their respective current version and benchmarks. 

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Introduction to Dimensional Fund Advisors 

Founded in 1981, Dimensional Fund Advisors is a global investment manager with more than US$700 billion in assets under management. They apply financial science to create investment solutions and structure diversified portfolios that emphasise higher expected returns in equities and fixed income, while managing tradeoffs. Their approach is grounded in economic theory and backed by decades of research, combining indexing with active implementation. 

Securities are weighted in the portfolios based on proven factors of expected return, not market capitalization. In equities, cheaper, smaller, and more profitable companies receive greater weightage. In fixed income, duration exposure is adjusted based on the yield curve, and credit exposure is increased when the credit spread widens.

Our philosophy for better investing 

At Endowus, we believe in a long-term approach to investing. We use our Strategic and Passive Asset Allocation (SPAA) framework to guide our recommended portfolio changes. Rather than trying to beat the market by making tactical shifts, we focus on enhancing our advised portfolios by improving long-term asset allocation and fund selection. To learn more about our SPAA framework, please refer to the Appendix below.

The Endowus Flagship Portfolios’ goal is to provide low-cost, globally diversified exposure to the equity and fixed income markets, with the asset class allocations weighted differently to suit different investors' risk tolerance levels. 

Watch our webinar to learn more about the proposed recommended portfolio change featuring Dimensional funds. 

A guide to accepting the recommended portfolio change

You can opt for the changes via these steps:

• Click ‘Login’ from the Recommended Portfolio Change email you would have received.
• Click the notification bell on your Dashboard, then select ‘Review recommendations’.

• Select the relevant goal’s page under the My Goals section, then select “View recommended changes” under ‘Manage goal’. You can find a video tutorial on how to do so here. 

The platform will display a comparison of the existing portfolio allocation and the updated portfolio allocation.

Choose to accept or reject the recommendation. If you reject the recommendation but subsequently change your mind, you can always come back to modify your choice via ‘Manage goal’ on the respective goal page.

Once the recommendation is accepted, the portfolio will be rebalanced accordingly. The units of the old or overweight share class(es) will be redeemed, and proceeds from the redemption will then be used to invest in units of the updated share class(es).

The entire process will take 5 to 10 business days to complete. While the rebalancing is in progress, you may continue to invest in and partially redeem funds from the portfolio. However, a full redemption cannot be performed until the rebalancing process is completed.

To learn more about why Endowus recommends portfolio changes and how they work, you may read our FAQ here. 

Enjoy lower fees and stronger long-term gains with Endowus

The Endowus Investment Office is constantly monitoring your advised portfolios and searching for new options that will improve these portfolios. Opt-in for the recommended portfolio change today to upgrade your Flagship CPF Portfolios. Have more questions? The Endowus Investment Office is here to guide you through them

What is Endowus’ Strategic and Passive Asset Allocation framework?

Endowus takes an evidence-based approach to investing for the highest probability of success, which brings together strategic passive asset allocation and global diversification, expressed through best-in-class funds, at a low cost. We use these building blocks to design portfolios customised to your goals and preferences.

Endowus’ Strategic Passive Asset Allocation (SPAA) framework is:

• Strategic top-down, meaning the allocation to different asset classes such as equities, fixed income, geography, style or factors, is set based on the goal of the portfolio 
• Passive in implementation, meaning Endowus does not believe in tactically or actively changing your allocations based on market conditions or economic indicators
• Curation of portfolio design bottom-up, meaning Endowus carefully selects best-in-class funds to best represent your goal’s SPAA. We access leading global fund managers with the expertise, scale, and low-cost structure. They have real, proven track records in implementing their strategies with tens and hundreds of billions of assets successfully over time. These strategies can be passive, systematic or active, depending on the asset class they try to represent, and the investment objective. 

Read more about our SPAA framework here.

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