- Endowus offers three Passive Income model portfolios to meet different income and capital preservation or growth needs for investors at different life stages.
- Investors can use these pre-populated templates as a starting point for their portfolios; they can take the template as it is, or make changes to suit their preferences and needs.
- To get started with Endowus HK, click here. For an overview of all the funds available on the Endowus Fund Smart platform, refer to our investment funds list.
Endowus has upgraded and rebranded our passive income model portfolios to Endowus IncomeUp portfolios. Learn more here.
What are the Passive Income model portfolios on Endowus?
Selecting the right investment products to build a diversified portfolio can be time-consuming. That’s why we are excited to introduce Income Portfolios, to enable you to grow your wealth and reach your goals effortlessly with Best-In-Class strategies at low and fair fees.
The Endowus Passive Income model portfolios are built from multiple unit trusts, also known as mutual funds, that are curated by the Endowus Investment Office. An investor can use these pre-populated templates as a starting point for their portfolios; they can take each template as it is or make changes to suit their preferences and needs.
We have built three different model portfolios to meet different income and capital preservation or growth needs for investors at different life stages.
What makes up the Endowus Passive Income model portfolios
Capital preservation with stable payouts: The Passive Income - Steady model portfolio is for those nearing or at retirement or those that require a regular passive income stream from their pot of savings. It invests in 100% fixed income that aims to provide capital preservation, mostly in higher quality and broadly diversified fixed income products. It is designed to prevent the distribution payout from eating into the capital of your long term savings as much as possible and to maintain stable, long-term payout targets of 5% to 6% p.a., with limited or no capital appreciation.
Establishing a sustained, higher cash inflow: The Passive Income - Plus model portfolio is for working adults, such as the “sandwich generation”, who have high monthly spending needs. With the ability to stomach a slightly higher risk threshold, the portfolio is 100% in fixed income with a skew towards higher risk and higher yielding fixed income products to increase the current payout target to 6.5-7.5% p.a., with limited or no capital appreciation.
Laying a foundation for the future: The Passive Income - Growth model portfolio is for the young working adults who are mostly in their late 20s and 30s, who would like some regular income with a 4-5% current payout target that can contribute to their monthly spending habits. With time on their side, they can also continue their savings to increase the potential payout amounts over time. The portfolio has 60% allocated to core and higher yielding fixed income funds and 40% allocated to dividend paying and globally diversified equities to potentially grow the invested capital over the long term. The portfolio is designed as such so they can achieve a potentially higher amount of future payout.
Why invest in the Passive Income model portfolios
The Endowus Passive Income model portfolios can be an attractive investment option for the following reasons:
Higher yield and better risk-reward in fixed income markets
For income-seeking investors, fixed income markets offer a wide set of opportunities to provide a passive and stable income stream.
The end of the lengthy low interest rate environment has been a boon to income-seeking investors. Prior to 2022, it was challenging to generate sufficient income at an acceptable level of risk. Parking one’s savings in banks generated almost no interest. Even if investing in one of the highest risk fixed income sectors, high yield bonds or junk bonds yielded just 5-6%. 2022 marked a year of increasing interest rates as governments and central banks raised interest rates at a startling pace to battle persistent inflation.
The sudden shifts in the interest rates brought much volatility to the fixed income markets in 2022, and in 2023, uncertainty still lingers. Fixed income instruments now offer (i) a much higher yield, and hence income opportunities; and (ii) a better risk-reward trade-off.
The chart below plots the latest yield-to-worst of different fixed income sectors against the historical 10-year range. Across the sectors, the yields are at the upper end of the 10-year range, and well above the 10-year median. Even investment grade bonds are offering more than 5% in yield; if one is willing to take more risk, high-yield bonds are yielding more than 8% in this current environment.
Passive Income model portfolios: custom-built with global fund managers
The Endowus Passive Income model portfolios invest in income-generating assets through a basket of carefully selected funds. Such assets include global investment grade bonds, global government bonds, global high yield bonds, emerging-market bonds and dividend-paying stocks.
Endowus is in a unique position to select and provide access to some of the Best-In-Class income generating funds to its clients. In building the income portfolios, Endowus is not biased towards or against any single fund manager. We treat any asset class, any instrument as a building block of the portfolio and always search for the best product offering in its asset class, or sector within the asset class.
We worked with fund managers who specialise in the different sectors — whether higher-yielding fixed income or emerging market debt funds, or high-dividend equity funds. For the three Income Portfolios, we partnered with fund managers who are leaders in their fields both globally and locally, including many familiar names such as Abrdn, Alliance Bernstein, BlackRock, Barings, Capital Group, Fidelity, JP Morgan Investment Management, Janus Henderson, Neuberger Berman, PIMCO, and Schroders.
Underlying funds of the Endowus Passive Income model portfolios
Differentiated from other passive income options
The Endowus Passive Income model portfolios were built in response to requests from our clients whose needs are not met by the market today, and who trust Endowus to build a sophisticated and differentiated, institutional quality portfolio that can serve the needs of a wide spectrum of investors.
One of the key concerns that clients have with regards to income distribution is that it could come at the expense and erosion of their invested capital. Funds may dip into the invested principal to offer distributions as high as 10%, but are effectively eroding the investor’s savings. To address this concern, we focused on products that either prioritise capital preservation or actually aim to increase capital through asset allocation to sustain or improve the future payout from the invested amount.
All three of the Endowus Passive Income model portfolios are not intended to be decumulating. While the underlying funds may at times utilise capital to alleviate distribution shortfall or smooth out payout stability during times of volatility, all three model portfolios are designed with capital preservation (Steady and Plus) or potential growth (Plus and Growth) in mind.
In addition to the potential erosion of capital, many of the other passive income solutions in the market — such as annuity products, endowment plans, and insurance-linked products — have delivered tepid results to investors because of high hidden costs, transaction charges, poorly designed structures or poor underlying asset choices. While they look good initially, the actual returns and performance of many of these products have been very mixed, with those involving an investment component generating well-below market returns.
How have the Passive Income model portfolios performed?
Despite a challenging 2022 for both fixed income and equity markets, the three model portfolios weathered the environment relatively well. On a trailing one-year basis, all three portfolios outperformed their respective asset class benchmarks.
Over a longer period of time, all three portfolios also delivered relatively favourable total returns when compared to the benchmarks.
It is worthwhile to note that all three Endowus Passive Income model portfolios do take higher risk than the respective benchmarks, in order to achieve the income and growth objectives.
How we built the Passive Income model portfolios
The Endowus Investment Office is a team of investment experts with more than 150 years of experience combined, across public and private market investing, family offices, and wealth management. The team screens the universe of unit trusts, also known as mutual funds, and curates a final list by implementing a strict, institutional-grade screening process that is rigorous, thorough, and continuous.
The process, known as SMART+, vets funds across categories to bring you only those that are Best-In-Class, and the team monitors the funds regularly in terms of performance.
The Endowus Investment Office focused on meeting our clients’ income investing goals by seeking to provide consistent target income distribution and attractive potential returns:
- A focus on income, dividends, and stable and attractive but achievable target distribution by balancing higher-yielding assets and higher-quality assets, which perform differently in varying growth environments.
- Designed with resiliency in mind, working with the world’s leading fund managers to manage market volatility and changing macro environments to achieve the client’s desired level of payout target.
- All-weather approach. No matter which way the markets and interest rates move, our income investing strategies can access opportunities around the world – thanks to its globally diversified, multi-asset, multi-manager, flexible approach.
- Efficient asset allocation between fixed income and equities, between income and growth, and between capital preservation and appreciation to balance between the primary objectives of each portfolio.
The Endowus Income Portfolios are distinctive because it is independently constructed by Endowus, with the Investment Office employing a robust and holistic investment process.
How to create your own Passive Income model portfolio on Endowus
Here are a few simple steps to create the Endowus Passive Income model portfolios via Fund Smart. We’ll use Passive Income - Steady as an example.
Step 1: Login to your Endowus account. In the My Goals section on the sidebar, click on “+” to add a goal.
Select your investment horizon and objective for this goal, and click on “Browse funds''. Don’t have an account with Endowus Hong Kong? Get started here.
Step 2: Select a model portfolio you’re interested in, by clicking “Preview”.
You will see a list of model portfolios that are recommended for you, depending on your investment horizon, investment objective, and risk profile. (This means you might not see all of the available model portfolios if your risk profile is lower.)
Step 3: Check through the portfolio details. Click on “Continue with portfolio” if you wish to proceed.
Here, you will see details of the model portfolio such as the description, risk analysis, fees, performance, and allocations of its underlying funds. After you click on “Continue with portfolio”, you can still add funds, remove funds, and modify allocations if you want to.
Step 4: Allocate your funds in this portfolio, and review an analysis of it. Click on “Continue” to proceed.
You can either invest in the model portfolio as it is, or modify the allocations, add funds, and remove funds to suit your preferences and needs.
Step 5: Set up your investment. Input the sum you want to invest, and decide whether this will be a one-time or recurring monthly investment. Click on either “Continue to review” or “Save goal and invest later” to proceed.
On this page, you will see the projected outcomes, historical performance, selection criteria, underlying holdings, and warning statements. Make sure to review the warning statements carefully. You can still modify or stop any recurring monthly investments later.
Remember that return is proportionate to risk. You should consider your risk tolerance — for example, how much money can you tolerate losing in a certain time period, in a worst-case scenario? The portfolio should then suit your risk appetite, as well as your investment timeline and financial goals.
Should you invest in a Passive Income model portfolio or single funds?
The Endowus Investment Office has designed the asset allocation, selected the funds, and optimised the fund allocation for the Passive Income model portfolios. The portfolios are diversified and optimised to meet their respective investment objectives.
Investors can also buy single funds, or create other model portfolios on the Fund Smart platform as a way to complement your existing investments in Endowus Income Portfolios. For example, the global diversified core equities and fixed income model portfolios are great for investors who want to prudently build wealth in the long term. If you want to get additional exposure to certain asset classes, geographies, sectors, themes or factors, you can also select the relevant funds via Fund Smart.
At Endowus, wealth management for everyone
The Endowus Passive Income model portfolios offer investors a convenient and effective way to build a diversified portfolio that can meet their differing income and growth needs.
With digital wealth platform Endowus, investing is now made low-cost and accessible for every season in life, investing goal, and risk appetite. Make time your biggest asset and begin your investing journey with Endowus today. Start investing towards your goals from just HK$10,000.
At a low, fair, and transparent fee, both retail and professional investors can access Best-In-Class Funds and stand on the shoulders of financial giants. And with our industry-first 100% Cashback on trailer fees, save up to 50% or more on your investment fees.
Get more details about the Passive Income model portfolios here. Read about the other Endowus model portfolios in this article.
For an overview of all the funds available on the Endowus Fund Smart platform, refer to our investment funds list. Follow this link to get started with Endowus HK.
Read more:
- Introducing the Endowus HK team
- Why invest through Endowus
- What is Fund Smart?
- An overview of the Endowus model portfolios
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