- Endowus has just launched the first low-cost, global fixed income passive index fund for CPF investing — the Amundi Index Global Agg 500m Fund. It is exclusively available on the Endowus Fund Smart platform for investments using your CPF Ordinary Account (OA) savings, through the CPF Investment Scheme (CPFIS).
- This is the cheapest fixed income fund option available, with fund management fees at just 0.1% per annum (p.a.). It is managed by Amundi, the largest European fund manager and leading passive index provider with over US$2 trillion in assets under management.
- Endowus had worked with Amundi to bring the Amundi Index Global Agg 500m Fund into Singapore for retail investors to invest with Cash and SRS. Now, the fund has also been included in the CPFIS.
- You can buy this index fund as a standalone fund to gain passive exposure to the global fixed income market, or use the fund as a component in building a multi-fund portfolio customised to your needs and goals on our Fund Smart platform. To start investing your CPF with Endowus, the first digital advisor for CPFIS, click here.
Endowus brings the first passive fixed income index fund into CPFIS
Endowus has been working strategically with Amundi to bring the newest fixed income passive index fund to the Central Provident Fund Investment Scheme (CPFIS). The Amundi Index Global Agg 500m Fund is finally ready — available exclusively on the Endowus Fund Smart platform.
As the first digital advisor for CPF investing through CPFIS for your CPF OA money, Endowus has strived to provide the three key pillars of investment success over the long term for individuals — advice, access and cost. As a trusted advisor, Endowus offers professional advice aligned to the client’s best interest as a fiduciary, better access to best-in-class funds and solutions such as ready-made, optimised portfolios, and at the lowest cost possible with 100% Cashback on trailer fees as well as no sales, transaction, or custody fees.
What sets Endowus apart is the fact that we act as a fiduciary, always doing what is in the best interest of our clients, without any conflict, and are paid by nobody else other than our clients. We have already returned millions of dollars in cashback of these conflicted fees back to our clients, resulting in tens of millions in savings for investors. Endowus is the right partner to get you to your important financial goals such as retirement adequacy, especially for your CPF.
Best-in-class passive investing from Amundi
Passive investing refers to the strategy of buying funds that mirror the holdings of market benchmark indices such as the S&P 500 and the Bloomberg Global Aggregate Index, and holding the funds for a long time. The objective is to match the performance of the indices, rather than to outguess and beat the market, by replicating broad market exposure.
The key benefits of investing in the Amundi passive index funds include:
- Low fees: The Amundi Index Global Agg 500m Fund is the cheapest fund option for accessing the global fixed income market in the CPFIS. It tracks the Bloomberg Global Aggregate 500 Million Index, which is a measure of investment-grade debt from 25 local-currency markets.
- Efficiency: The Bloomberg Global Aggregate 500 Million Index is a subset of the widely known Bloomberg Global Aggregate Index, which is often used as a proxy for the broad global fixed income market. Amundi’s expertise and the large assets under management of the fund mean that the fund has the ability to more closely track the index, at a lower cost.
- Localisation: The fund is denominated in Singapore dollars (SGD), which makes it convenient and most suitable for Singapore investors. It is registered with the Monetary Authority of Singapore (MAS) locally and is available for investing with CPF OA money.
Here are the key details of the Amundi passive index funds available for CPF investing, on our Fund Smart platform:
To read more about the two Amundi low-cost equity passive index funds — the Amundi Prime USA Fund and the Amundi Index MSCI World Fund — which are also available for CPF investing, click here.
Why invest your CPF in passive index funds
Your CPF savings should be worked harder for your retirement needs and to beat inflation. For most Singaporeans, CPF monies will be a key source of income in their golden years. Many homebuyers also use their CPF OA savings to pay for their property down payment and mortgage. Given that a significant portion of your wealth sits in CPF, consider investing globally through CPFIS-approved funds — such as those available through Endowus. Diversified funds with broad-market exposure can be suitable for those planning for retirement over the long term.
Growing your savings
Investing your CPF OA monies can help to grow your retirement assets, especially if you have a longer time horizon before retirement. The majority of those who invested their CPF have made profits greater than the 2.5% per annum (p.a.) OA interest rate. You should review your investment horizon and personal finances if you’re considering investing your CPF.
The following chart compares how much a person would have accumulated had he left his $100, 000 untouched in the CPF OA account, versus how much more he could have grown his savings had he invested in a broadly diversified, passive fixed income fund, from October 2000 to June 2023.
While we cannot control where the markets are, cost is something an investor can and should control. Fees directly impact your investment returns, and this impact compounds over time — exponentially lowering the effective return of an investment over the investment horizon.
The table and chart below illustrate this impact of fees, by comparing the growth of $100,000 from January 2014 to June 2023 with three vehicles: the MSCI World Index (which is not investable) and two passive index funds tracking the index but with different total expense ratios. The total expense ratio is also known as the fund-level fee, which is paid to the fund managers.
We compare the Amundi Index MSCI World Fund with another actual passive fund that charges a higher fee — we’ll refer to it as “ABC” World Index Fund for the purposes of this illustration. For the Amundi fund, the Amundi IS MSCI World AU-C share class was used in this illustration because of its longer track record — note that this share class has a slightly higher total expense ratio (0.3%) than the share class available on the Endowus platform (0.1%).
Growth of $100,000
Since January 2014, an investor who had invested in the “ABC” MSCI World Index Fund would have made about $10,180 less than an investor who had invested in the Amundi MSCI World Index Fund. The difference started out small but grew exponentially, thanks to the power of compounding.
Diversification benefits from investing in fixed income
The many benefits of investing in both equity and fixed income have been discussed for decades. In particular, fixed income can help diversify and lower the volatility of your retirement portfolio (that is, smoothing out the returns) and act as a ballast in difficult market conditions.
The table below shows how the correlation between the global equity market (represented by the MSCI All Country World Index (ACWI)) and the global fixed income market (represented by the Bloomberg Global Aggregate Index) declines as the time horizon increases. The hedged version of the Bloomberg Global Aggregate Index offers lower correlation than the unhedged version. The hedged version of the index may be a better representation of the benefits as most investors prefer to use hedged fixed income funds in their portfolios.
As for how this benefit of lower correlation might play out in a practical sense, refer to the table below. Equities have offered higher returns than fixed income over longer time periods. But adding fixed income to an equity portfolio can increase the Sharpe ratio of the portfolio, which implies that for a similar level of risk, you can potentially get higher returns.
How to invest in Amundi passive index funds on Fund Smart
Index funds offer access to thousands of securities and many single-country markets that are otherwise not easily available. That is why such funds often form the backbone of many portfolios.
Besides the Amundi Index Global Agg 500m Fund, Endowus has also made two equity index funds from Amundi available for investments using your CPF OA since March 2023. They are the Amundi Prime USA Fund and the Amundi Index MSCI World Fund, with total expense ratios of 0.05% and 0.10% respectively. Find out more about the equity funds in this article.
With Fund Smart, you can easily customise your ideal investment portfolio in minutes. You can buy a single Amundi passive index fund, create a portfolio with the three Amundi passive index funds for CPF investments, or mix the Amundi funds with other funds curated by the Endowus Investment Office.
Here are a few simple steps to do it seamlessly on the Fund Smart platform:
Step 1: Log into your Endowus account, and select “Add Goal” from the sidebar.
Step 2: Click on “Select your own funds”, followed by “Create goal”.
Step 3: After naming the goal, select the goal type, your funding source, and your risk tolerance.
To invest with CPF OA, you will need to link your CPF Investment Account to your Endowus account. You can select only one funding source for each goal; some funds are only available to invest with a particular funding source.
Step 4: Select the Amundi passive index fund(s) you want to invest in, and key in your desired allocation for each fund to make up this portfolio. Input your investment amount.
Step 4: Confirm this option. You are ready to go with detailed portfolio analytics.
Want more information on how to invest with Fund Smart? Check out the FAQs. For a quick overview of all the funds available on Fund Smart or to browse through other passive index funds, refer to our investment funds list.
More to come from Endowus
The launch of the Amundi passive index funds for CPF investments have brought retail investors in Singapore better options for passive investing. The funds offer efficient exposure to key global financial markets, and are the lowest-cost funds on the CPF Investment Scheme. They are now exclusively available on the Endowus Fund Smart platform, and are ready for you to invest with CPF OA monies. Customising your DIY portfolios via Fund Smart is also easy to do.
Endowus continues to work on exciting initiatives that will meaningfully improve the access and cost of investment options across all sources of funding — be it Cash, SRS, or CPF. We are looking to bring an even wider selection of best-in-class passive and active funds into Singapore. We are also working hard to broaden the choice of high-quality, curated funds from global leading fund managers to be made available and included into the CPF Investment Scheme and SRS.
Stay updated on our new investment solutions and the latest market developments via our articles and webinars, and subscribe to our weekly Endowus Insights newsletter. The Endowus Investment Office also curates the latest content on Fund Smart through the monthly Fund Digest articles.
Thank you for your support and trust in the Endowus team, and we look forward to continuing to serve you better so you can live easier today and better tomorrow.
To get started with Endowus, click here.
Passive investing 101
What is a passive index fund?
A passive index fund provides exposure to a certain market by tracking an index that represents the underlying market.
For example, investors can get exposure to the broad global equities market by investing in an index fund that tracks the MSCI World Index. As such, the fund’s performance and risk are expected to follow those of the tracked index very closely.
In contrast to passive investing, active investing involves the short-term trading of securities based on extensive research and analysis by a portfolio manager to try to beat the market.
In a passive index fund, there is no active investment decision involved. The fund manager just needs to make sure that the underlying investments follow the composition of the index that the fund tracks. The composition of the index is often defined by the external index provider in order to represent and measure the performance of a certain investable market. If a stock is added to excluded to the index, the passive fund would follow suit.
One of the largest contributors to the difference in performance between a passive fund and that of the underlying index is the level of fees charged. Fees pull down the relative performance of the fund. The higher the fee, the larger the drag on performance. Successful passive fund managers have kept fees and other frictional costs much lower than other comparable index funds, or even active funds that benchmark against the same indices.
As such, passive index funds can be an attractive option to investors as they provide a low-cost and efficient way of gaining access to many different markets. Investors, however, need to be aware of certain inefficiencies — including fees, tracking error, broad exposures, and low active management — when making such investments.
Active managers suffer from underperformance, survivorship, consistency
Furthermore, research from Dimensional Fund Advisors clearly shows that not only do active investors on average struggle to outperform, there is also a survivorship bias. A lot of funds do not even survive and are closed down, which therefore underrepresents the number of funds that have underperformed, as they are removed from the numbers. Between 2002 and 2021, less than half of the total number of funds in the universe survived and only 18% outperformed.
The other problem active managers suffer from is consistency in performance. Over time, the number of funds that outperform in any given year is low, but that list is different each year. A manager may outperform one year and underperform the next. Of the top 25% of fund performers, only 21% of funds remained in that top quartile after five years.
Combine the difficulty of outperforming a benchmark, especially after all fees and costs are removed, and the survivorship bias that exists in the data, and finally the lack of consistency in the outperformers, and you’ll get a more holistic picture of how difficult it can be for active managers to consistently beat the benchmark. This further strengthens the argument for low-cost, passive index investing in broad global markets.
Passive index unit trusts vs passive index ETFs
A fund is essentially a vehicle that pools investor money to invest in a basket of underlying assets. A fund can be open-end or closed-end; an open-end fund’s shares can be continuously issued to investors, and it accepts a constant flow of fresh capital.
Both unit trusts (also known as mutual funds) and exchange-traded funds (ETFs) are open-end funds, and they can track an index passively. But there are some important differences to note.
Put simply, the only difference between unit trusts and ETFs is their listing status. As its name suggests, ETFs are open-end mutual funds that are listed on a stock exchange. Unit trusts are open-end mutual funds that are not listed. Both ETFs and unit trusts can be either passive or actively managed.
While the fund’s listing status may not seem like a big deal, it actually has a significant impact on liquidity and pricing, which may bring about significant differences between unit trusts and ETFs.
ETFs listed on a stock exchange trade like stocks, which means that investors who trade these instruments are subject to volatility in the bid and ask price. If an ETF has low liquidity — reflected in low trading volume or a small market cap — the bid-ask spread can actually be quite large, even exceeding the expense ratio (fees) of the ETF itself. In such cases, investing in such an ETF can be extremely costly. Investors need to assess the total cost of trading when investing in ETFs.
Unit trusts do not face the same issue because they are not priced based on bid-ask spreads — they trade once a day, and at a specific net asset value (NAV), rather than at intraday market prices. This NAV takes into account the trading costs associated with the index fund on that specific day (“swing pricing”). This makes it less complicated to invest in unit trusts, as the investor does not have to consider bid-ask spread costs.
Unit trusts vs ETFs: key differences
How does Amundi replicate market indices?
The Amundi Index Global Aggregate 500m Fund, Amundi Prime USA Fund, and Amundi Index MSCI World Fund are now ready for you to invest with Cash, SRS, and CPF.
There are a few ways that a passive fund can match its holdings with those of the benchmark index.
Full physical replication
For equity funds, Amundi typically uses full physical replication to track the performance of the index. In the full physical replication method, the passive fund manager buys and holds all the securities in the index at the same weight or proportion as in the index.
Another method is known as sampling replication, which differs slightly from full physical replication, and is used for most fixed income funds. Sampling replication is used when it is simply not possible to own all the securities in the index, as in the case of bond indices.
In this approach, the respective bond index is broken down into sections each representing key risk factors such as duration, currency, country, rating and sector. The passive fund manager then picks bonds included in the index that mimic the risk profile of each section. The aggregate result is a portfolio that represents the index’s overall risk profile and duration.
For example, the Bloomberg Global Aggregate (500 Million) Index has over 19,000 bond holdings, but the Amundi Index Global Agg 500m Fund only has slightly over 6,000 bonds with a modified duration similar to that of the index.
Explore the Endowus Fin.Lit Academy to learn more about CPF, SRS, retirement, the basics of investing, wealth building, and personal finance.
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.
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