Key takeaways

  • We are providing an update on the revision of the net yield projection for Endowus Cash Smart portfolios. Cash Smart CORE  goes to 0.8% ~ 1.0%, and ENHANCED to 1.4% ~ 1.6%.
  • The drop in recent yields is in line with the persistent low interest rate environment and the lower yield of reinvestment opportunities around the world.

The revised yields are still much more attractive than the savings or deposit options available in Singapore

How has Endowus Cash Smart performed since launch?

Endowus Cash Smart Portfolio Performance

July 1, 2020 to Dec 31, 2020

Growth of 100 chart Source: Endowus Research, MorningStar‌‌

As you can see from the above chart, the performance of the two Cash Smart products have been steady and strong since the launch on 1 July.  The chart above shows the trend while the table below shows the monthly and overall performance.  Actual net returns since launch and annualised rate of returns are higher than the projected yield numbers we had shared with our clients at the time of launch.

Endowus Cash Smart has performed better than the projected yield at the time of launch

Source: Endowus Research, Bloomberg

Endowus Cash Smart was launched on 1 July. All performance numbers are to 31st December 2020. Net returns are after fund level fees, trailer fee rebate, and Endowus access fee.

Both Cash Smart Core and Enhanced did better than the projected yield at the time of launch. Enhanced had more pronounced returns because the solution includes a short duration fixed income fund with greater duration exposure.  In this low interest rate environment, to get higher yield, investors have to take on higher duration or credit risk. It is always important to balance the risk and reward, and we believe the improvement in yield outweighs the risks for the Enhanced solution.

We have highlighted the maximum drawdown risk of the Enhanced product compared to Core and why the yield on Enhanced is higher. It is about efficiency. There is a slightly higher risk and that has resulted in a boost in returns. The returns have surely outweighed the risk in this case.

Interest rates continue to fall

Major interest rates and deposit rates keep heading lower

Source: Endowus Research, Bloomberg

Interest rates collapsed globally in March 2020 and have continued to fall in the subsequent months. We are at or close to the lowest levels in history, especially in Singapore. The 12 month rates - whether it is SIBOR, government bills, savings accounts Singapore Savings Bonds or bank fixed deposits - are all well below 1% and remain significantly lower than what you can get from the Endowus Cash Smart solutions, as the above chart shows.
Further, with a bank fixed deposit, your money is locked-up and you only get to see the interest and the money after 12 months. If for whatever reason you need to access the money and cancel the fixed deposit, you lose all the interest earned thus far.  In comparison Endowus Cash Smart allows accrual of returns on a daily basis.


Endowus Cash Smart portfolios yield remain attractive

The below chart shows a comparison of the latest Cash Smart yields with those of several fixed deposit options.  Even with the latest revised lower yields, Endowus Cash Smart Core and Enhanced remain extremely attractive alternatives for short term liquidity management.

The funds in Endowus’ Cash Smart Core and Enhanced portfolios invest in fixed institutional deposits, money market instruments, and short duration fixed income instruments, and by allocating to these instruments, the portfolios are able to provide a boost to yield while maintaining daily liquidity.  Investors need to understand that the portfolios are not bulletproof to the falling interest rate environment: for example, when the underlying holdings mature, the fund managers have to reinvest the proceeds in new instruments which would most likely be paying a lower yield than before. However, the portfolios are managed to take incremental risk to get additional return, and to defend the return as much as possible.  

It is to be noted that we have been emphasising that the portfolios are not risk-free - we are taking calculated risks to get the additional return, and we believe that the trade off is worth it.

Comparison of Endowus Cash Smart projected yields with deposits

Source: Endowus Research, MAS, DBS

Cash Smart underlying funds' monthly gross projected yields

Source: Endowus Research, Bloomberg‌‌

Giving access to information and yield transparently

We cannot make a prediction on the future direction of interest rates. However, we will continue to revise down or up, whenever the net yield moves, and to come up with innovative solutions to meet our clients’ needs.  Endowus receives weekly updates from our partner fund managers and will update any changes; but often these changes are marginal.  If there is a meaningful shift in yield, we will continue to make those changes to accurately reflect projected yields and at least on a monthly basis.

In addition, we are in constant search for better fund options, and better ways to serve our clients; we will continue to focus on providing robust advice to the best interest of our clients with the highest degree of integrity and transparency.

If you have any other questions or need advice from one of our MAS-licensed representatives please reach out at support@endowus.com or visit our Cash Smart landing page here. If you would like to do more research on the Cash Smart products, please find the in-depth Endowus Investment Office research Insights article here.