Endowus Cash Smart - November Review & Update

Note: As of Nov'21, Endowus Cash Smart Core is now referred to as Endowus Cash Smart Secure. There are no changes in the underlying investment offerings.

Key takeaways

• We are providing an update on the revision of the net yield projection for Endowus Cash Smart portfolios. Core goes to 0.9% ~ 1.0%, and Enhanced to 1.5% ~ 1.7%.
• 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
• For those seeking higher yield, we are introducing Cash Management (Ultra), which offers an additional option for investors at a higher yield of 1.7~1.9%, by taking incremental risk to gain yield.

How has Endowus Cash Smart performed since launch?

Endowus Cash Smart Portfolio Performance

July 1, 2020 to Nov 27, 2020

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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 is higher than the projected yield numbers we had shared with our clients at the time of launch.

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

Endowus Cash Smart was launched on 1 July. All performance numbers are to 27th November 2020.

While both 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 outweighed the risk in this case.

Interest rates continue to fall

Major interest rates and deposit rates keep heading lower

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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, 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.

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. However, 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

The downward revision of Cash Smart yields are not unexpected

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 these are not bulletproof from 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. In November, we saw a pretty significant dip in Fullerton Cash Fund's projected yield from 0.6% to 0.4% due to a few of the longer dated and higher yielding institutional fixed deposits maturing and being replaced by deposits with a lower rate.

The initial fall in interest rates, however, did provide a boost to the total return of LGI Enhanced Liquidity Fund and United SGD Fund in the form of capital appreciation. This is reflected in the significant outperformance of these two funds from July to September above the projected yields. Both funds have investments in short term bonds, whose price will increase when interest rates fall.

Although this should not technically reduce the yield, the upside in terms of capital appreciation may be capped to a lower level. In November, we saw the projected yield of United SGD fund dropping from 2.0% to 1.8% as a result of 1) some bonds maturing and being replaced with lower-yielding bonds and 2) increase in bond valuation, which results in mark to market gains

Cash Smart underlying funds' monthly gross projected yields

Introducing Cash Management (Ultra)

While the Endowus Cash Smart Enhanced product still generates a relatively high yield, it has been gradually coming down. We understand that these recent drop in yields, while very natural, might be frustrating for some investors. For clients who would like to aim for a higher yield enhancement through taking incremental portfolio risk, we are introducing Cash Management (Ultra) as an alternative to Cash Smart Enhanced.

You can build it on our curated and personalised Fund Smart platform immediately. First go to your Endowus account and create the Cash Management (Ultra) portfolio by selecting Add Goal. Then choose the Cash Management option and select the two funds at a 70%:30% ratio in order to target a higher yield for your cash.

You can read more about our new Endowus Cash Management (Ultra) portfolio here.

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.

Get a head start on financial literacy & general investing by watching our Investing 101 with Endowus 4-part series here.

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Investment into collective investment schemes: Please refer to respective funds’ prospectuses for details of the funds, their related fees, charges and risk factors, The listing of units of the fund on a stock exchange does not guarantee a liquid market for the units. Before making an investment decision, you are reminded to refer to the relevant prospectus for specific risk considerations.

For Cash Smart Secure, Cash Smart Enhanced, Cash Smart Ultra: It is not a bank deposit and not capital guaranteed, and is subject to investment risks, including the possible loss of the principal amount invested. Investment products are not insured products under the provisions of the Deposit Insurance and Policy Owners Protection Schemes Act 2011 of Singapore and are not eligible for deposit insurance coverage under the Deposit Insurance Scheme. Interest rates are indicative and subject to change at any time.

Product Risk Rating: Please note that any product risk rating (the “PRR”) provided by us is an internal rating assigned based on our product risk assessment model, and is for your reference only. The PRR is subject to change from time to time. The PRR does not take into account your individual circumstances, objectives or needs and should not be regarded as advice or recommendation to purchase, hold or sell any fund or make any other investment decisions. Accordingly, you should not solely rely on the PRR in making your investment decision in the relevant Fund.

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