Deep Dive: Endowus Income Portfolios
Endowus Insights

Deep Dive: Endowus Income Portfolios

Updated
30
Jun 2022
published
27
Dec 2021
.
Deep-Dive-Endowus-Income-Portfolios

Endowus Income Portfolios are designed to cater to different investors’ needs depending on the life stage of investors, based on their current payout income needs while balancing it with the longer term wealth accumulation needs. We are thus launching with three different Income portfolios to fit the needs of each demographic segment and life stage of the investors. They are Stable Income, Higher Income and Future Income. This article follows on from our launch article and focuses more on the detailed analysis of each of the three portfolios with a deep dive on the construction, composition, risk and return profile. You may also click here to read our introductory portfolio launch article for a broader overview of the new Endowus Income Portfolios.

summary of endowus income porfolio

Introducing the Endowus Income Portfolios

The Endowus Income Portfolios invest in income-generating assets through a basket of carefully-selected funds. We have worked with 12 of the leading global fund managers who are the leaders in income and dividend investing. The portfolios all target different payout levels and capital appreciation potential, and as a result, they have differing asset allocation, ranging from 100% fixed income for Stable Income to a 60% fixed income and 40% split with equities for Future Income. The fixed income allocations, while global in nature, are all hedged to SGD to minimise currency risk.

A robust process to build the right Income Portfolios

how to build right income portfolio

The Endowus Income Portfolios are distinctive because they are independently constructed by the Endowus Investment Office employing a robust institutional framework for designing and constructing the three portfolios that are the most suitable for the demographic segments they are catering for. They are designed for various life stages and to meet real world needs of investors.

As an independent financial advisor, Endowus is paid by no-one other than our clients unlike many banks, brokers or fund platforms and therefore we can make decisions purely based on the merit of each investment product and agnostic to its structure(with or without embedded fees, for example, as we return both 100% to clients). Endowus is in a unique position to select and provide access to some of the best-in-class income generating funds to its clients. When 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.

Every fund manager, no matter how large they are, tends to do well in certain products or assets but not so well in others. A fund manager that’s excellent at managing European dividend equity might not be good at the US high yield market. Unlike some other solution providers that tie up with a single fund manager for their income products, Endowus is fund manager agnostic and is single-minded in finding the highest quality income funds as fundamental building blocks of the portfolios. This is why all the advised portfolios from Endowus are multi-manager in structure to allow for the best possible portfolio design.

criteria for choosing income fund, capability consistency and cost

We also hold the belief that a robust portfolio needs to be properly diversified, and for an income portfolio, the sustainability and stability of payouts are crucial. There are many solutions in the market that allow for the principal to be used to fund a distribution. Hence, investors will realise that they are decumulating(drawing down on) their original invested principal amount and are technically using their own invested money to pay themselves an income. This is quite ironic and defeats the purpose of building an income portfolio. It also is not well understood in the market. Managing this aspect of the portfolio to help investors preserve and even grow capital in the long term, while delivering consistent payouts, is of utmost importance during the portfolio construction process, and also during the monitoring phase.

Building the right portfolio with the right funds

Each Endowus Income Portfolio is intentionally global in its geographic exposure, and covers multiple fixed income sectors and almost all equity sectors (for the two portfolios with equity exposure). This is a very important component of building a robust income portfolio as the income streams can come from diversified sources so that the income portfolios’ overall payouts are resilient and not overly-reliant on certain funds or sectors or asset classes. The fluctuations in capital payouts are smoothed out by combining asset classes, sectors, and geographies.

income fund asset allocation

However, as would be explained further in the next section,  certain assets offer better income prospects compared to others. In order to balance the risks and achieve the target payouts, there are natural embedded structural biases(tilts towards certain factors within the portfolios) if one compares the Income Portfolios to a Core Portfolio which is a more broadly diversified portfolio that focuses on growing wealth over the long term by removing biases and providing broad market exposure.

Income and yield is getting harder to come by

yield for income fund underlying

The above chart shows the latest yields of various sub asset classes, and this provides us with a sobering look at the current yield environment: we are still in a low rate environment and it is extremely difficult to get higher yield without taking meaningfully higher risk. The 10-year treasury yield, which is usually seen as the risk-free rate, was at 1.4% at the end of November. The highest yielding sector lately has been the Asia high yield sector, but that’s because of the unravelling of the Chinese property sector which has wreaked havoc on the Asia high yield market in general and caused the spread to widen (this means declining price and a wider gap between the yields available in the sector versus the risk-free rate of Treasuries) significantly. If we look at the US high yield sector, whose current yield is much closer (although still below) it’s historical level, the yield to worst was just short of 4.8% as compared to the 5.8% in Asia.

Such a macro backdrop provides us with some baseline references of what income level one can potentially get in the current environment. In reality,  a sustainable level of income — that is, an income level that does not require you to dip into your own pocket of savings and pay from the principal invested amount you have put in, also depends on first, the level of risk one is willing to take and second, how much capital appreciation one desires.

Here is the trade off: fixed income securities tend to have higher yield than equities. However, the former has less capital appreciation potential in the long term. There are also certain fixed income sub-asset classes, such as high yield or emerging market bonds, that are higher-yielding than others, but that comes with higher credit risk.

The Endowus Income Portfolios seeks to balance income, capital appreciation and risk considerations. What this looks like in reality is a pragmatic approach to an achievable target setting, sensible asset allocation and strict fund due diligence. We will go into asset allocation more in the deep dive section. As for the fund due diligence criteria,  it is always of utmost importance that the funds we select are prudent with their distribution policy and not aggressively using the capital to fund distribution. Some income funds, in order to gain popularity amongst retail investors, actually set distribution targets higher than what the portfolio yield can sustain. We want to avoid this situation and therefore in our due diligence process, we sought to understand fund managers’ stance towards distributing from capital, and verify their claims by looking at the composition of the funds’ historical distribution.

Looking under the hood of “total return”

When you look at an income fund factsheet, the historical return numbers are shown to demonstrate the past performance of the product. In the footnote, there is a line stating that the return is calculated “... based on the assumption that distribution is reinvested”.  Do you understand what this means, and why does it matter anyway?

Essentially, there is a key difference between income investing and investing for long term wealth accumulation. For the former, the income (e.g. coupons and dividends received) distributed from the portfolio is usually not reinvested by the investors and is paid out, whereas in the latter case, the income is automatically reinvested back in the same portfolio to let it continue to grow faster and compound over time.

This leads to the concept of total return. Total return usually consists of three components: capital appreciation, income distributed, and additional return if income is reinvested.

breakdown of total returns for funds

If you are an income investor and are not reinvesting your income, then what you actually get is only the income distributed and capital appreciation over time. In the short to medium term, while reinvestment would certainly help to increase the return, the difference won’t be large. However, the additional gain one can get from reinvesting the income consistently would increase more and more in the long run. The effect of reinvestment on total return also depends on the breakdown between capital appreciation and income - the higher the income, the larger the reinvestment effect. The rationale behind it is simple - through reinvesting the income received, you are simply putting more money in the markets to grow and compound over time.

Does this mean that income investors who don’t reinvest shouldn’t care about the total return figures any more? Not really - total return is a standardised way in the fund management industry to represent and compare the performances between different products, and between the products and the benchmarks. Arguably, it is still one of the most important metrics to look at to assess whether the Portfolio has delivered above peer/market performance in its totality despite investors taking out the payout sum. It is a truly apples to apples comparison between different portfolios and different types of funds.

The table below details the historical total return and risk for each portfolio. Historically, Future Income has generated the highest total return with the highest volatility as expected, followed by Higher Income and Stable Income.

summary historical returns income portfolios

What might be surprising to some investors is that the risk statistics, including volatility, 12-month rolling worst return and 2020 March max drawdown for Higher Income Portfolio is almost on par with the Future Income Portfolio. This is an important trade off that we had to make - the higher current income focus of Higher Income Portfolio mandates that the portfolio allocates to higher yielding fixed income sectors that have higher credit risk (default risk) and are more equity-like in terms of its volatility and maximum drawdown. However, the Future Income portfolio is focused more on the need to grow the invested principal capital so that through capital appreciation you can grow the portfolio and the potential for future payouts. This is achieved by gaining a greater exposure to equities. The equities funds have some dividend income payout but also include core equities funds that focus on long term capital appreciation only. The objectives and therefore the needs of the client these portfolios are trying to meet, are slightly different.

It is also important to keep in mind that it is possible for the capital appreciation to turn negative as the market fluctuates. For example, in 2020 March, we saw large drawdowns in the capital for all three portfolios as both fixed income and equity markets got sold down. This would have been the case in 2008~9 during the Global Financial Crisis, and again in September to November 2021 more recently in varying degrees. Understandably, these portfolios incurred mark-to-market losses despite still being able to deliver income. Some of the funds had to pay income from capital during this period due to such exceptional circumstances, but the market typically rebounds sharply and the portfolios regain their capital losses over time. We will delve into the details of the historical income payout, capital appreciation, and risk levels in the upcoming deep dive section for each of the Income portfolios.

Deep Dive into the Stable Income Portfolio

Key considerations: 

  • A passive income targeting portfolio with current payout target of 4-5% p.a. that is used primarily to generate a monthly regular payout of income or to supplement retirement income.
  • A focus on capital preservation and lower volatility/risk. 
  • A high quality and diversified fixed income portfolio that is suitable for more mature people who generally prefers lower risk investments 
  • A consistent and predictable income stream to improve cash flow visibility 

Portfolio allocation and characteristics 

  • It allocates to four high quality fixed income funds, all are investment grade on average. Fidelity Asian Bond Fund is a pure Asian investment grade bond fund with no high yield allocation, whereas the remaining three funds have some high yield allocation. But on average, the high yield exposure in this portfolio is small compared to other portfolios and its Emerging markets exposure is primarily towards short duration with lower volatility in returns.
  • Geographically, the Portfolio is overweight to Asian and Emerging markets. The reason is because keeping credit quality constant, Asian bonds offer attractive yield pick-up compared to the global market. The allocation to emerging markets is for a similar reason. While emerging market debt generally is a more volatile market, the Neuberger Berman Short Duration Emerging Market Fund we chose is on average investment grade quality, only invests in hard currency emerging market bonds (which is more stable than local currency bonds), and has a short duration focus, limiting its sensitivity to rate increase in the US or globally. If we look at the historical volatility data for this fund (relatively low) vs the 4.5% yield it generates (relatively high) - it offers a really good trade off. 
  • The duration of the Portfolio currently stands at 4.1 years. It was a deliberate choice to keep the duration, hence interest rate sensitivity, relatively lower compared to other portfolios. 
stable income summary portfolio
stable income region breakdown

Portfolio risk and return


  • As explained before, the return that the income portfolios deliver consists of payout and capital appreciation assuming one does not reinvest the payout. The chart below displays the current payout target of the Stable Income Portfolio, which is at 4-5% range, as well as an estimated capital appreciation range of -0.5% to 2%. The estimated total return p.a. is a simple sum of the other two ranges. 
stable income summary
Source: Endowus

Note: Current payout target, estimated capital appreciation and estimated total return are not guaranteed and are estimates only. Your principal invested amount may or may not be returned in full. These targets and estimates are subject to market movements and fund manager’s decisions that are outside the control of Endowus and therefore may not be realised in the future.

  • It is important to understand that the estimated capital appreciation data, and hence the estimated total return data, are long term figures. The figures are computed based on 10 year rolling historical data and on the monte-carlo simulation of 10-year annualised return; the 5% worst and best scenarios are then taken from the historical range and the monte carlo simulation respectively. 
  • Here is an example of how you should interpret the range given: assume you invest S$100,000 and the portfolio’s estimated capital appreciation p.a. range is -0.5% to 2.0%. After 10 years, your portfolio’s investment value can range between an estimated S$95,111 (-0.5% p.a.) and S$121,899 (+2.0% p.a.). 
  • For the actual historical total return figures, one could refer to the “Portfolio characteristics” chart in the previous section and on a 5-year basis, the portfolio has realised a 3.74% total return which falls within the long term estimate. 
risk metrics Endowus income portfolios
  • It is crucial to understand that in the shorter term, the Portfolio can experience volatility and realise capital appreciation / total return that’s worse or better than the estimated long term figures. The above table illustrates some of the historical cases when the portfolio experienced dislocations on the downside: 
  • Looking at 12-month rolling returns, during the 2008 financial crisis, the Portfolio would have gone down by around -12%. It was more resilient during the 2020 March period, but it still suffered a -3.2% loss if you held it from 2019 April to 2020 March. 
  • Looking at historical max drawdown, during the 2020 March period the Portfolio went down by about -14% and the drawdown started on March 5 and recovered on July 30. 
  • These are the worst outcomes and the estimated capital appreciation and total return numbers gives a more accurate reflection of what the mean average outcomes should be. 

Historical distribution and capital appreciation 

  • Three out of the four funds offer fixed dollar distribution on a monthly basis subject to regular review by the fund managers. For NB Short Duration Emerging Markets Fund, while they don’t pay a fixed amount, the distribution is smoothed out month to month so that there won’t be large fluctuations. 
stable income payout schedule of different funds


  • Historically, this portfolio has delivered really consistent payouts both in dollar amount (see blue line in the chart below, which indicates the $ amount you get if you invest $100k) as well as in terms of annualised yield (this means $ amount divided by the price of the portfolio). Of course both are not completely fixed, as the fund managers consider the market environment to decide whether the current fixed amount is achievable in the prevailing market environment. But the month to month fluctuations have been small, and we don’t expect drastic revisions to be frequent at all. In fact during the 2020 March drawdown, even though the mark-to-market impact from dislocations in the fixed income market caused the capital appreciation to be negative, the Portfolio was able to pay the expected income payout. 
historical monthly payout of stable income


  • The second chart below shows the historical capital appreciation of the Portfolio as well as its underlying funds. PIMCO Income obviously has delivered the highest capital appreciation (the trade offs, of course, it has the lowest payout). The Portfolio value dropped below the original $100k invested during three periods in the past 5.5 years: 1) 2018 during the Fed tightening cycle 2) 2020 March Covid sell-off and 3) 2021 YTD Fed tapering and inflationary concern coupled with the Asian fixed income sell off which also affected emerging markets bonds. These fixed income related market events do affect the Portfolio and may cause temporary loss in capital. But the Portfolio is meant to be held for the long term, so that short term market volatility would not affect the long term target of capital preservation. 
capital growth of stable income portfolio


Deep Dive into the Higher Income Portfolio 

Key considerations

  • Meet the need for higher monthly income with a current payout target of 5~6% p.a. in order to cover higher living expenses for working adults with heavier financial responsibilities. 
  • At the same time, target moderate growth in the amount invested through capital appreciation to help this group continue to build wealth into retirement and increase the ability to receive higher payouts in the future. 
  • Combine 80% higher-yielding fixed income allocation with 20% dividend-focused equity allocation - still an overall prudent allocation but with additional calculated risk especially in the fixed income allocation that this age group can afford to take on to achieve the aforementioned twin objectives. 

Portfolio allocation and characteristics 

  • It allocates to 8 funds, 5 of which are fixed income funds and 3 of which are equity funds. The split between fixed income and equity allocation is 80% and 20%. 
  • On the fixed income side, the Portfolio emphasises higher yielding and lower credit quality sectors, namely high yield bonds globally. Two funds with 25% allocation in total invests in US and global high yield bonds exclusively, while AB American Income and NB Short Duration Emerging Markets have partial allocations to high yield bonds in the US and emerging markets respectively. The high yield allocation is then balanced with investment grade bonds in both developed and emerging markets, some securitised credit exposure and some government bonds exposure. Such portfolio composition is necessary in order to achieve the relatively high income payout target objective of the Portfolio.  The Portfolio also has the largest US exposure (above 50%) in its fixed income allocation amongst the 3 Endowus Income Portfolios as a result. 
  • The weighted duration of the Portfolio currently stands at 4.59 years for the fixed income portion of the portfolio which is slightly higher than the Stable Income portfolio as it takes on more credit, interest rate/duration risk to achieve the higher payout target. However, this is meaningfully lower than the typical global core fixed income portfolios and this is a deliberate choice to keep the duration, hence interest rate sensitivity, relatively low for the Portfolio.
  • On the equity side, the Portfolio allocates to high-dividend generating equity markets. Consequently, geographically, it has a bias towards Asia and Europe while being underweight the US . Sectorally, it is overweight real estate and infrastructure sectors compared to the broad market (represented by MSCI ACWI index). These equity segments provide higher than market dividend income, and are also the impetus for long term capital appreciation to be achievable for the Portfolio.  
higher income underlying funds performace
endowus higher income portfolio

Portfolio risk and return

  • As explained before, the return that the income portfolios deliver consists of payout and capital appreciation assuming one does not reinvest the payout. The chart below displays the current payout target of the Higher Income Portfolio, which is at a 5-6% range, as well as an estimated capital appreciation range of -1.5% to 3%. The estimated total return p.a. is a simple sum of the other two ranges. 
higher income summary
Source: Endowus

Note: Current payout target, estimated capital appreciation and estimated total return are not guaranteed and are estimates only. Your principal invested amount may or may not be returned in full. These targets and estimates are subject to market movements and fund manager’s decisions that are outside the control of Endowus and therefore may not be realised in the future.

  • It is important to understand that the estimated capital appreciation data, and hence the estimated total return data, are long term figures. The figures are computed based on 10 year rolling historical data and on the monte-carlo simulation of 10-year annualised return; the 5% worst and best scenarios are then taken from the historical range and the monte carlo simulation respectively. 
  • Here is an example of how you should interpret the range given: assume you invest S$100,000 and the portfolio’s estimated capital appreciation p.a. range is -1.5% to 3.0%. After 10 years, your portfolio’s investment value can range between an estimated amount of  S$85,973 (-1.5% p.a.) and S$134,392 (+3.0% p.a.)
  • For the actual historical total return figures, one could refer to the “Portfolio characteristics” chart in the previous section and on a 5-year basis, the portfolio has realised a 5.58% total return which falls within the long term estimate. 
risk metrics endowus higher income
  • It is crucial to understand that in the shorter term, the Portfolio can experience volatility and realise capital appreciation / total return that’s worse or better than the estimated long term figures. The above table illustrates some of the historical cases when the portfolio experienced dislocations on the downside: 
  • Looking at 12-month rolling returns, during the 2008 financial crisis, the Portfolio would have gone down by around -25%. It was more resilient during the 2020 March period, but it still suffered a -6% loss if you held it from 2019 April to 2020 March. 
  • Looking at historical max drawdown, during the 2020 March period the Portfolio went down by about -25.28% and the drawdown started on January 21 and recovered on November 5. Note that this is a markedly larger drawdown than Stable Income, and reflects the higher risk one needs to take to achieve the higher income and growth objective. 
  • These are the worst outcomes and the estimated capital appreciation and total return numbers gives a more accurate reflection of what the mean average outcomes should be. 

Historical distribution and capital appreciation 

  • Six out of the eight funds offer fixed dollar distribution on a monthly basis subject to regular review by the fund managers. For NB Short Duration Emerging Markets Fund, while they don’t pay a fixed amount, the distribution is smoothed out month to month so that there won’t be large fluctuations. For the BlackRock Global Real Assets Securities Fund, gross income received by the portfolio monthly is passed directly to investors and there is no smoothing. However, it was necessary to include this fund because of its attractive distribution level - overtime, it targets a minimum distribution of 6% and the history has been an average annual distribution of above 8%. The allocation to this Fund is modest so that fluctuations of its payout won’t cause significant fluctuations for the Portfolio as a whole. 
monthly payout endowus higher income


  • Historically, the portfolio has delivered relatively consistent payout, ranging from $420 to $470 per $100k invested per month, or 5.2% to 6% in terms of annualised payout yield (see the first chart below).  Of course these numbers are not completely fixed, as the fund managers consider the market environment to decide whether the current fixed amount is achievable in the prevailing market environment. But the month to month fluctuations have been small, and we don’t expect drastic revisions to be frequent at all. In fact, even during the 2020 March drawdown, even though the mark-to-market impact from dislocations in the fixed income market caused the capital appreciation to be negative, the Portfolio was able to pay the expected income as payout.
historical monthly payout endowus annualised yield


  • The second chart below shows the historical capital appreciation of the Portfolio as well as its underlying funds. This portfolio has a relatively shorter historical period compared to the other two portfolios due to a shorter common inception date among its portfolio’s underlying funds. However, it is still worth comparing how the portfolio did against the others especially during the March 2020 sell off. 
  • During the March 2020 Covid sell off, all the funds experienced drawdowns, causing a sharp dip of the Portfolio’s capital. The portfolio obviously had a recovery since then but again recently months have seen some dip in the capital due to the market corrections in both equities and fixed income. 2021 YTD Fed tapering and inflationary concern coupled with the Asian fixed income sell off which also affected emerging markets bonds. These fixed income related market events do affect the Portfolio and may cause temporary loss in capital in the fixed income portion of the portfolio so it is not just the equities portion that is volatile. However, the Portfolio is meant to be held for the long term, so that short term market volatility would not affect the long term target of capital preservation. We can also see that generally the three equity funds (which are the three higher lines) have stronger capital appreciation, and in the long term, they should drive the moderate capital appreciation potential of the overall Portfolio. 
endowus higher income capital appreciation


Deep Dive into the Future Income Portfolio

Key considerations

  • Deliver a lower level of income with a current payout target of still a decent 3-4% p.a. but with a higher capital appreciation potential for younger investors who would like to have some regular income to supplement their income and fund their hobbies and lifestyle.
  • However, they can afford to not rely on just the current payout but attempt to grow their wealth into the future by pursuing capital appreciation, which will build their wealth and achieve a higher level of potential payouts in the future.
  • Combine 60% high quality fixed income allocation with 40% equity allocation to achieve the dual income and growth objectives; this is a balanced multi-asset portfolio that should be within the risk tolerance of younger generations who have a longer investment horizon.

Portfolio allocation and characteristics 

  • It allocates to 9 funds, 4 of which are fixed income funds and 5 of which are equity funds. The split between fixed income and equity allocation is 60% and 40%. 
  • On the fixed income side, the Portfolio mostly allocates to investment grade funds with a small 5% allocation to a US high yield fund.  Overall it has the largest allocation to investment grade bonds, with the rest fixed income allocation almost equally split between emerging markets bonds, securitised credit and high yield bonds. Geographically, the Portfolio has a bias to Asia. The reason is because keeping credit quality constant, Asian bonds offer attractive yield pick-up compared to the global market. Generally, the risk is taken on by the equities portfolio as opposed to the lower risk from the fixed income portfolio, as opposed to Higher Income portfolios, which had higher risk from within the fixed income portfolio but lower risk contribution from the equities asset allocation. 
  • The weighted duration of the Portfolio overall currently stands at 3.2 years for the  fixed income portion of the portfolio which was a deliberate choice to keep the duration, hence interest rate sensitivity, relatively low for the Portfolio. This is to offset the higher equity portfolio contribution to overall volatility and risk of the portfolio. 
  • On the equity side, the Portfolio allocates to both dividend focused funds as well as accumulating funds. The two accumulating funds are Dimensional World Equity Fund and Schroder Global Emerging Markets Opportunities Fund; unlike the other three equity funds, they don’t pay dividends and are purely focused on long term growth. Geographically, the equity allocation has a strong bias to emerging markets equity and Asia equity (part of Asia belongs to emerging markets) because of the higher growth potential in these markets in the long term. Its sector allocation is generally in line with the MSCI ACWI index despite small deviations. 
future income underlying fund performance
future income breakdown geography

Portfolio risk and return

  • As explained before, the return that the income portfolios deliver consists of payout and capital appreciation assuming one does not reinvest the payout. The chart below displays the current payout target of the Higher Income Portfolio, which is at a 3-4% range, as well as an estimated capital appreciation range of 1.0% to 6%. The estimated total return p.a. is a simple sum of the other two ranges. 
future income summary
Source: Endowus

Note: Current payout target, estimated capital appreciation and estimated total return are not guaranteed and are estimates only. Your principal invested amount may or may not be returned in full. These targets and estimates are subject to market movements and fund manager’s decisions that are outside the control of Endowus and therefore may not be realised in the future.

  • It is important to understand that the estimated capital appreciation data, and hence the estimated total return data, are long term figures. The figures are computed based on 10 year rolling historical data and on the monte-carlo simulation of 10-year annualised return; the 5% worst and best scenarios are then taken from the historical range and the monte carlo simulation respectively. 
  • Here is an example of how you should interpret the range given: assume you invest S$100,000 and the portfolio’s estimated capital appreciation p.a. range is 1% to 6%. After 10 years, your portfolio’s investment value can range between an estimated amount of  S$110, 462 (1% p.a.) and S$179,085  (6.0% p.a.)
  • For the actual historical total return figures, one could refer to the “Portfolio characteristics” chart in the previous section and on a 5-year basis, the portfolio has realised a 6.99% total return which falls within the long term estimate. 
future income risk metrics
  • It is crucial to understand that in the shorter term, the Portfolio can experience volatility and realise capital appreciation / total return that’s worse or better than the estimated long term figures. The above table illustrates some of the historical cases when the portfolio experienced dislocations on the downside: 
  • Looking at 12-month rolling returns, during the 2008 financial crisis, the Portfolio would have gone down by around -24%. It was more resilient during the 2020 March period, but it still suffered a -6.68% loss if you held it from 2019 April to 2020 March. 
  • Looking at historical max drawdown, during the 2020 March period the Portfolio went down by about -26.47% and the drawdown started on January 21 and recovered on October 12. Note that this is a markedly larger drawdown than Stable Income, and reflects the higher risk one needs to take to achieve the higher income and growth objective. 
  • These are the worst outcomes and the estimated capital appreciation and total return numbers gives a more accurate reflection of what the mean average outcomes should be. 

Historical distribution and capital appreciation 

  • 5 out of the 7 distributing funds pay fixed amounts monthly subject to regular reviews by the fund managers. FSSA Dividend Advantage Fund pays out quarterly and the amount is based on a fixed target yield, currently at 4%. For NB Short Duration Emerging Markets Fund, while they don’t pay a fixed amount, the distribution is smoothed out month to month so that there won’t be large fluctuations. 
future income underlying payout
  • The overall payout of the portfolio has been consistent with a steady monthly distribution overall and a spike every quarter when the payout from the FSSA Dividend Advantage fund is received. For the months that FSSA Dividend Advantage does not pay, the payout per $100k invested ranged from $260 to $290. For the months that FSSA pays, the payout per $100k invested ranged from $340 to $410 (see the first chart below). Of course these numbers are not completely fixed, as the fund managers consider the market environment to decide whether the current fixed amount is achievable in the prevailing market environment. But the month to month fluctuations have been small, and we don’t expect drastic revisions to be frequent at all. In fact, even during the 2020 March drawdown, even though the mark-to-market impact from dislocations in the fixed income market caused the capital appreciation to be negative, the Portfolio was able to pay the expected income as payout.
historical future payout for endowus income portfolio future income
  • The second chart below shows the historical capital appreciation of the Portfolio as well as its underlying funds. The Portfolio’s value had falls during three periods during the past 5.5 years’ period: 1) 2018 during the Fed tightening cycle 2) 2020 March Covid sell-off and 3) 2021 YTD Fed tapering and inflationary concern coupled with the Asian fixed income sell off which also affected emerging markets bonds. These fixed income related market events do affect the Portfolio and may cause temporary loss in capital in the fixed income portion of the portfolio so it is not just the equities portion that is volatile. However, the Portfolio is meant to be held for the long term, so that short term market volatility would not affect the long term target of capital preservation. We can also see that generally the equities funds have stronger capital appreciation, and in the long term, they should drive the higher capital appreciation potential of the overall Portfolio. 
capital gains for historical portfolio

Conclusion  

Endowus Income Portfolios were thoughtfully and carefully prepared following extensive due diligence of hundreds of income funds, dividend funds and other investment solutions to make sure that we bring the best-in-class funds to craft the portfolios. However, the more important driver in the design of the portfolio is the client and their needs. A proper investment plan and a thoughtful portfolio always has its starting point in understanding the needs to be met - this is why we started with hearing from you, the clients, for whom these portfolios were built. It is then important for each client to correctly assess which of the Endowus Income Portfolios suits their current payout and their future payout (driven by capital appreciation) needs and what level of risk and volatility that they are comfortable with.

In general, the income portfolios are built to meet a very specific need and income goal. Thus it may not perfectly fit into the Core-Satellite strategy on the Endowus platform, hence the following chart was made to help conceptualise and map out where the Income Portfolio generally sits in our Advised portfolio design. There are some overlaps as the Core portfolios are built across the whole risk spectrum, and so the chart is to provide a general idea but the risk slider and risk questionnaire within the platform is built to help guide you in your actual investment journey on the platform. Generally the Income portfolios do sit left of the Core and Satellite portfolios and like the Cash Smart solutions, were designed for a very specific need of clients. 

endowus different portfolio risk return metrics

It is important to remember that generally the higher income requirement necessitates a higher risk tolerance level. It is also important to realise, while Income Portfolios meet certain specific needs, it is not for everybody. In particular, if your primary motive for investing is to build your wealth towards long term capital appreciation then be sure to start first with the Endowus Core portfolios instead. Both Flagship and ESG sustainable portfolios are globally diversified, low cost solutions for long term wealth building through capital appreciation. 

For those who participated in the survey and have been seeking an income portfolio from Endowus, it is finally here for you and it tackles and solves most of the problems that existing income products have. We have leveraged some of the best-in-class solutions from global fund managers in three thoughtfully designed, robust investment portfolios.  Most importantly, we always put you, the client, first in meeting your needs, in designing institutional quality advised portfolios, and lowering the cost of access to the lowest achievable through innovative methods such as the 100% trailer fee rebates or access to institutional share class of funds. 

We aspire to provide the highest quality advice and to do it as transparently as possible to you. The Endowus Investment Office is always busily working around the clock to design, build, optimise and maintain your portfolios, making sure to keep it in check and provide you with the necessary information and tools to help you make the most optimal decisions in building your personalised portfolios to meet the financial goals and aspirations of you and your loved ones. We hope the Endowus Income Portfolios will be a welcome addition to the suite of solutions to make your life easier today and better tomorrow. To get started, click here.

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Any opinion or estimate above is made on a general basis and none of Endowus, nor any of its affiliates, representatives or agents have given any consideration to nor have made any investigation of the objective, financial situation or particular need of any user, reader, any specific person. Opinions expressed herein are subject to change without notice.

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.

For details of the funds, their related fees, charges and risk factors, please refer to respective funds’ prospectuses. 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 which are available. Please note that the prospectus, profile statement, product highlight sheet, fund factsheet or other offer or product documents may contain references about the expected risk tolerance of their target investors. These are in no way indicative of how we at Endowus have assessed your risk tolerance based on your stated objectives and financial situation. Endowus accepts no responsibility for investment decisions made in response to the expected risk tolerance levels mentioned in the product or offer documents.

This advertisement has not been reviewed by the Monetary Authority of Singapore.

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