Endowus Cash Smart: An in-depth analysis from our investment office

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

Key Features of Cash Smart

• Up to 2% projected yields with daily accrual of interest returns.
• No lock-ups & unlimited transfers.
• Safe & diversified across risk and return.
• Tailored for you with a choice of two solutions.
• Low cost with 100% trailer rebate getting to the lowest costs.
• Assets securely held in your own name at UOB Kay Hian
• Managed by Singapore's biggest money managers. For the introductory article on the launch of Endowus Cash Smart, please click here.

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Unprecedented sharp drop in interest rates

As the market turmoil in March played out, central banks around the world came out with a series of monetary easing policies which resulted in rapid interest rate cuts and massive liquidity injections including quantitative easing. Singapore has not been able to avoid this global trend of falling market interest rates. All measures of market interest rates from SIBOR to bank deposit rates have collapsed from March to new historic low levels.

A very popular measure of interest rates achievable for consumers and savers has been the use of the Singapore Savings Bond (SSB) return rates. The SSBs, in just six months, from January to June of 2020, have seen yields drop by ~1% point or more across the curve. The one year returns for SSBs have dropped to just 0.3% and the 10 year returns are also below 1% for the first time hitting 0.8% last month.

Despite this bank deposits in Singapore spiked up this year as i) individuals saved more money or made their savings more liquid, ii) market volatility prevented people from putting money to work in markets and iii) government handouts started hitting the bank accounts for individuals and companies alike.

It is difficult to find safe places to store cash and liquidity and still achieve a decently high yield. We created Cash Smart to solve this problem. We wanted to bring together the best combination of safety, liquidity and higher yields in a liquid and hassle-free cash management solution for you, our clients.

We were fed up with fixed deposits locking our money up and not giving us any options to get the money out without a penalty, the super-low interest on our current accounts that might as well be zero, and all the hoops and hurdles we had to go through to get that extra 0.1% on our savings deposit accounts at banks. The banks also keep revising down the measly interest rates.

We also want to help SRS investors who are saving for retirement by making their tax-efficient SRS work harder for them with higher interest rates, because if you just leave it in the bank account it receives a puny 0.05%.

So we did what Endowus does best: we thought out of the box and took a deep look at everything that was available to us and then created something that we ourselves would love to have as an option to put our money in. Because that is how we began our digital investment wealth platform, that's how we became the first CPF digital advisor, that's how we brought Vanguard-managed passive investing exclusively to CPF investing, that's how we came up with the Endowus trademark of 100% trailer fee rebates and that's how we came up with giving institutional fund access to individual retail investors. Our Cash Smart product is the perfect combination of safety, higher yield, and flexible management of your short term liquidity in cash.

How we made Cash Smart

We looked at all the products and solutions that were available in the market for retail investors and chose the best-in-class solutions and combined them to achieve our goal of safety, liquidity, higher yield, and Cash Smart portfolios are composed of cash, money market and short duration bond funds, which are investment funds that hold high quality and low volatility institutional fixed deposits and fixed income instruments. There are no lock-ups for these funds with daily liquidity and every day your interest/yield accrues with no clawback. Please take note of the potential volatility of the underlying instruments, but the combined funds are well diversified and tend to focus on safe places - institutional bank fixed deposits, government bills & securities and high-quality corporate bonds with a short period until maturity so there is less or minimal fluctuation in price to reduce volatility and risk of loss.

Endowus Cash Smart's portfolios are made of funds managed by Fullerton Fund Management (a subsidiary of Temasek and also owned by NTUC), Lion Global Investors (a subsidiary of OCBC Group), and UOB Asset Management (a subsidiary of UOB Group), the three largest domestic fund managers in Singapore.

By combining the best institutional fixed deposits, money market instruments and short term interest products, we have built two great high yielding solutions for our clients to meet their needs of safety and their desire for higher interest rates. This new offering allows Singaporeans to conveniently grow their cash while still remaining liquid.

So what are these different types of funds?

Cash Fund (lowest risk):
A cash fund invests primarily in a diversified portfolio of institutional bank fixed deposits. Cash funds are considered to be the lowest risk of any investment funds with a potential loss risk of 0.01% or less in the case of a maximum drawdown.?

Money Market Fund (very low risk):
A money market fund invests primarily in a diversified portfolio of institutional bank fixed deposits, as well as high quality investment-grade and very short duration government and corporate debt instruments. They are diversified across varying issuers and tenures maintaining a weighted average duration of around 12 months or less. Money market funds are considered to be very low risk in nature with a potential loss risk of 0.05% in the case of a maximum drawdown.

Short Duration Bond Fund (low risk):
A short duration bond fund invests primarily in a diversified portfolio of institutional bank fixed deposits, as well as high quality and investment-grade short duration government and corporate debt instruments. They are diversified across varying issuers and tenures maintaining a weighted average duration of around 24 months or less. Short duration bond funds are higher risk than cash and money market funds but still considered to be low risk in nature, with a potential loss risk of around 2% in the case of a maximum drawdown.

Cash Smart CORE is composed of 2 funds:

50% Fullerton SGD Cash Fund - Class A (ISIN: SG9999005961)
Fund Type: Cash Fund
Fund Manager: Fullerton Fund Management Company Ltd (a subsidiary of Temasek & NTUC)
Description: The fund intends to hold its assets primarily in Singapore Dollar institutional fixed deposits with eligible financial institutions with varying terms of maturity of not more than 366 calendar days. The Managers may also place deposits of varying maturity tenures exceeding 366 calendar days but not more than 732 calendar days, subject to a maximum of 10 percent of the Fund's Net Asset Value.
Fact sheet | Prospectus | PHS/KIID

50% Lion Global SGD Enhanced Liquidity Fund (ISIN: SG9999019301)
Fund Type: Money Market Fund
Fund Manager: Lion Global Investors Limited (a member of the OCBC Group)
Description: The fund aims to preserve capital, enhance income and provide a high level of liquidity by investing in a broadly diversified portfolio of high-quality money market and debt instruments. The Fund's approach to enhancing income while providing liquidity is to invest in a high-quality portfolio of debt instruments diversified across varying issuers and tenures while maintaining a weighted average portfolio credit rating of A- and a weighted average duration of around 12 months. The instruments are held to maturity and yields are amortised.
Fact sheet | Prospectus & PHS/KIID

Cash Smart ENHANCED is composed of 2 funds:

50% Lion Global SGD Enhanced Liquidity Fund (ISIN: SG9999019301) - as above

50% UOBAM United SGD Fund (ISIN: SG9999001382)
Fund Type: Short Duration Bond Fund
Fund Manager: UOB Asset Management Ltd (a subsidiary of UOB Group)
Description: The investment focus of the fund is to invest substantially all its assets in money market and short term interest-bearing debt instruments and bank deposits with the objective of achieving a yield enhancement over Singapore dollar deposits.
Fact sheet | Prospectus | PHS/KIID

Why does Endowus use a projected range?

We use a projected return range rather than a fixed yield to provide maximum transparency to our clients about the varying nature of the actual realised yield as the returns and yields are not guaranteed.

The calculation for the gross projected yield is based on the annualised amortised yield estimate for the portfolio's holdings.

1) It takes into account the individual yield to maturity of the securities, the weighted average maturity, and an amortised schedule of NAV calculation - this is calculated using the hold to maturity value of the overall portfolio.

2) We then take out the total expense ratio (TER) net of any (100%) trailer fee rebates paid back to your account. The TER is calculated to include all costs related to the fund including the annual fund management fee (AMF).

3) We also account for the Endowus Access Fee of 0.05%. The Endowus Access Fee is always smaller than the amount we refund our clients for the 100% trailer fee rebate so the client will always see a net benefit to using the Endowus platform.

This gets us to the net adjusted annualised amortised yield. In calculating the range, during a period of falling interest rates, we calculate the high end of the range using the projected net adjusted yield, and the low end of the range which incorporates the potential future decline in interest rates. When interest rates are seemingly stable, we would use the projected net adjusted yield as the midpoint of the range.

The range is a more accurate reflection of the actual potential realisable yield by the investor, as the underlying securities holdings will fluctuate.

The numbers above are net projected yields - what you will earn on every dollar deposited with Endowus Cash Smart after we have taken out all the fees and charges at the fund level, provided a 100% rebate of the trailer fees, and taken out a very small Endowus Access Fee of 0.05% (the only money we make to help keep the lights on in our office).

Transparency in historical returns and projected yields

In our commitment to full transparency, Endowus will publish a regular updated projected yield at both the gross and net yield level for the Cash Smart Core & Enhanced solutions in the same way banks publish their deposit interest rates. The underlying funds have fluctuated month by month due to the unprecedented volatility we have seen in interest rates and spreads throughout this year. This level of volatility has not been seen since the 2008 global financial crisis.

The three underlying funds have held up relatively well and the combination of the funds have worked well to shield the Endowus Cash Smart solutions from large fluctuations in yield. It is inevitable that the market interest rate falls have and will continue to impact yields, but we have probably seen the biggest moves down already.

Our transparent yield projections and the use of a conservative range of returns will help clients to have a better picture of the expected yields of Endowus Cash Smart now and in the future.

When creating solutions for our clients, we must understand the volatility and drawdown risks (worst performance periods) associated with a portfolio solution. We must also assume a passive asset allocation with no implied backtest fund switching.

During the COVID-induced volatility in March 2020, credit spreads widened and the Enhanced portfolio would have seen a decline of just under 0.92%. It subsequently took 50 calendar days for the Enhanced portfolio to return to its previous high. As the UOBAM United SGD fund is mark-to-market, it does experience more volatility in its daily price. We believe this is very manageable but it is something to be aware of when choosing between Core and Enhanced.

Looking back at history, the worst decline in the Core portfolio was 0.05% during the early inception of the LionGlobal Enhanced Liquidity fund that makes up 50% of the allocation. The Fullerton SGD Cash Fund does not have a single day of drawdown. In the recent March 2020 COVID crisis the Enhance portfolio was down a mere 0.002%.

The below table shows the actual historical performance of the underlying funds and the two Endowus Cash Smart solutions.

In order to meet the varying needs of our clients, we came up with two options that we felt were the best combination of cash, money market and short duration fixed income funds to optimise your cash management needs:

1. Cash Smart Core is for the cash that you need to manage in the near term. It is safer than Cash Smart Enhanced and is unlikely to ever have a day of negative performance. Its worst historical drawdown (negative return from peak to trough) was less than 0.2%. Cash Smart Core has a target return of 1%+ per annum.
2. Cash Smart Enhanced is for the cash you need in the coming months. It has more volatility than Cash Smart Core but rarely has a period of negative performance. Its worst historical drawdown (negative return from peak to trough) was less than 1%. Cash Smart Enhanced has a target return of around 2% per annum.

With Cash Smart, there are no complicated requirements, no minimum credit card spends, no crazy interest rate tables, and no sneaky limits on what you can earn on your balance.

Earn Cash Smart's full returns on any amount you deposit for any amount of time - 1 day, 1 week, 1 month, 1 year, or 1 decade.

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We value transparency. There are no other hidden charges or fees. Transferring money in and out does not incur any charges. There are no account minimums, no maintenance or custody fees, or any other devious schemes to separate you from your money. We do not want to complicate your money, fleece you with all sorts of fees or make you jump through hoops to give you a little more in interest rates.

Endowus is always fighting for fair fees. There are no sales fees, no transaction fees, and 100% trailer fee rebates. Unlike all other fund platforms, we do not collect kickbacks from fund managers. We are only paid by you, the client we serve. With this aligned fee structure, we can continue to work in your best interest and continue to improve your investment outcomes and lower your costs.

What is the cost of Endowus Cash Smart versus popular fund platforms?

It is much lower cost to buy, maintain, and grow your money with Endowus Cash Smart than it would be to replicate them on a popular ?ow cost, no fee?fund platform. Endowus also gives access to institutional share classes which typically are half the cost of a retail fund share class.?

Endowus charges an Access Fee of 0.05% per annum and rebates 100% of trailer fees it receives from the fund company, which are 0.09% for Cash Smart Core and 0.23% for Cash Smart Enhanced, respectively.

Popular ?ow cost, no fee?fund platforms charge 0% to 0.2% (FSM) per annum platform fees. More importantly, they keep the trailer fees to themselves and give access to only the more expensive retail share class.?

Endowus Cash Smart is almost one-third of the cost versus FSM. Banks often add on an upfront sales charge, which is an even greater cost.

The fees - low, aligned & transparent

Lower costs mean higher returns. Committed to transparency and integrity, Endowus has worked hard to lower costs at every layer. Unlike other platforms that collect kickback payments from fund managers, we are only paid by you, the client we serve. For example, the fund-level fee of the Fullerton SGD Cash Fund is 0.15% but 0.05% (or ? ) of that goes back to the platforms like iFast or financial advisors that sold you the fund. For the UOBAM United SGD Fund, the fund-level fee is 0.67% and the rebate is 0.33% (or almost ?). We rebate 100% of this trailer fee back to you and also have no transaction-based fees, so we can work in your best interest, improve your investment experience and outcome, and lower your cost burden.

The trailer fee rebate is greater than the Endowus Access Fee so you know we are always adding value. Furthermore, we save costs to our clients by accessing the institutional class rather than the more expensive retail share class of the same funds.

Endowus has a charge of 0.05% per annum Access Fee based on your value deposited with Cash Smart. For example, if your Cash Smart account has S$10,000, we will transparently make S$5 from you for the whole year (the price of a cappuccino these days). This includes access to the unique cash solutions we have built, portfolio advice & creation, unlimited transactions, all at your convenience on the Endowus wealth technology platform.

Understanding the risks associated with bank deposits versus Cash Smart

Cash Smart is a diversified investment portfolio of cash, money market, and short duration fixed income funds. Cash Smart is not a bank deposit. There are different risks associated with bank deposits as with a solution like Cash Smart.

By placing a deposit with a bank, one should know that the depositor becomes an unsecured creditor, and should that bank fail, then that deposit is 100% at risk. This is why the Singapore Deposit Insurance Corporation was set up and its member banks have deposits insured for up to S$75,000 in the event that the bank fails. Endowus Cash Smart is not insured by SDIC but has much broader diversification than a bank deposit, with many more counterparties and custodians. It also has the potential for high returns given its diversified holdings. This is a reason why Money Market Funds are highly popular in developed markets and why they have become best practice for the day-to-day management of short-term liquidity for both individuals and institutions alike.

Both bank deposits and Cash Smart have credit risk with counterparties. Deposits are loaned out to individuals or companies that can default on the loan, just as a company or government can default on a bond. Both have very low risk as it is diversified across the bank's loan book in the case of deposits, and across holdings of institutional deposits, government bills and high-quality corporate debt in the case of Cash Smart. If banks, governments and large companies go bankrupt then there is a risk of loss. If your bank goes bankrupt then all deposits are at risk but insured up to $75,000 through SDIC. The SDIC has never been activated in Singapore in its history.

In addition, Cash Smart invests in funds. The funds, unlike deposits which sit on the bank's balance sheet, have their assets ring-fenced by trustees and custodians. You, as the investor, have a custodian as well (in our case it is UOB Kay Hian, Singapore's largest broker). With the custodians in place, Endowus and fund managers never touch your money.

What we envision Endowus Cash Smart to be for you

We want Cash Smart to be the go-to cash savings account for all Singapore-based investors. We want it to be a flexible, low cost and high yield cash management account available to all of us. It allows for easy deposit and withdrawal with unlimited free transfers. There are no lock-ups and all your transactions can be made seamlessly on the Endowus digital wealth platform. The Endowus platform directly links to your bank accounts so you can withdraw money whenever needed.

Endowus believes in providing accessibility, flexibility, and security when it comes to growing wealth. Clients can simply transfer and earn returns on any amount of cash they put into Cash Smart and earn returns on any amount they deposit, for any amount of time - 1 day, 1 month, 1 year, or 1 decade. Furthermore, through Endowus' partnership with UOB Kay Hian, Singapore's largest broker, client assets and investments are safely held in the client's own name.

You can hold your cash positions in Cash Smart, and when you desire to make longer-term investments, then you can do so across all sources: Cash savings, CPF and SRS - all in one place on the Endowus platform.

Endowus continues to bring new and innovative products and services, such as Cash Smart, at the lowest cost achievable in the industry. As with all of the Endowus offerings, Cash Smart gives users a fully digital, fuss-free sign-up experience using MyInfo within minutes from the comfort and safety of their own homes.

We will continue to listen to your feedback and improve our product and service offerings. We have a lot of exciting developments in the coming months that will further enhance your experience of money.

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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.

Any forward-looking statements, prediction, projection or forecast on the economy, stock market, bond market or economic trends of the markets contained in this material are subject to market influences and contingent upon matters outside the control of Endow.us Pte. Ltd (“Endowus”) and therefore may not be realised in the future. Further, any opinion or estimate is made on a general basis and subject to change without notice. In presenting the information above, none of Endowus Pte. Ltd., its affiliates, directors, employees, 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 or group of persons. Therefore, no representation is made as to the completeness and adequacy of the information to make an informed decision. You should carefully consider (i) whether any investment views and products/ services are appropriate in view of your investment experience, objectives, financial resources and relevant circumstances. You may also wish to seek financial advice through a financial advisor or the Endowus platform and independent legal, accounting, regulatory or tax advice, as appropriate.

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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