Endowus Cash Smart - Launch of Cash Smart Ultra & March Update
Endowus Insights

Endowus Cash Smart - Launch of Cash Smart Ultra & March Update

April 15, 2021
  • We are officially launching Cash Smart Ultra, in addition to our existing Core & Enhanced offerings, to provide maximum yield opportunity to our investors.
  • Previously, we had presented an option to create an "Ultra" portfolio on the Endowus Fund Smart platform for clients to supplement their cash management needs. However, with this launch we are upgrading the portfolio and making it even easier for clients to target the highest achievable cash yields.
  • The new Cash Smart Ultra will be a dynamically managed solution that will always target the highest yield from a combination of carefully selected short duration fixed income funds and money market funds, and will target 1.8~2.0% yield -- the highest in the market among cash management accounts.
  • We are also revising the projected net yield for Cash Smart Core upwards to 0.8 ~ 1.0% and for Cash Smart Enhanced to 1.2% ~ 1.5%. All Endowus Cash Smart solutions are generating better-than-expected performance results driven by both yield and returns.

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.

What is Endowus Cash Smart Ultra?

Endowus is launching the third solution in its Cash Smart series. Cash Smart Ultra is a new dynamic portfolio that will be adjusted by the Endowus Investment Office to always target the highest yield possible through an optimised portfolio. The solution was created by bringing together the best short duration fixed income and money market funds to create a low volatility, high yielding portfolio to manage your short term cash and liquidity needs.

While we know that risk and yields are positively correlated and we are not able to generate higher yield without taking the incremental risk to achieve it, we have optimized the portfolio construction to maximise yields while minimising volatility and downside risk through the careful selection of the underlying funds and optimising the portfolio covariance.

Historical Performance, Risk & Returns of Cash Smart Solutions

table of Historical Performance, Risk and Returns of Cash Smart Solutions
Source: Endowus, Bloomberg. Return & standard deviation are calculated using daily return numbers from 1 December 2018 to 12 April 2021, assuming 252 trading days per year. Performance figures are inclusive of fund level TER, but does not take into account trailer fee rebates and Endowus access fee.

We have seen a plethora of cash management accounts in the market by digital and traditional players, competing in attracting bank deposits (which are currently returning virtually nothing in interest payments). The existing Endowus Cash Smart Core and Enhanced solutions already have one of the highest yields, best performance, and best risk management compared to other solutions in the market. Our current net projected yield for Cash Smart Enhanced is the highest in the market as well. However, we believe our client base would benefit from an additional third higher yield targeting solution, and we have developed Cash Smart Ultra as an upgraded version of the previous iteration.

There are many platforms that purport to be targeting higher yield, but they are often being heavily subsidised through the shoring up of synthetic "yield" by paying out of their own pocket. We have created a solution that works to achieve the highest yield possible in the form of Cash Smart Ultra, while being entirely transparent with the actual underlying yields.

Breakdown of Cash Smart Ultra and Risk Return Analysis

table of Breakdown of Cash Smart Ultra and Risk Return Analysis
Source: Endowus, Bloomberg, Fund Management Companies. Net fees = TER - trailer fee rebate. Return & standard deviation calculated using daily returns from 1 December 2018 to 12 April 2021, using 252 trading days per year.

After extensive analysis, we have selected the best-in-class short duration bond funds available from the leading money managers in Singapore, such as Fullerton Fund Management, Lion Global Investors, Nikko Asset Management , PIMCO and UOB Asset Management. By thoughtfully mixing and matching, and continuing to select only the funds with the highest yielding assets with the lowest volatility, we have created Cash Smart Ultra with optimised covariance and risk-adjusted returns. Thus we were able to achieve the highest yield, net of all fees. Endowus is the only digital wealth platform that is able to build a multi-manager portfolio by accessing multiple funds to build this optimised portfolio. Similar to the rest of our platform, we achieve the lowest cost through exclusive institutional share classes and also through our unique 100% trailer fee rebate system.

graph of historical performance of cash smart portfolios, from 1 july 2020 to 12 april 2021

As you can see from the above chart, the performance of Endowus Cash Smart Core and Enhanced have been steady and strong since their launch on 1 July 2020. All of the Endowus Cash Smart solutions have delivered higher returns than originally projected. The table below shows the monthly and overall performance of the three portfolios and underlying funds since their respective launches. Actual net returns since launch and annualised rates of return are in line or higher than the projected yield numbers we shared with our clients at the time of launch. Cash Smart Core performed in line with the projected yield -- its annualised return since launch is 1.25%, which is at the higher end of the projected yield at time of launch.

Endowus Cash Smart portfolios have performed better than the projected yield

table of endowus cash smart portfolio returns compared to projected yields
Source: Endowus Research, Bloomberg. Performance numbers since launch are from 1 July 2020 to 12 April 2021. Returns shown are net of fund level fees, trailer fee rebate, and Endowus access fee.

Cash Smart Enhanced did better than the projected yield at time of launch. It has since generated an annualised return of 2.57% compared to the 1.9-2.2% projected yield range at the time of launch. It had more pronounced returns because the solution includes a short duration fixed income fund with higher duration exposure. In this low interest rate environment, to get higher yields, investors have to either take on longer durations or higher 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.

The Cash Smart Ultra follows the same vein and historical performance has been exceptional. However, it also has periods of drawdown(fall in returns). We have optimised the Cash Smart Ultra to be held for a slightly longer period of time versus the Core or Enhanced in order to achieve the long term projected yields and there are periods of drawdowns that we go into in greater detail below.

The benefits of diversification for Cash Smart Ultra

table of fees, yield, duration and credit ratings for different funds
Source: Endowus, Fund Manager Pages. Duration and credit ratings of the funds are as of 28 Feb 2021. All projected Net Yield is taking the gross yield and subtracting the Fund level fees and the Endowus Access Fees and adding the trailer fee rebate. This is the total cost and there are no other hidden costs or fees.

Diversification is the only free lunch in finance. The seminal research in 1959 by Harry Markowitz on portfolio theory regarding the benefits of diversification is what earned him the Nobel Prize for Economics in 1990. The same diversification benefits by using a multi-manager portfolio construct that enhances the risk adjusted return and reduces the volatility of the overall portfolio even though there are some single funds that are components of the portfolio that have higher risk profiles. It is the covariance (the measure of relationship between two random variables) of different funds that allows for the diversification benefits and enhances the overall portfolio level benefits.

table of comparison between 3 cash smart portfolios

For Cash Smart Ultra, this diversification strategy plays out beautifully as the maximum drawdown is limited to just -2.59% in a worst case scenario while, the projected yield can be maximised with a lower than average weighted duration limiting us to the duration risk that is an unnecessary risk to take for a short duration product like Cash Smart. The overall cost is also optimised to the lowest achievable and net fees even after Endowus Access fees are just 0.38% and so the projected yield can be up to 2%.

Better actual numbers driven by both yield and returns

Since the launch of our Cash Smart portfolios, we have revised the yields almost on a monthly basis. In fact, we have led the industry practice in regularly updating the projected yields. However, it is important to note that we have always erred on the side of caution by providing a conservative estimate of the projected yield. We have also provided a range instead of a fixed number to accurately reflect the reality that the yields will continue to fluctuate with rising or falling interest rate environments.

The result is that Endowus Cash Smart portfolios have consistently delivered higher returns than historical projected yields. The below charts illustrate the point by comparing the actual annualised returns of Cash Smart Core and Enhanced portfolios to the historical projected yields. Over the past 6 periods in which revisions of projected yields were made, the portfolios have generated actual returns either within the range or well above the projected yield range on all occasions.

Historical returns are not an indicator of future returns, but in the space of short duration bonds and money market instruments, it is possible to have a much higher level of visibility on yield to maturity and returns outlook.

The Cash Smart Ultra's historical performance is exceptional delivering 5.26% return in the past 1 year, and an annualised return of 3.72% since Dec 2018 even through the COVID-19 market disruptions and maximum drawdown (peak to trough falls) of -2.59%.

Cash Smart portfolios are defensive even when yields rise

There might be some concerns from investors on the recent spike in the treasury yield. Since mid Feb, the US treasury yields have risen due to expectations of reflation. However, the short end of the curve is still anchored at a low level, and the Fed has assured that it will not reverse its loose monetary stance in the foreseeable future.

Endowus Cash Smart portfolios are defensive in such an environment due to their focus on money market instruments or the short-end of the yield curve with only low duration exposure. The defensiveness has indeed been borne out by the recent portfolio performance.

A fixed income portfolio's duration measures how much the portfolio's price will drop when interest rate goes up. Endowus Cash Smart portfolios' underlying funds are prudently managed to suit short term liquidity needs by having very limited duration exposure. This is another reason why we are concerned about some of our competitors' recent launches which seem to be taking more duration risk and may be affected by the pick up in yield at the longer end of the yield curve.

Endowus Cash Smart portfolios remain attractive

graph of major interest and savings rates from jan 2020 to march 2021

As shown by chart above, interest rates collapsed globally in March 2020 and have continued to fall in the subsequent months. Currently, whether it is SIBOR, government bills, savings accounts, Singapore Savings Bonds or bank fixed deposits - all are well below 1% and remain significantly lower than what you can get from the Endowus Cash Smart solutions.

Furthermore, with traditional savings methods, such as bank fixed deposits, investors' monies are 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, with no lock-ups.

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.

Comparison of Endowus Cash Smart projected yields with deposits

infographic comparing Endowus Cash Smart projected yields vs major deposits rates

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 provide an update on a regular 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.

Cash Smart underlying funds' monthly gross projected yields

chart of gross projected yields of endowus cash smart portfolios
Source: Endowus Research, Bloomberg

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.

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