Why we created Cash Smart in the first place

We started Endowus with a mission to help people make the most of their money, so they can live easier today, and better tomorrow and in the future to and through retirement. Today, thousands are invested with Endowus - across cash, CPF & SRS - in optimised portfolios designed for their wealth goals.

We listened to the concerns of our clients who saw interest rates at banks and for the  Singapore Savings Bonds collapse and wanted a safe place to push cash with a decent yield.

So Endowus introduced Cash Smart - an innovative, brand-new cash management solution for the cash sitting idle in your current or savings account earning very little, locked up in a fixed deposit, parked for an upcoming expense or a rainy day - your money should never sit idle.

To us, being smarter with our cash means securely earning higher returns, with no lock-ups, no limits & tiers, no penalties, and no fuss - all conveniently on the Endowus platform. A cash management solution designed for you.

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Interest rates - they keep falling everywhere!

Interest rates collapsed globally in March 2020 and have continued to fall in the subsequent months. We are pretty much at or close to the lowest levels in history, especially in Singapore. The 1-year rates - whether it is SIBOR, government bills, Singapore Savings Bonds or bank fixed deposits - are all well below 1%.

Singapore Savings Bonds for September showed the 1-year interest rates fall even further below the 0.27% in the below chart to a new low of 0.24%. Bank fixed deposits are all being slashed again and again to well below 1%. The range for a 1-year fixed deposit, with a 12-month lock-in with no liquidity, now ranges between 0.5%~0.6%.

Source: Endowus Research, Bloomberg

As an example, DBS just cut their 12-month FD rates above $20k from 1.15% to just a measly 0.50% as of 3 September 2020. UOB is at 0.70% and OCBC at 0.60% for 12-month fixed deposits. These are promotional rates and the board rates are as low as 0.25%.

With an FD, 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.  One bank even changed the rules so the interest rates for new placements and renewals in an SGD FD account will be computed based on the total SGD FD balances, instead of each placement and/or renewal as was the case previously.

Comparison of Endowus Cash Smart projected yields with deposits

Source: Endowus Research, MAS, DBS

What about the interest rates of Money Market Funds and Liquidity Funds?

Lower interest rates are the new reality we live in and we should get accustomed to it. Interest rate cuts may persist with some of these promotional rates disappearing over time. The banks typically make these announcements without any prior notice and they publish the details of the board rates on their websites. Therefore, those who have fixed deposits maturing in the future will have no options available to them at anywhere near the previous deposit rates.  

Of course, everything is relative and the rates and projected yields of all fixed income products have fallen as well. The projected yields of cash funds that rely on institutional fixed deposits like the Fullerton SGD Cash Fund have fallen sharply to reflect this. The money market funds, enhanced liquidity funds and short duration fixed income funds have all seen a fall in interest rates as well. However, what sets them apart is the ability to defend yields better as they push out the duration and take on slightly more credit risk in order to defend the yield. This makes sense as the Fed’s backstop and the strength of the Singapore fiscal balance means that any additional duration or credit risk is marginal compared to the yield pickup investors are able to achieve.

Cash Smart monthly underlying gross projected yields

Source: Endowus Research, Bloomberg

Falling yields across the industry

Many other players with similar products have had to slash their projected yield. The Fullerton SGD Cash Fund stands out having seen the largest fall in yield to now below 0.5%. The nature and mandate of the fund restrict the assets it can hold but it is what gives it its strengths -  by holding mostly institutional fixed deposits, it remains highly liquid and safe. However, this is also why it is difficult to generate meaningful yield enhancements during a period of falling interest rates, as it cannot take longer duration or credit risk to be compensated with a higher yield.

One popular robo-advisory has recently announced that their yield will drop from 1.9% to 1.4%, which is a massive drop in one go. Accompanying it was the admission that they had been making up the difference in the yield with their own money for clients, as they had been advertising 1.9% returns when it was not achievable with the underlying funds alone given the environment. This is just the state of affairs and the reality of falling yields across all financial service providers, whether it be banks or robos, and their feeble attempts at staving off the inevitable.

Endowus Cash Smart Core and Enhanced risk and return efficiencies

Endowus took more time to think through the implications of the new norm and came out with two different products - Core & Enhanced - with different risk and return characteristics to reflect and address the differing needs of our clients.

The correlation between risk and return is something that nobody - not even the brightest in finance - can overcome, but Endowus has been able to come up with two unique products, that are the most efficient, lowest cost and highest yielding cash management solutions in the market today to meet the various and personal needs of our clients. Knowing the underlying funds also makes it easy to calculate the projected yield of all of these solutions in the market and Endowus transparently shows all the numbers for not only our solutions but also all of its underlying components.

Summary of underlying funds chosen to build cash management solutions by online platforms and robos

Source: Endowus Research, Company websites, Straits Times

Leading the market with lower fees

We are glad that new players in this field are implementing solutions with efficient institutional share class unit trust products denominated in SGD. Also in embracing the same innovative 100% trailer fee rebates Endowus first introduced to the industry. It is imperative that more people join the new industry standards of removing these hidden fees so investors can benefit and improve their financial outcomes.  

It is also important to know the difference in costs of traditional players versus a low-cost platform like Endowus. These hidden fees can mount up especially when you use the expensive trailer fee ridden fund platforms like Dollardex, POEMS or iFast Fundsupermart (which also has platform fees on top of trailer fees). These Do-It-Yourself (DIY) fund platforms tout zero sales charges or zero fees, but receive a large commission kick-back from the fund managers that are much more than any platform fees.

These are not one time in nature but they continue to get paid these trailer fees every year. This additional burden is borne and paid for every year by the client without them even knowing it. It is this lack of transparency and high cost that Endowus is fighting so hard to bring to light and to remove. You can compare the difference in the table below.

The cost of investing in cash management solutions is much cheaper with Endowus

Source: Endowus Research, FSM, Dollardex, POEMS, UOB Kay Hian

So how has Endowus Cash Smart performed since launch?

Source: Endowus Research, Bloomberg

(The 1 day fall on Aug 11 included the weekend so the chart looks longer than it did to recover)

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. During the 2 months from 1 July to the end of August, there wasn’t a single day of drawdown (drop in value) for the Endowus Cash Smart Core as expected. While there was one single day of drawdown during the 2 months for the Cash Smart Enhanced of -0.016%, it quickly bounced back within 2 days and the returns continued to move higher thereafter.

The chart above shows the trend while the table below shows the monthly and overall performance.  It shows that the actual net returns since the launch and the annualized rate of returns is significantly higher than the projected yield numbers we had shared to our clients. If we see the July and August numbers as separate monthly numbers, we can see that both months did well and better than the stated projected yields.

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

Endowus Cash Smart was launched on 1 July. All performance numbers are to 30th August 2020

While both Core and Enhanced did better than the projected yield at the time of launch, the reason why Enhanced had more pronounced returns is because the solution includes a short duration fixed income fund with a bias towards longer duration bonds. Some people question the need for taking a greater duration or credit risk. However, 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.

How interest rates affect bond prices and bond yields

Interest rates and bond prices have an inverse correlation (they move in opposite directions). If interest rates fall then bond prices rise and vice versa. The “duration” of the fund is also important as it shows the sensitivity to interest rate movement. The longer the duration, the higher the impact on the price if there is a change in interest rates. Duration is different from maturity (which is purely a time function) but is closely related to it as duration is affected by the maturity and the coupon (the interest you receive on the bond).

The yield curve (a curve that links all the interest rates along the various maturity of time) has steepened but the short end of the curve (shorter maturity) has fallen so much more than the long end (longer maturity) of the curve, so there are still better opportunities to get yield if we push duration and maturity of the funds out. This is what the short duration bond fund and the enhanced yield funds can do more effectively than the money market funds and cash funds that have stricter restrictions on the weighted average maturity and liquidity levels (cash is yielding zero and so contributing nothing to returns and dragging down returns for those funds who are required to hold more cash) that they must maintain.

Impact of 1% decline in interest rates on different durations

Source: Endowus Research

Does past performance affect future performance?

Endowus Cash Smart solutions consist of cash funds, money market funds, and short duration high-quality bond funds.  The daily value is updated based on the Net Asset Value (NAV) of the funds, and that in turn is dependent on the underlying investments, which are also priced daily. Bond prices are affected by interest rate movements, and therefore performance is subject to interest rate movements. The Cash Smart Enhanced product returns were good as a result of the fund NAV (and bond price) appreciation.

Returns are a function of both price movement (daily interest rate moves), and also the coupon (interest payment one receives). The projected yield is derived from the yield to maturity of all the holdings of the money market instruments and fixed income securities that are in the funds. That is the basis of our projected yields and is the most accurate reflection of what the fund as a whole will be able to generate if the underlying instruments are held to maturity with the fixed coupons that were locked at the price at which the securities were purchased for the fund.

Past returns are therefore not an accurate reflection of future returns. It is not a good predictor of returns especially when there is meaningful movement in interest rates. Realized returns also do not necessarily have a direct impact on future returns.  Just because the returns were good in recent months does not mean that the future returns will be just as good. It also does not mean that you’ve gotten a certain return and your future returns will be lowered by that same amount either. Once again it will depend on interest rate movements and how much coupon you receive until maturity on all your holdings. Our updated projected yields are a reflection of that.

Commitment to the transparency of yields

In our continuous effort to improve transparency and industry best practices, Endowus publishes monthly updates of the gross yields of the underlying funds as well as the two Cash Smart solutions - Core & Enhanced - on our FAQs and websites, or on a biweekly basis when there are major changes. Your existing Cash Smart investment values are also updated on each business day on the Endowus platform. This is to ensure that you have the most updated information to make the best choices for yourself.

Updated as of 20 August 2020

We recently lowered the range of projected yield for Cash Smart Core from 1.1~1.3% to 0.9~1.1% and also Cash Smart Enhanced from 1.9~2.2% to 1.7%~2.0%. This is a much smaller reduction in yield if you compare to the slashing of deposit rates seen at banks for their fixed deposits or the cuts you have seen at other robos. We prefer to show a range rather than a single number to give an indication to our clients that the yield is not guaranteed, that it is not fixed and can change in the future. It is a conservative number but it is still an estimate (using numbers provided by our fund manager partners), and the actual return can be higher or lower than this range depending on when you begin your investment and the change in market interest rates.

How and when projected yields are updated for Endowus Cash Smart

We cannot make a prediction on the future direction of interest rates but we will continue to revise down or up, whenever the net yield moves. We can only adjust as the market moves but we will keep our promise of full transparency. In fact, Endowus receives weekly updates from our partner fund managers but often these changes are marginal.

If there is any meaningful shift we will continue to make those changes as frequently as possible to give a more accurate reflection of projected yield and at least on a monthly basis. The updates will appear on our website and all publications or communications. This, we believe, is the right way to go about it and should be adopted as industry best practice. Similar to how banks would announce their lowering of published interest rates for fixed deposits or savings accounts.

So in summary what is Endowus Cash Smart?

What it’s not:

  • Not a bank deposit - no more low interest rates, nor lock-ups on fixed deposits.
  • Not fixed or guaranteed - the yield is not fixed but it also means that the past 2 months can do much better than expected if the interest rate falls further. The risk is a big spike in interest rates, but the short duration limits the downside risk and that is why it is appropriate for your short term liquidity needs.
  • No promo rates that entice you in but make you jump over hurdles to get a measly yield on capped amounts. No need to deposit your wages, spend more on credit cards or loans only for them to lock you in. Endowus has no gimmicks, no promos, no lock-ups. Just better solutions to make your cash work harder for you to achieve your goals.

What it is:

  • 100% Liquid - there is daily liquidity and daily pricing and daily withdrawals & deposits. The whole transaction may take several days to complete but it is based on prices upon withdrawal.
  • High yield - you cannot find anything better, more efficient, or balanced for risk-return that allows you to get the most attractive yield out there.
  • Lowest cost - Cheapest way to access the best products. Lower cost than any other DIY platforms or robos with 100% trailer fee rebates and 0% sales charges.
  • Efficient & simple at your risk tolerance - We know that everybody has differing needs with different circumstances and financial goals. We have two solutions even for Cash Smart and more choices are coming in the near future.
  • Safe and secure - Safe in the way we built the solution, secure in the way we manage your money - with our Double Ledger system with UOB Kay Hian, the largest broker in Singapore, where we open up a trust brokerage account in your own name.

As we always say, we built Endowus because we wanted a better way to save and invest our own money. In our personal experiences, we were struggling and getting frustrated with existing financial service providers who didn’t want to do things better and more transparently for us- to enhance our returns, to reduce our risk, to provide better advice, and most importantly, to improve our chances of financial success. We knew we had to step in to make a meaningful difference.

So for the past 3 years, we have put in the hard work to build Endowus.  Our team has a wealth of experience working at some of the largest global financial institutions managing tens of billions of dollars and we will continue to focus on improving the three things that truly matter - advice, access and cost. Our continued efforts are to make the solutions, the services and the technology better, which we believe will lead to better outcomes for all of us.

Endowus is here to stay - to make your life easier today, for a better tomorrow.

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Interest rates are indicative and correct at the time of production. Please visit endowus.com/cash-smart for updated rates and to assess if Endowus Cash Smart is suitable for your portfolio. All investments carry risk. Cash Smart is not a deposit product and is not guaranteed by the SDIC. This article has not been reviewed by the Monetary Authority of Singapore.