Latest Cash Smart Projections

We are revising our projected yield for the Cash Smart Core portfolio from 0.7-0.9% (June 2021) to 0.7-0.8% (July 2021) due to a continued fall in short term yields of cash funds and money market funds.

Projected yields for the Cash Smart Enhanced portfolio, and Cash Smart Ultra portfolio, remain at 1.1-1.3% and 1.8-2.0% respectively as short duration fixed income funds have shown more resilience.

Fig 1. Endowus Cash Smart Projected Yields as of 30 June 2021

Update on current interest rate environment

While short end interest rates are still crawling around historical lows, there has been some volatility in the market due to the uncertainty about the speed of economic rebound and near-term prospect of inflation. The interest rate volatility has primarily been on the mid to long end of the yield curve. Endowus Cash Smart products are ultra short or short duration products, and are more defensive than normal fixed income products in such an environment of rising interest rates due to their focus on money market instruments or the short end of the yield curve with only low duration exposure so less impacted by movements in interest rates than traditional fixed income products with longer duration.

Cash Smart solutions also have exposure to credit in varying degrees, with Ultra having a higher allocation than Enhanced or Core. This means that they are less anchored to the movement of interest rates and more towards the overall health of the economy, which in an improving economic environment should reduce the risk of credit defaults. In the short run, the movements in interest rates affect the mark-to-market pricing of bonds, but if the same bonds are held to maturity as most of the bonds are in our Cash Smart portfolios, the price will be recovered at par. In the medium to long term, the rising interest rates allow for the funds to reinvest maturing bonds at a higher rate than before, and will lead to a rise in projected yield again.

Cash Smart Historical Performance

Endowus launched Endowus Cash Smart Core and Enhanced on 1 July 2020, and Cash Smart Ultra on 15 April 2021.

All 3 Cash Smart portfolios posted positive returns in the month of June, with Cash Smart Ultra delivering the highest return, followed by Cash Smart Enhanced and Core continuing their recovery from May after a bout of volatility in March and April.  Endowus Cash Smart portfolios have all performed in line with the projected yield of earlier this year.

The tables below show the monthly and overall performance (both actual and annualised) of the three portfolios since July 2020.

The return potential of the portfolios is positively correlated to the risk profile of the underlying investments.  Cash Smart Ultra takes the most duration and credit risk for higher return potential, followed by Cash Smart Enhanced and then Cash Smart Core. The higher risk taken by Ultra and Enhanced provides more upside to the portfolios than Core, but at the same time, subject them to higher volatility to achieve that higher return. It is hence important for clients to choose the portfolio based on their preferred holding time horizon and the drawdowns that they are willing to withstand in the worst case scenario.  

For those seeking very safe and stable returns with virtually no volatility then as the chart shows, they should use the Cash Smart Core solution especially for short periods of less than 1 month. The Cash Smart Enhanced portfolio also has relatively stable returns and are expected to consistently provide positive returns beyond 1-2 months. The Cash Smart Ultra is to be used for liquidity management and cash management needs beyond 3~6 months so that you can benefit from the higher yield and returns generated by the exposure to short duration fixed income. Even in the recent volatility, through a slightly longer horizon the Cash Smart Ultra was able to generate good yield and returns for our clients.

For more details about the portfolios, please refer to our previous  in-depth comparison of our Cash Smart Solutions here.