Introducing the Cash Management (Ultra) Portfolio

With interest rates dropping further, there have been requests for a higher-yielding portfolio mix that comes with incremental risk.

The Endowus Cash Management (Ultra) Portfolio is built as an alternative to Cash Smart Enhanced on the Endowus Fund Smart platform, available immediately. This portfolio consists of the  Fullerton Short Term Interest Rate Fund and the Lionglobal SGD Enhanced Liquidity Fund.

Components of Cash Management (Ultra) Portfolio

Source: Endowus, Annualised and Cumulative Returns, and Standard Deviation from 2018/12/1 (common inception of underlying funds) to 2020/12/31

The Cash Management (Ultra) Portfolio has a higher yield than the off-the-rack Cash Smart Enhanced for 2 reasons:

  1. The Fullerton Short Term Interest Rate Fund has a higher projected yield than United SGD Fund and has outperformed United SGD Fund since July.  The higher projected yield is partially attributed to the longer duration of the Fullerton fund.
  2. Cash Management (Ultra) has greater exposure to short-term bond funds relative to Cash Smart Enhanced.

Despite the slightly higher duration risk, the Fullerton Short Term Interest Rate Fund is nevertheless still prudently managed and will maintain its duration to below 2 years for the near term. As seen in the table below, historically, it has had a better drawdown profile than the United SGD Fund, and the 12-month worst return is actually higher. Past performance is not a good measure of future performance, of course, and that is why we considered not only the published yields but also credit, duration, and market risk when we built these cash management portfolios for our clients.

Additional rewards always come with added risk, but we believe for those who can stomach the incremental risk, this calculated risk is worthwhile for an increase in one’s portfolio return. This can be seen by comparing the yield and drawdown of different funds used in Endowus' Cash Management solutions

Comparing the yield of underlying funds of Endowus’ Cash Management solutions

Source: Endowus, MorningStar, Fund factsheets. Performance from 2018/12/01 to 2020/12/31, does not include trailer fee rebate. Duration for Fullerton Short Term Interest Rate Fund as of Nov 30, 2020; for LGI SGD Enhanced Liquidity Fund as of Oct 31, 2020; YTM as of Dec 31, 2020; Net fees includes trailer fee rebate

Comparison of three Endowus portfolios: Cash Management (Ultra) vs Cash Smart Enhanced vs Ultra Defensive Portfolio

Historical performance

Source: Endowus, Performance from 2018/12/1 (common inception of underlying funds) to 2020/12/31

While Cash Management (Ultra) does provide a higher yield than Cash Smart Enhanced, it only provides a small upside to inflation at best, and should still be used as a cash management solution, and not as a wealth-accumulating investment solution. Compared to the Endowus Ultra Defensive Portfolio, the growth is significantly slower, as seen in the above chart (1.16  versus 1.07 since 2018/12, common inception of the underlying funds).

Growth of $100 from Jul 1, 2020 to Dec 15, 2020

Source: Endowus, Performance from 2018/12/1 (common inception of underlying funds) to 2020/12/31

Finally, as mentioned, the additional returns come with taking an incremental risk. One can clearly see the increase in volatility (measured by standard deviation) from Cash Smart Enhanced to Cash Management (Ultra), to Endowus Ultra Defensive Portfolio. The below chart also shows the maximum drawdown each portfolio has experienced back in March 2020, when the fixed income market experienced heightened volatility and disruption, and the amount of time for each portfolio to recover from the negative return.

Risk-based comparisons between the three portfolios

*Maximum drawdown refers to the maximum historical loss from the peak to a trough of the portfolio of funds. It indicates the downside risk of the portfolio based on past performance over a specific time frame.

How to build and tweak Cash Management (Ultra) on Endowus Fund Smart

It is critical that you understand that cash management products, unlike bank deposits or savings accounts, carry some risk and volatility. If you are unable to tolerate losses of more than 1% for your cash management account, you should not be considering Cash Management (Ultra).

With that in mind, you can key in the below inputs for your portfolio construction in Endowus Fund Smart:

Managing your cash and investment needs prudently

The current low interest rate environment should encourage us to plan and manage our finances more carefully. For longer term financial goals, it is generally prudent to be invested in the financial markets for higher returns. And while having sufficient emergency funds is a critical part of prudent financial planning, one should also avoid sitting on too much cash.

For shorter term cash needs, you can invest in cash management products like Endowus Cash Smart or Cash Management (Ultra) to get a higher yield. Do carefully consider if the incremental risk is something that will affect your financial goals.