Endowus Income Portfolios: Higher payout targets, outlook, and 2022 review
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Endowus Income Portfolios: Higher payout targets, outlook, and 2022 review

Apr 2023
Feb 2023
Income investing - Endowus Income Portfolios: update on payout targets and outlook
  • We are raising the payout targets for the Endowus Income Portfolios. Their latest payout target ranges are: 5% to 6% for the Stable Income portfolio, 5.5% to 6.5% for the Higher Income portfolio, and 3.5% to 4.5% for the Future Income portfolio.
  • This is because mark-to-market declines in portfolio prices, coupled with an incremental increase in payout amounts, have driven payout yields higher.
  • The forward-looking income and capital appreciation potential has improved for the Endowus Income Portfolios, on the back of a higher interest rate environment and more attractive valuations for both fixed income and equities as compared to a year ago. 
  • In 2022, all three Endowus Income Portfolios performed in line with expectations, and also consistently met their payout targets. 

Higher payout targets for the Endowus Income Portfolios

Designed to meet the real-world income needs of our clients across different life stages, the three Endowus Income Portfolios offer different levels of passive income and potential for capital appreciation. They are designed for different life stages — whether you’re a retiree seeking regular, passive income, a working adult with a family to support, or a young adult with major life goals ahead.

Despite a turbulent 2022, investors in the Endowus Income Portfolios enjoyed stable, consistent cash flows throughout the year.

For example, if an individual had invested S$100,000 into each of the three portfolios in August 2021, and held this position through the end of 2022, the investor’s payouts would have been stable and within the guidance range. This can be seen from the following table and chart.

Guidance range

Endowus Income Portfolio Prevailing payout target range* (p.a.) Monthly payout based on prevailing target range** New payout target range (p.a.) Monthly payout based on new target range**
Stable Income 4% to 5% S$333 to S$417 5% to 6% S$417 to S$500
Higher Income 5% to 6% S$417 to S$500 5.5% to 6.5% S$458 to S$542
Future Income 3% to 4% S$250 to S$333^ 3.5% to 4.5% S$291 to S$375^

*Prevailing payout targets, before the latest upward revisions. Payout targets are not guaranteed and are estimates only.
**Guidance range of monthly payouts, based on either the prevailing or new payout target and an investment amount of S$100,000 from 1 Aug 2021 to 31 Dec 2022.
^Quarterly fluctuation, due to one fund paying on a quarterly basis.

Consistent monthly payouts from the Endowus Income Portfolios

Although negative price returns have resulted in mark-to-market declines in the net asset values (NAVs) of funds, this has not impacted the actual coupon payments or dividend payouts of the underlying funds in the portfolios.

It is in such uncertain market environments that the role of active fund managers becomes more prominent. 

Through active management, the managers of the underlying funds delivered their respective income objectives while managing drawdowns to preserve capital. Active fund managers are able to capture the investment opportunities that arise due to market corrections. That, in turn, helps increase payouts, and positions the funds for a rebound when the market recovers.

The payout yields of all three Income Portfolios went up in 2022. By June/July 2022, the portfolio payout yields had edged above the initial target range. They subsequently rose further by the end of the year. A key reason for these increases was the drop in the prices of the portfolios — when bond prices move down, yields move up. Amid higher interest rates, fixed income and equity markets repriced bonds and stocks lower.

Volatility had little impact on the income objective of the Endowus Income Portfolios; monthly annualised payout yield

As the underlying yields moved up, some of the funds in the Endowus Income Portfolios increased the payout amount over the year.

For example, the PIMCO GIS Income Fund’s payout per unit was raised twice in the second half of 2022. For its SGD-hedged institutional share class (which is in the Endowus Stable Income and Future Income portfolios), the distribution per unit increased from 0.036767 per unit in May 2022 to 0.055 per unit from September 2022 onwards. 

The Neuberger Berman Short Duration Emerging Market Debt Fund also increased its target yield, from 4.5% to 6% from December 2022 onwards — meaningfully improving the distribution amount per unit. 

While not guaranteed, we expect more of such positive adjustments as fund managers reinvest the proceeds into higher-yielding assets, in accordance with the prevailing yield environment. 

Given this, we are revising upwards the per annum (p.a.) payout targets for the three Endowus Income Portfolios:

  • The Stable Income portfolio: now at 5% to 6%, up from 4% to 5% previously
  • The Higher Income portfolio:  now at 5.5% to 6.5%, up from 5% to 6% previously
  • The Future Income portfolio: now at 3.5% to 4.5%, up from 3% to 4% previously

Note: Payout targets are not guaranteed and are estimates only.

For more details about the Income Portfolios, refer to this introductory article.

Join our webinar to find out more about the new payout targets and to understand which of the three portfolios would work best for your life stage.

Outlook: More attractive valuations in fixed income, equities

Valuations are looking a lot brighter in fixed income. The table below shows the latest yield to maturity and duration for the fixed income sleeve across the Endowus Income Portfolios. Yield to maturity is a helpful indicator of the total return potential of a fixed income portfolio if investors held the portfolio to maturity, assuming no defaults. 

The latest yield-to-maturity figures for the fixed income sleeves of the Endowus Income Portfolios are pointing to equity-like returns over the next four to five years.

Yield to maturity and duration of fixed income sleeves

Endowus Income Portfolio Yield to maturity Duration (years)
Stable Income 7.39% 4.16
Higher Income 7.60% 4.36
Future Income 7.36% 3.86

Source: Endowus Research, fund manager factsheets. Note: Data as of 31 Dec 2022. For the Higher Income and Future Income portfolios, the yield to maturity and duration figures for the fixed income sleeves are scaled to 100%.

The income prospect of fixed income funds is also improving, as we have now moved away from an extremely low-yielding environment to a more conducive one for income investors. When fixed income managers reinvest the capital into higher-yielding assets, the payout amount will likely inch higher as a result. 

Similarly, in equities, valuations are looking more attractive. Equities make up a 20% allocation in the Higher Income portfolio, and 40% in the Future Income portfolio. Adding equities as a complement to fixed-income allocations meaningfully improves the capital appreciation potential of the portfolio. Thus, for investors who have a longer-term investment horizon or are slightly more risk-seeking, taking on some equity exposure by investing in the Higher Income or Future Income portfolio may improve the investors’ upside potential.

While it is extremely hard to predict a market bottom, the data points illustrated above should offer some optimism on the path forward for long-term investors. For new capital, current market conditions may offer an attractive entry opportunity.

To read about the five big investing themes that may dominate 2023, follow this link

2022 performance recap of the Income Portfolios

2022 was a difficult year for income investors. Fixed income markets — a core pillar of many passive income strategies — suffered historic losses as the interest rate environment reversed, following a long period of low rates. (Rising rates cause bond prices to fall, though it also means yields are rising.) Equity markets, likewise, did not escape the pain of surging inflation, rate hikes, and recession fears.

Against the backdrop of this challenging market environment, the Endowus Income Portfolios proved resilient during the year. The Stable Income and Future Income portfolios registered relative outperformance, as compared to their respective asset-class benchmarks. The Higher Income portfolio finished the year in line with the benchmark.

Endowus Income Portfolio returns

SGD returns, monthly data as of 31 December 2022

Dec 2022 Q4 2022 Q3 2022 Q2 2022 Q1 2022 2022 3Y
Endowus Income Portfolios
Stable Income (100% fixed income) 0.9% 3.4% -3.2% -5.9% -5.6% -11.1% -2.0%
Higher Income (80% fixed income, 20% equity) 0.2% 4.9% -4.5% -8.8% -5.0% -13.2% -1.8%
Future Income (60% fixed income, 40% equity) -0.8% 4.9% -3.9% -8.0% -5.2% -12.1% 0.4%
Global market indices
Bloomberg Global Aggregate Index -1.2% 0.9% -3.5% -4.3% -4.9% -11.4% -2.7%
20-80 Equity - Fixed Income Composite Index* -2.1% 1.2% -3.5% -6.2% -4.9% -12.9% -1.2%
40-60 Equity - Fixed Income Composite Index* -3.1% 1.6% -3.5% -8.1% -4.9% -14.3% 0.1%
JPM Emerging Market Bond Index 0.4% 7.4% -4.2% -10.5% -9.3% -16.4% -4.5%

Source: Endowus Research, Bloomberg. Portfolio returns are net of fund-level fees, while index returns include dividends without fee deduction. For the methodology of representative historical data, please refer here.
*MSCI ACWI and Bloomberg Global Aggregate Index are used for equity and fixed income respectively.

In the first three quarters of 2022, the portfolios’ outperformance was driven by their shorter-duration position. However, this was offset by exposure to more credit risk as the market de-risked sharply across most months.

When sentiment improved in the last quarter of the year, the portfolios captured the rebound strongly, and thus registered meaningful outperformance in Q4 2022.

Click here for a wrap-up of the biggest market events in 2022.  Check out the year’s most popular and selected new funds, including income-focused funds, on the Endowus Fund Smart platform.

Income investing with Endowus

The Endowus Investment Office oversees the fund allocation and tracks the performance of underlying funds continuously to ensure that the Income Portfolios are delivering target income while preserving capital over a full market cycle. 

2022 was a trying year for investors, but we believe that the Endowus Income Portfolios stayed resilient amid the uncertainty, performing in line with expectations while delivering on their income objectives. 

One thing we are sure of is that the market environment has become much more attractive for income-seeking investors. 

We will continue to engage with fund managers to monitor their progress in capturing attractive market opportunities. And, if necessary, we will recommend portfolio changes should we find better fund options or further avenues to optimise the Income Portfolios.

Receive monthly payouts while growing or preserving your capital, through the Endowus Income Portfolios. To get started with Endowus, click here.


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