“The two greatest enemies of the equity fund investor are expenses and emotions.”- Jack Bogle, Founder of Vanguard Group

How Endowus became the first & only digital CPF investment advisor

It is fitting that we start off this article with this quote by Jack Bogle, the founder of The Vanguard Group. Not only because Endowus is all about helping investors remove both emotions and expenses as much as possible, but also because we are announcing some exciting changes to our portfolio and it has everything to do with Vanguard, a company that is very aligned with us in values. (Read more about Jack Bogle in this article about the true giants of investing, including Jack).

We started Endowus with a mission to help individuals save and invest better to live easier today and better tomorrow - to secure your financial future, especially through retirement. We want you to have the ability to design the life you want, and have access to the tools and experts to help you achieve your goals.

Retirement, the single biggest generational challenge we face as a society, is something we can solve by serving our clients well, and reaching more people and advising them holistically. At Endowus, as a Singapore home grown investment advisor, it was imperative that we improve the CPF investment options, advice, and experience. CPF is the largest and most critical layer of preparing for a person’s financial future, standing at over S$390 billion for the country at the end of 2018 and growing quickly (Source: CPF 2018 Annual Report).

Fast forward 2 years, Endowus is the first and only digital advisor for CPF, able to holistically manage your CPF, SRS and cash savings, seamlessly online for all Singapore-based investors.

“The grim irony of investing, then, is that we investors as a group not only don't get what we pay for, we get precisely what we don't pay for. So if we can pay for nothing, we get everything.” - Jack Bogle

Improving the CPF investment experience while lowering costs

Endowus has worked tirelessly with many parties to bring about a new way of investing your CPF money. Through digitalization and an improved client experience, clients can now onboard online in less than 10 minutes. MyInfo is integrated so that you can see all your CPF balances, including your investable OA balance, in the seamless onboarding process.

Our partner broker, UOB Kay Hian was included as a new CPF Investment Administrator to allow for lower cost access and efficient processing of investments by seamlessly integrating with the Endowus system.

We introduced an industry first 100% rebate of trailer fees (the recurring kickback bankers, brokers, and online platforms get for selling you funds, paid from the fees you pay the fund manager). Thus achieving what was previously thought impossible. Bringing the total cost of investing to below 1% all-in, a fraction of what it was before.

Endowus brings institutional access and quality global investing to Singapore-based investors, including for CPF monies

We place paramount importance on selecting the best-in-class funds from the best fund managers that we partner with. This is true for all our services including for CPF investing. For cash and SRS investing, we brought exclusive access to Dimensional and PIMCO at the institutional share-class and made it available to all retail investors. For CPF investing, we found a way of gaining access to passive diversified exposure through funds managed by Vanguard.

Our goal is not to reinvent the wheel. We stand on the shoulder of giants who create funds that we can use. We don’t have to build market timing funds ourselves like some of the other robo-advisors. We are not about giving you access to many products, but to build portfolios using the best products available at the lowest cost achievable.

One of the key hurdles we faced was the limited number of funds available to investors in the CPF Investment Scheme (CPFIS) and the lack of funds that were suitable for building a globally diversified portfolio at the levels of low cost we wanted to achieve. In the CPFIS framework, there are less than 90 funds included at the moment that are investable with your CPF-OA. Furthermore, the challenge we faced was that many of the funds were either too narrow in scope - too regional or country or sector-specific - and active in management, with poor returns mostly due to very high fees. It was difficult to build a low cost globally diversified portfolio around the products available. Most importantly, there were no passive index funds available to investors.

“Owning the stock market over the long term is a winner's game, but attempting to beat the market is a loser's game.” - Jack Bogle

Bringing the first passive index fund into the CPF Investment Scheme (CPFIS) for S&P 500 exposure

Our Investment Office is constantly evaluating the funds in our portfolio and the wider investment universe. If we feel that there are other funds that can better express our asset allocation views at a lower cost, or improve the risk-return profile of the overall diversified portfolio, we would recommend a portfolio change to our clients. One of the key areas we wanted to improve was the investment options available when you invest your CPF money. We have also scheduled a webinar at 7pm this evening to take you through the improvements from this fund launch. Please RSVP here.

We had already improved the offering of CPF investable funds by introducing brand new investment products such as the first overseas passive index fund in CPFIS. It is the Lion Global Infinity US 500 Stock Index Fund, which is an S&P 500 passive indexed fund managed by Vanguard, the largest passive fund manager in the world for the S&P 500 index. This fund is exclusive to Endowus clients and was included when we launched our CPF-OA advised investment portfolios last November.

Endowus has already achieved the lowest cost access to the best products on CPFIS, but we are continuously striving to improve and optimise the portfolios. This is done by introducing better funds (such as passive and systematic strategies for equities) that increase risk-adjusted returns and lower costs to improve the chances of success for all our investors.

Upgrading our CPF portfolio with a new passive index fund for global developed market exposure (Infinity Vanguard Global Stock Index Fund SGD Class)

We are really excited to introduce another passive fund to you. This is the second passive fund on included in the CPFIS available exclusively to Endowus.

Significant improvement in performance, risk & cost

Historical performance and standard deviation from November 2010 to 17 April 2020

The Infinity Global Stock Index Fund is an index fund managed by Vanguard that passively tracks the performance of the MSCI World Free Index, which is the benchmark index for global developed market equities. It is locally registered by Lion Global Investors, which allows the funds to be available in Singapore dollars, using the same tax-efficient underlying Irish UCITS Fund, and included into the CPFIS fund list by Lion Global. This fund replaces the current developed market equities allocation, the Natixis Harris Associate Global Equities Funds, in the Endowus advised portfolios.

Read the rationale behind the selection of the Lion Global Vanguard funds in Endowus' CPF portfolios:

Comparison of the new vs previous fund in our developed markets allocation

As of March 2020 for Infinity Global and Feb 2020 for Harris Associates

This new global developed market passive index fund has been included in the CPFIS fund list by the CPF Board following the review by the CPF appointed investment consultant, Mercer.

The fund is available exclusively to Endowus clients, and at the lowest cost achievable. The new global equities fund enhances the CPF equities portfolio in terms of expected return, lower volatility risk (in terms of standard deviation) due to greater diversification, and most importantly lower overall cost.

We can clearly see the benefits of long term investing with risk in Endowus CPF portfolios versus the CPF-OA’s 2.5% returns even after the recent sharp fall in markets.

Historical performance from November 2010 to 17 April 2020
“When there are multiple solutions to a problem, choose the simplest one.” - Jack Bogle

Unwavering in our strategic passive asset allocation strategy

We cannot predict or control where the market will head. We are not trying to time the market or beat the market as this is not within our control. Furthermore, evidence suggests that the majority of people who try will fail over the long term. This is not the reason behind the fund change. Our asset allocation framework is based on being 1) simple, 2) passive, and 3) strategic in allocation. Most people seem to focus on whether we are using ETFs or unit trusts, which is the structure of the fund (even though they can be the same underlying fund - like a S&P 500 index fund that can be an ETF or a mutual fund). But what is more important is not the underlying fund structure but the asset allocation.

The reason for being passive in asset allocation is important is two-fold:

Firstly, being an active or tactical asset allocator doesn’t work. It’s the same as trying to time the market. It sounds good, but is notoriously difficult to implement. One might be forgiven to think that reading the economic cycle is important but it has proven to not be the case. It is a futile effort mostly because a lot of the insights come from hindsight not foresight. Most of the economic data is backward looking and comes out months later while markets are a forward-looking indicator that prices in all known information instantly through millions of market participants. Look at the current situation. We had a 30% correction and a bear market before we could even say the word “recession” or any economic data that confirmed it.

Secondly, the empirical evidence suggests that the most important determinant of investment returns over the long run, is the strategic asset allocation. In fact, a study by Ibbotson and Kaplan shows that it accounts for 40~90% of the variability of a fund’s returns over time. Not picking stocks, not timing the market, and not whether we use an ETF or a unit trust. So being passive and being strategic in your asset allocation is critically important. But there is one caveat, the only barrier to achieving success in a passive asset allocation strategy is the cost of implementing it. This is why we are so hung up on cost. And no, unfortunately, ETFs are not necessarily the cheapest way to access passive investing, especially not in Singapore. (More on this later)

We have thus implemented the passive strategic asset allocation framework that we can stick to that allows us to build a truly globally diversified low cost portfolio. We do use some components that are active and the best choices available,  but also work to improve the CPFIS offerings by bringing in new passive index funds. Through special negotiated rebates, the introduction of a new system of 100% trailer fee rebates, access to institutional share class funds and working closely with our partner fund management companies, we have been able to bring better diversified products at lower cost into CPFIS.

New Endowus CPF portfolio fund list and costs

“The miracle of compounding returns has been overwhelmed by the tyranny of compounding costs.”  - Jack Bogle

It’s a fact - lower costs lead to better outcomes

We just talked about how we cannot control the market performance especially in the near term. However, what we can control and what we are very focused on is lowering cost. The unequivocal fact is that achieving the lowest cost possible is the key factor in achieving success in CPF investing. Multiple research has shown that cost is the single biggest driver of returns longer term. Morningstar, the leading researcher of mutual funds, has shown that the most important criteria in predicting future success of funds is the cost. A high and negative correlation exists between fund performance and cost. The higher the cost, the lower the long term return success. The lower the cost, the higher the long term return success.

Endowus will continue to endeavour to lower costs at every opportunity and every layer of cost that we can remove. We have already completely removed the common practice of charging an upfront sales fee, and the trailer fees by providing 100% rebate to clients. We are improving transparency and increasing alignment with the client by charging a flat all-in fee that is paid only by the client to us. We removed any add-on fees, such as transaction, brokerage, redemption, transfer, custodian, FX or other charges that are commonly and often charged by traditional financial intermediaries, including robo-advisory firms that charge FX spreads/fees, transaction charges, etc. Our fees are clean, aligned to the client, transparent, low, flat, and all-in. It is also at a fraction of what was previously available.

Endowus lowers cost by introducing 100% rebate of trailer fees & no sales charges

“The greatest enemy of a good plan is the dream of a perfect plan. Stick to the good plan.” - Jack Bogle

There’s so much more to come from Endowus!

The two exclusive to Endowus passive index funds managed by Vanguard and included into CPF by Lion Global now make up 70% of our advised total equities portfolio.

We will continue to strive to improve the overall portfolios and bring in new funds from our partner fund management companies to lower costs at every level and improve your probability of success in achieving your investment goals. We are looking forward to announcing more exciting changes and new services and features going forward. Our next recommended portfolio changes will come in the form of improvements to our cash and SRS portfolios, so please keep a lookout for that.

We are also excited to share with you that our long awaited Cash Management Account service will be launching soon through which you can enjoy better interest rates on your cash without the hassle of lock-ups, tiers, requirements, etc. More to come soon! We are working hard as a team to improve your experience and outcomes. Please reach out with any enquiries to your Endowus representative or contact us on support@endowus.com.

In the meantime, stay safe and healthy!