ETFs launch on Endowus: Same philosophy, more building blocks

An ETF and mutual fund (or unit trust, as it is also commonly used in Singapore) can have the same exposure and strategy, and hold exactly the same underlying securities. There are, however, differences in how they trade, how investment returns are taxed, and how they are distributed.

At Endowus, alignment with client interest is our core belief, so the investment vehicle is never the sole criterion to investment success. The question we asked ourselves was, rather, what exposure our clients need, and the most efficient way to get it. 

We are thus excited to announce that we are introducing ETFs on our platform, which were launched for existing clients from 5 November.

Our investment philosophy remains the same

Our investment philosophy and how we approach asset allocation remains unchanged. Our clients’ goals and needs are our core focus - solving for your purpose and investing objectives, when you will need the money, and the level of risk that you are comfortable with.

We continue to advocate for building the right allocation for each of these goals, including an evidence-based core plus satellite exposure that allows you to benefit from diversification while preserving a level of personalisation, with specific tactical opportunities for you to take advantage of. Our Investment Office picks what we believe to be the most suitable investment solution to help you express that allocation, having given consideration to fees, taxes, currency and trading costs, irrespective of whether that solution is an ETF or a mutual fund.

Why we are introducing ETFs‍

The simple answer is that they help increase the choice and opportunity set for clients. 

We’ve always envisioned Endowus as a total wealth platform, where your pension assets can be managed holistically alongside your private wealth, or cash assets, and where you can plan your whole portfolio. Many Endowus clients who currently hold ETFs alongside their Endowus portfolio, told us that they would prefer to see and manage all their investments in one place.

How we plan to trade ETFs for you

On Endowus, you can buy ETFs, just like mutual funds, on institutional terms.

The procedure is called “Request For Quote,” or RFQ. We pool every client's orders in a specific ETF into one trade a day. We then ask several professional market makers to compete to fill it, and we pick the best available offer.

Trading through a retail broker usually entails paying a commission and other trading fees, as well as a potentially higher bid-ask spread (the difference between the buying price and the selling price) at specific times when the market is less liquid. We charge a transparent Endowus Fee, with no bid-ask spread or other hidden fees. 

‍Expanding the breadth of complementary investment options.

There are parts of the market that may not be adequately covered through unit trusts (mutual funds), such as commodities, treasuries or certain indices and sectors. ETFs can offer these efficient building blocks to complement your portfolios. 

What hasn't changed is the level of scrutiny we provide before we add these products to our platform. Every ETF goes through our proprietary SMART+ process, a well-regarded, rigorous institutional-grade process.

How ETFs are selected on Endowus

There are approximately 16,000 ETFs listed worldwide, and many of them have similar exposures (as in, they may include similar stocks). An ETF isn't automatically low-cost or passive either. Some ETFs track a broad index for a few basis points a year, while others run complex strategies that cost over 2% a year. That is why picking the appropriate ETFs, to us, matters more than offering many.

ETFs go through the same SMART+ process as our funds: 

1. Universe. We start from the building blocks of a portfolio rather than what is trending. 
2. Quantitative screen. The screen looks at the cost of owning the ETF as well as past returns: TER, tracking difference, fund size, liquidity of the underlying, and domicile.
3. Due diligence. Index methodology, physical or synthetic replication, securities lending, the issuer, and what the ETF really costs a Singapore-based investor once tax and FX are taken into consideration.
4. Investment Committee. Shortlisted funds go through qualitative and quantitative assessment of the investment committee, and we want to be selective on which funds make it on our platform. 
5. Ongoing monitoring. We still track the 4 Ps (performance, people, process or philosophy), adjusted for ETFs. Philosophy refers to whether the ETF adds value (or should replace) to our existing fund shelf. 

Below is a summary table of ETFs available on Endowus, with their respective exposures and their Total Expense Ratios (TER):

Where we are heading next

The Investment Office will continue to assess the feasibility of adding more ETFs onto the platform, similar to how we’ve continued to upgrade our list of mutual funds on Fund Smart. We appreciate any feedback on this initial list and endeavour to continuously improve our suite of investment solutions to help our clients invest better, to live better. 

FAQs

What is the difference between an ETF and a mutual fund?

‍An ETF and a mutual fund (called a unit trust in Singapore) can hold the same underlying securities and follow the same strategy. They differ in how they trade, how their returns are taxed, and how they are distributed. Endowus selects whichever vehicle expresses a given allocation most efficiently.

How does Endowus trade ETFs, and do I pay a bid-ask spread?‍

Endowus pools all client orders in an ETF into one trade each day and asks several market makers to compete to fill it in full, selecting the best available offer. This Request for Quote process means you pay a transparent Endowus Fee, with no additional hidden fees.

How does Endowus decide which ETFs to add?‍

Every ETF goes through the same SMART+ process as Endowus funds. It screens for cost, tracking difference, fund size, liquidity, and domicile, then examines index methodology, replication method, securities lending, the issuer, and the overall cost to a Singapore-based investor after tax and currency exchange are taken into account.

Does adding ETFs change Endowus’s investment philosophy or how my portfolio is built?‍

No. The goals-based approach and core-satellite construction remain the same. The Investment Office picks the most suitable solution for each allocation, whether an ETF or a mutual fund, after weighing fees, taxes, currency, and trading costs.

What kinds of exposure can ETFs add to my portfolio?‍

ETFs may cover parts of the market that mutual funds serve less well, such as commodities, treasuries, and certain indices or sectors. They are intended as complementary building blocks, not a replacement for the existing fund range.

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