Introducing the lowest cost passive index fund series in Singapore
Endowus Insights

Introducing the lowest cost passive index fund series in Singapore

Updated
August 8, 2022
published
June 22, 2022
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lowest-cost-passive-index-fund
  • Endowus is introducing a new series of passive index funds, now priced at the lowest cost in Singapore. These unit trusts are cheaper than SGX-listed exchange-traded funds (ETFs) and many UCITS ETFs. 
  • They are managed by Amundi, the largest European fund manager and leading passive index provider with over $2 trillion in assets under management. 
  • The four newly launched passive index funds are exclusive on the Endowus platform, offering investors a cost-effective way to gain passive exposure to global equity and fixed income markets.
  • You can buy a single unit trust, create a portfolio of all the four low-cost index funds, or use any of these funds together with other funds to customise your portfolio through the Endowus Fund Smart platform.

Key characteristics of the new Amundi funds 

Endowus has worked strategically with Amundi to bring a new series of lowest cost passive index funds into Singapore. We now exclusively offer three equity Amundi Index Funds — the Amundi Index MSCI World Fund, Amundi Prime USA Fund, Amundi Index MSCI Emerging Markets Fund — and one fixed income index fund — the Amundi Index Global Aggregate 500m Fund. 

The key benefits of these unit trusts include:

  1. Cost: the lowest cost index funds available in Singapore, cheaper than SGX-listed ETFs too; 
  2. Efficiency: passively indexed against popular and major equity and fixed income markets;
  3. Localisation: All denominated in or hedged to SGD for convenience and registered with MAS locally. 

Key details of the funds can be found on the summary table below:

Fund name Benchmark
and description
Market
exposure
Currency Management
fee
Total
expense ratio
# of
holdings
3-year
tracking error
Replication methodology
Amundi Index MSCI World Fund MSCI World Index1 Developed markets equities SGD 0.08% 0.18% 1540 0.13% Direct physical replication
Amundi Prime USA Fund Solactive US Large
& Mid Cap Index2
US equities SGD 0.03% 0.05% 547 0.15%
Amundi Index MSCI Emerging Markets Fund MSCI Emerging Markets Index3 Emerging markets equities SGD 0.10% 0.20% 1393 1.16%
Amundi Index Global Agg 500m Fund Bloomberg Global Agg
(500mn) Index4
Global fixed income equities SGD-H 0.03% 0.10% 5969 0.20% Sampling replication

Source: Endowus, fund factsheets. Tracking error data is based on the oldest share class of each fund. Data as of May 31, 2022.
Note:1A market cap weighted equity index that captures large & mid-cap representation across 23 Developed Markets (DM) countries.
2A market cap weighted equity index that tracks the large & mid cap segment covering approx. 85% of the free-float market cap in the US
3A market cap weighted equity index that captures large and mid cap representation across Emerging Markets countries.
4A measure of global investment grade debt from 25 markets. This benchmark includes treasury, government-related, corporate and securitized bonds from both developed & emerging markets

Why does cost matter? 

While we cannot control where the market is going, investment costs are something we can and should control. Costs eat directly into an investor’s investment returns and compounds over time — exponentially impacting returns over time. 

For example, a 1% difference in annual fees paid compounds to almost a $2.5 million difference in the dollar amount you receive over 30 years. (Here, we assume a $1 million starting investment value, and an 8.5% annualised return before accounting for these fees.)

Graph on the cost of an additional 1% fee

Why being passive matters

A recent study by Morningstar showed that out of the 244 active global funds, only 2 had managed to outperform the global index over a five-year period as of the end of April. Outperforming the market by actively picking stocks, while not impossible, is a challenging task. To do it consistently is even harder. 

Graph comparing passive and active returns

The above illustration makes a compelling argument favouring the use of passive investments for part of an investor’s portfolio, particularly when there is a long-term objective in mind. Passive funds, instead of trying to outguess the market, track market returns by replicating broad market exposure. Importantly, successful passive index managers have kept fees and other frictional costs much lower than the active funds that benchmark against the same indices, as well as other comparable index funds.

Click here to learn more about passive investing, and why it’s often confused with ETF trading

Why should investors consider the Amundi Passive Index Funds?

Amundi is one such passive index fund manager that we have identified and decided to work with to offer low-cost and efficient passive index fund options to Singapore-based investors. The Amundi Passive Index Funds differentiate themselves in three areas. 

  1. Efficient market access to global markets

Amundi’s scale as a large, experienced, and highly regarded manager with substantial assets under management (AUM) allows them to accurately replicate the global indices the funds are tracking. Examples include the MSCI World Index that includes 23 developed markets countries and the MSCI Emerging Markets Index that includes 24 emerging markets countries. Amundi can do this with very low tracking error given its scale and experience, benefiting the end investors. 

  1. Lowest cost index funds available in Singapore 

Amundi’s portfolio team is able to use sophisticated methods to improve efficiency and thus lower costs at scale — these include negotiation of extremely low transaction costs through relationships with over 70 market makers and liquidity providers. Furthermore, index fund structures typically do not have wide bid-ask spreads on a portfolio level — this refers to the price gap between buyers and sellers that an individual pays when buying and selling — unlike an ETF. The bid-ask spread can exceed even the actual cost of the management fee of the fund if the ETF is less liquid and less in demand. For these reasons, the Amundi Index Funds are currently the lowest cost index funds available in Singapore to retail investors. 

  1. SGD-denominated to minimise currency conversion friction 

These funds are offered in SGD and SGD-hedged and they are done in a cost-efficient manner at the fund manager level whereas most passive ETFs are foreign currency denominated — domestic investors can minimise the friction from currency conversion while using the Amundi Index Funds.

How do Amundi Index Funds improve the passive investment options to Singapore-based investors?

Market exposure Fund name Currency Expense ratio Bid-ask spread* Total cost # of
holdings
US equities Amundi Prime USA Fund SGD 0.05% - 0.05% 545
SPDR Dow Jones Industrial Average ETF Trust USD 0.16% 0.58% 0.74% 30
SPDR S&P 500 US ETF Trust USD 0.09% 0.24% 0.33% 505
LionGlobal Infinity US 500 Stock Index Fund SGD 0.61%** - 0.61% 505
Global emerging markets Amundi Index MSCI Emerging Markets Fund SGD 0.20% - 0.20% 1393
Lyxor MSCI Emerging Markets UCITS ETF USD 0.55% 0.50% 1.05% 1395
Global developed market Amundi Index MSCI World Fund SGD 0.18% - 0.18% 1540
LionGlobal Infinity Global Stock Index Fund SGD 0.72%** - 0.72% 1539
Global fixed income market Amundi Index Global Agg 500m Fund SGD-H 0.10% - 0.10% 5969
Amundi range launched with Endowus
Other MAS recognised/authorised options for Singapore retail investors

Source: Endowus research.
* Average of the daily bid-ask spread over the past one year as of June 17, 2022, divided by two to take into account the one-sided bidding cost. Data from Bloomberg.
** Note that this does not take into account the trailer fee rebate Endowus gives back to Endowus investors

Presently, the primary way for Singapore-based investors to gain access to passive index investing in Singapore is from trading the SGX-listed ETFs, or by purchasing the passive index mutual funds that are recognised or authorised by the Monetary Authority of Singapore. But there are limited choices, and these investments can run up high costs after taking into account the bid-ask spread. 

There has been no locally available fixed income passive index fund until now, with the Amundi Index Global Agg 500m Fund that comes at a fund-level fee of 0.1%. 

The high bid-ask spread is historically a challenge for SGX-listed ETFs because of the limited amount of daily trading volume. Essentially, buyers of these ETFs have to pay a higher price than the actual value of the underlying securities in order to purchase the units they want, and this adds to the total cost of owning the securities. The Amundi Index Passive Funds, on the other hand, is not subject to the bid-ask spread demanded by market makers due to its mutual fund structure.

Bid-ask spreads are constantly fluctuating and can widen during times of low liquidity especially when markets fall. Also, the “price” of the ETF — that is, a fund traded on the exchange — can diverge from the “value” of the fund and its underlying portfolio holdings (represented by the net asset value or NAV), and often trades at a premium or a discount to the true value of the fund. In times of market volatility and especially in a downturn, the fund can trade at wide discounts. At that point, it would be under-representing the underlying value of the fund’s portfolio value. 

The big mission that is core to Endowus is to continuously improve the access and cost of products to retail investors in Singapore. The introduction of Amundi Index Funds is a small, yet important step, on this journey through expanding and lowering the cost of passive investment options to Singapore-based investors. 

What about foreign-listed ETFs?

At this point some of you may be asking: what about trading foreign-listed ETFs that are more liquid and have smaller bid-ask spreads? 

Firstly, because the foreign-listed ETFs are not recognised nor authorised by MAS, they are not investable via sources of funds other than cash. In contrast, investors can also use funds from their Supplementary Retirement Scheme (SRS) and their CPF savings for a number of Singapore-listed funds. As for the Amundi Passive Index Funds, both SRS and cash options are available. Endowus is working to have them available for CPF investing in due time as well.

The table below shows a comparison of the Amundi Index Funds against foreign-listed ETFs that are popular with Singapore investors. 

While these foreign-listed ETFs may have smaller spreads, the total cost of Amundi Index Funds still look competitive compared to these global peers. 

More importantly, the most large and liquid ETFs are often priced in hard currencies, such as USD, which may not be the natural base currency for many investors. For example, a Singapore-based investor would need to first convert your principal into the foreign currency (i.e. SGD to USD), which will incur a currency conversion fee to invest. You’ll have to do the same upon redemption. The two-way currency conversion fees behind foreign-listed ETFs adds another layer of fees and hassle. By contrast, the four Amundi index funds sold by Endowus are denominated in SGD.

Comparison of Amundi Index Funds with comparable foreign-listed ETFs

Market exposure Fund name Currency Expense ratio Bid-ask spread* Total cost # of
holdings
US equities Amundi Prime USA Fund SGD 0.05% - 0.05% 545
SPDR S&P 500 UCITS ETF USD 0.09% 0.03% 0.12% 505
iShares Core S&P 500 UCITS ETF USD 0.07% 0.02% 0.09% 504
Global emerging markets Amundi Index MSCI Emerging Markets Fund SGD 0.20% - 0.20% 1393
SPDR MSCI Emerging Markets UCITS ETF USD 0.42% 0.15% 0.57% 1327
iShares MSCI Emerging Markets UCITS ETF USD 0.18% 0.05% 0.23% 927
Global developed market Amundi Index MSCI World Fund SGD 0.18% - 0.18% 1540
SPDR MSCI World UCITS ETF USD 0.12% 0.05% 0.17% 1482
iShares MSCI World UCITS ETF USD 0.20% 0.04% 0.24% 1523
Global fixed income market Amundi Index Global Agg 500m Fund SGD-H 0.10% - 0.10% 5969
SPDR Bloomberg Global Aggregate Bond UCITS ETF USD 0.10% 0.12% 0.22% 6964
iShares Core Global Aggregate Bond UCITS ETF USD 0.10% 0.09% 0.19% 9446
Amundi range launched with Endowus
Other MAS recognised/authorised options for Singapore retail investors

Source: Endowus research.
* Average of the daily bid-ask spread over the past one year as of June 17, 2022, divided by two to take into account the one-sided bidding cost. Data from Bloomberg.

Product highlight: Amundi USA Prime Fund 

The Amundi Prime USA Fund tracks the performance of Solactive GBS United States Large & Mid Cap Index. The index covers the performance of the large and mid cap segment of the United States equity market and represents about the largest 85% of the free-float market capitalisation. The resulting index is one with around 530 constituents and that closely tracks the performance of both the S&P 500 Index and the MSCI USA Index. It has an expense ratio of just 0.05%. 

Amundi Prime USA Fund vs Lion Global Infinity US 500 Index fund and benchmark

Graph on the investment growth

Since January 2007, the correlation of returns between the Solactive GBS United States Large & Mid Cap Index and the other 2 indices is at 0.999, which indicates an almost perfect positive correlation between the returns. This means that the returns of all 3 indices move together by almost the exact same percentage and direction. 

Similarly, the performance of the fund has also tracked both indices closely as well. Since the inception of the oldest share class of the Amundi PRIME USA ETF in 2019, the returns of the index fund have had a correlation of around 0.98 to all three indices. 

Correlation between Amundi Prime USA fund and the main US market indices 

Chart on correlation between Amundi Prime USA fund and the main US market indices 

How should an investor use the new Amundi Passive Index Funds on Fund Smart?

As index funds offer access to thousands of securities and many single country markets that are otherwise not as easily available, they often form the backbone of many portfolios. Endowus clients can now immediately create a DIY portfolio using Amundi Passive Index Funds on our Fund Smart platform. You can create a 100% pure passive portfolio using entirely the Amundi Passive Index Funds, or mix the Amundi Passive Index Funds with other Fund Smart funds that are curated by Endowus Investment Office. 

Below is a demonstration of how you can do it seamlessly on Endowus platform: 

Step 1: Log into your Endowus account and select “Add Goal” 

Step 1: adding goal

Step 2: Choose your funding source and risk tolerance

User interface on choosing funding source and risk tolerance

Step 3: Select Amundi Index Funds and key in your allocation 

User interface on selecting Amundi index fund
user interface on fund selection allocation

Step 4: Confirm this option. You are ready to go with detailed portfolio analytics. 

Step 4: confirm option and portfolio analytics

More to come from Endowus 

The launch of the four Amundi Index Funds has brought retail investors in Singapore better options for passive investing. The funds offer efficient exposure to key global financial markets and are the lowest cost index funds available in Singapore. They are now exclusive on the Endowus Fund Smart platform and are ready for you to invest through both cash and SRS. Customising your DIY portfolios via Fund Smart is also easy to do.

Click here to get more details about the individual funds and their low fees, or watch a curated webinar where we explain the benefits of the funds in fuller detail.

Endowus is continuing to work on exciting initiatives that will meaningfully improve the access and cost of investment options across all sources of funds. We are looking to bring a wider selection of best-in-class passive and active funds into Singapore, including more selection of ESG sustainable funds. We are also working hard to broaden the choice of high quality, curated funds from global leading fund managers to be made available and included into the CPF Investment Scheme and SRS. Please look out for more news from the Endowus Investment Office through our monthly Fund Digest. Subscribe to our content on Endowus Insights to stay updated on our monthly Endowus Fund Digest, as well as new solutions from Endowus. 

Thank you for your support and trust in us. We look forward to continuing to serve you better so you can live easier today and better tomorrow.

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