“Finding the best person or the best organization to invest your money is one of the most important financial decisions you’ll ever make”
- Bill Gross, PIMCO Co-founder
- How Endowus has changed the way investing is done in Singapore
- Introducing the newly upgraded and exclusive Endowus portfolios for Cash / SRS
- Comparison of returns vs standard deviation and lower fees for new portfolios
- Equities and Fixed Income portfolios - underlying funds highlight
- Importance of a passive strategic and long term asset allocation strategy
- What’s different about Endowus
A new and better way of investing - to make your life easier
When Endowus began, the founders had experienced first-hand the difficulty of investing from Singapore and the need for better advice and access to products at a lower cost. Our experiences in a more evidence-based, systematic, institutional way of investing gave us the vision that we can make this available to all investors in Singapore, including retail investors, across all savings-types: cash, SRS, and CPF.
Despite the recent market volatility, we have been unwavering in our investment strategy which is implemented through strategic and passive asset allocation. The pandemic has obviously had a major impact on all of our lives and our life habits. While we have seen major economic dislocations, it does not fundamentally change how we should invest.
In fact, we believe the importance of core wealth advice is even greater. It has increased our desire to provide even more robust personalised financial planning and access to the best portfolios possible. We are encouraged by the continuous steady inflow of investments and steadily increasing assets under advice (AUA) and it is a testament to the strength and sophistication of our client base.
In that light, today, we are excited to announce new enhancements to the underlying funds for our Cash and SRS investment portfolios. These come hot on the heels of the changes to our CPF portfolios where we included a new Vanguard Global Equities passive index fund exclusively available to our clients into the Endowus CPFIS-advised portfolios.
Today, we are changing the mix of our cash and SRS portfolios to diversify and upgrade our exposure to Dimensional Fund Advisors & PIMCO’s institutional funds, as well as add a new Vanguard S&P 500 passive index fund into the mix. We are privileged to have three of the largest and most respected fund managers providing products that are exclusive to Endowus customers in building the most globally diversified, lowest cost portfolios available for Singapore-based investors.
We started Endowus with a mission to simplify the complex problem of investing and take away the heavy burden of worrying about long-term financial planning. We want to be by your side in your journey to secure your financial future, especially to and through retirement.
We want you to be able to design and live the life you want by achieving your financial goals through Endowus. By leveraging the fresh new tools made available by our group of experts, these new portfolios will help us get there together.
“The two greatest enemies of the investor are expenses and emotions.”
- Jack Bogle, Vanguard founder
Upgrading our Cash & SRS core portfolios
We are really excited to introduce a major upgrade to our Cash & SRS core portfolios. It is another milestone in achieving our aim of providing new and unprecedented exclusive access at the lowest achievable cost to all Singapore-based investors.
The new portfolio will consist of funds from three of the largest and most widely respected fund managers in the world. They include:
- Dimensional - the pioneers of systematic factor-based investing designed by Nobel prize-winning academics in finance.
- Vanguard - the pioneer of passive index investing and the second-largest fund manager in the world.
- PIMCO - the largest fixed income manager in the world and pioneers in many fixed-income categories.
Combined, the three firms manage a total of US$6.5 trillion across the world. Many of these products are either exclusive to Endowus or have been brought into Singapore by Endowus. All of them are being accessed at the lowest possible cost in Singapore to achieve better outcomes for our investors.
"You've already paid for the risk, so it might be good to stick around for the expected return."
- David Booth, Dimensional Fund Advisors founder
As the above table shows, the new portfolios will meaningfully improve the outcomes from a risk-adjusted return basis. We are achieving this by improving the efficiency of the portfolio, which means that we are reducing the volatility or the risk associated with each level of returns. By reducing the covariance of the underlying components in the portfolios, we are making the portfolio more efficient across the risk spectrum (or the efficient frontier). We are also making a meaningful improvement in harvesting returns just by finding lower-cost solutions for the same broad exposure at the portfolio level.
Of course, past performance is not an indicator of future performance, and the fact that we have built a broadly diversified passive global asset allocation portfolio means that we are bringing our investors closer to the passive returns we hope to generate for our clients over time net of all fees. Our underlying fund-level fees (Total Expense Ratio) on a blended basis is 0.4% for our equities and 0.5% for our fixed income portfolio, both of which are the lowest achievable in Singapore for this type of diversified multi-asset, multi-manager core optimized portfolio. The details of the underlying funds for the new portfolios are as shown below.
Equities portfolio changes
Building an efficient equities allocation has three key considerations:
- geographic diversification,
- factor-based (size, value, profitability) considerations, and
- covariance related diversification.
The equities portfolio is made up of four funds representing the diverse exposures globally. It also aligns our asset allocation across the various sources of savings - CPF, SRS and Cash - consistently. These are developed markets, emerging markets, US and Asia-Pacific allocations. The four funds represent the broad passive (total market) exposures to global markets. The main DM and EM funds combine to give exposure to 8,741 stocks globally. The Pac Basin fund also adds another 2,603 stocks and if we remove the overlap with the other three funds, the total is close to 10,000 holdings. It is more than three times the number of holdings compared to the most commonly used MSCI All Country World Index which has just 3,044 stocks. This allows for the portfolio to be a truly diversified and low-cost global portfolio with fund-level fee (TER) at an all-in 0.40% for equities.
The introduction of the Dimensional Pacific Basin Small Companies fund in particular is important in providing diversification benefits as it has the lowest correlation to other equities funds and provides for a more efficient frontier across the risk spectrum for the global portfolio. We provide more details on the Developed and Emerging market allocation which we often get questions about below, and more details of the underlying funds can be found in the fund rationales in our FAQs here.
“Risk comes from not knowing what you're doing”
- Warren Buffett
Fixed income portfolio changes
Building an efficient fixed income allocation has three key considerations:
- geographic diversification (US, developed market and emerging markets),
- diversification across the risk (credit) spectrum - from government sovereigns to munis and mortgage-backed securities, then to investment-grade credit and higher-yielding emerging market sovereigns and credit, and
- diversification across the term and duration spectrum.
The fixed income portfolio is made up of 3 PIMCO and 1 Dimensional funds, which provide broad global fixed income market exposure.
This diverse exposure allows for all of the opportunities in Fixed income to be realized through cycles. We have core positions in both the PIMCO Global Fund with its focus on sovereigns, and Dimensional Core Fund which has a more credit-focused exposure balancing it out. The Income fund gives us more exposure to alpha sources including mortgage-backed securities. The Emerging Markets exposure provides the higher yield boost as well as long term opportunities that EM provides. We have removed the Real Return fund (inflation-linked bonds), which has been the best performing fixed income fund of the past 1 or 2 years due to its resilience and quality-focused exposure to sovereigns. However, we feel that with deflationary forces in play and further falls in global rates, we have removed the fund to diversify the portfolio. More details of the Fixed Income funds through the fund rationales can also be found in the FAQs here.
"In science, what you want is the minimum number of factors that will explain something, not the maximum number."
- Eugene F. Fama, Nobel Laureate and Dimensional Director
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 to do so fail over the long-term.
This is not the reason behind the fund changes, which is different from some robo-advisors who change asset allocation more frequently and actively to improve outcomes. Empirical evidence has shown that this is likely to lead to poorer outcomes.
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 an S&P 500 index fund that can be an ETF or a mutual fund). But what is more important than the underlying fund structure is the asset allocation.
The importance of being passive in asset allocation 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. An example is the current debate on the divergence of the economy and the markets which continues to rage on. It is a futile effort mostly because a lot of the insights come from hindsight and not foresight. Most of the economic data is backwards-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 observe any economic data that confirmed it. And we have seen one of the fastest rebounds while economic data continues to deteriorate.
“For investors as a whole, returns decrease as motion increases.”
- Jack Bogle
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 at Endowus are so hung up on cost. And no, unfortunately, ETFs are not necessarily the cheapest way to access passive investing here in Singapore. For a globally diversified core multi-asset portfolio, the cheapest way is through Endowus for Cash, CPF, and SRS.
Many people have asked us where our geographic split is, we show the details below along with some interesting statistics on how best to allocate between the two. The Endowus portfolio has a geographic split of Developed Markets 85% and Emerging Markets 15%. This is in line with the total free-float adjusted market cap index weights shown below. The most common MSCI All Country World Index, for example, is currently at a similar 88% for DM and 12% for EM.
“The winning formula for success in investing is owning the entire stock market through a passive fund, and then doing nothing. Just stay the course. Don't look for the needle in the haystack. Just buy the haystack!”
- Jack Bogle
Our singular focus on our clients: aligning incentives and fees
The reason we started Endowus was because it was so painful and costly for us to invest our own money. The reason we worked so hard to solve these problems is to help our clients. Our clients are our most important asset. As such, naturally, what is most important to us is to be correctly and completely aligned to the best interests of our clients as fiduciaries.
This is not possible if we are incentivized and paid by somebody other than the client whom we work for - like the existing financial institutions. Whether you are a bank, broker, or financial advisor, most of the fees they receive are paid by the fund managers. So then, of course, you will do what is in the best interest of those who will pay you the most. We refused to accept that this is the only way to do business even if this is still the standard industry practice.
Not only do we refuse to take any sales charges, we also refuse to take a trailer fee (commission kickbacks received from financial companies for selling products to you, the client, that takes away from your return), which is how many fund platforms like iFast and Dollardex still make a living. We decided that in order to get there faster, we can still work to improve the outcomes within the structure in our clients favor by accessing the institutional share class of funds or giving 100% rebate on trailer fees. We know institutional investors like GIC do not pay all the loaded fees for the funds, and we just needed to solve this intelligently to democratize access to all of our individual clients. This is only possible if we are transparent and honest about the way we conduct our business in everything we say and do. If you would like to enjoy decisions made in your best interest in your investment journey, Endowus is the advisor for you.
“Investors need to understand not only the magic of compounding long-term returns, but the tyranny of compounding costs; costs that ultimately overwhelm that magic.”
- Jack Bogle
Other platforms (including robo-advisors and fund platforms) also have numerous hidden charges - charging you FX spread/cost and hidden platform fees and they also expose you to things like the US withholding tax or inheritance tax or needless FX risk. We have solved intelligently for these risks and costs.
Our goal is not to reinvent the wheel: stand on the shoulder of giants
We don’t have to build funds ourselves like other robo-advisors or fund managers. It doesn’t matter whether it is an Exchange Traded Fund (ETF) or a Unit Trust / Mutual Fund. We are singularly focused on selecting the best-in-class funds from the best fund managers that we partner with and accessing them in the most efficient manner - whether it is an ETF or Unit Trust. As long as it is the best representation of the asset class, it is tax-efficient or lower cost in terms of fund-level fees and FX costs.
Endowus has worked tirelessly with many parties to bring about a new way of investing your savings and we have successfully removed all upfront sales charges and significantly reduced ongoing costs to a simple all-in flat fee of 0.40% for SRS/CPF and between 0.25% to 0.60% for cash investments. It is this independence and fierce drive to lower costs that have led to further improvements in the costs of our new portfolios. Lowering fees is the single most important thing one can do to improve outcomes. The lower costs directly improve your actual net of fee returns which compounds your assets faster and for a better financial future. As Endowus grows, our commitment will be to continue to pass on the benefits of scale economies and also continue to further negotiate down fees to improve your chance of success.
“There are those that look at things the way they are, and ask why? We think about things that never were and ask why not?”
- Endowus (via George Bernard Shaw & Robert Kennedy)
Endowus makes things the way they should be (and turns things on their heads)
Robo-advisors and bank digital wealth platforms in Singapore look largely the same. Many use the same US-domiciled ETFs which have high FX cost and tax burden to Singapore-based investors, or high-cost unit trusts with sales charges or trailer fees. It is no surprise that a lot of the robo-advisor models are replicated from the US or China.
Endowus doesn’t settle for the norm, follow the trend or just copy what others are doing. We know we face unique challenges here in Singapore and thus need innovative solutions to these unique problems. We work with partners, fund managers, brokers, exchanges and regulators to solve the problem in a unique way - but always in the best interest of investors, our clients.
Not only are we the first & only digital advisor for CPF, but we are also the only ones implementing truly passive strategic asset allocation, solving for tax efficiency, foreign exchange efficiency, and SGD-hedging for fixed income exposure. Oftentimes, products are exclusive to Endowus, as in the case of the passive Vanguard-managed index funds in CPF, and the unique mix of Dimensional and PIMCO institutional share-class funds that make up our global portfolios.
Everybody says unit trusts are expensive. We say: not if you can access the institutional share-class and make it available to retail investors. Institutional investors like the GICs of the world get a much lower cost, so we asked ourselves how we can make it available to everybody and give people a higher chance of success. And we made it happen.
"Sometimes in life, it's not about developing the best answers, but developing the right questions."
- David Booth
Everybody says there are no other choices other than US-domiciled ETFs for passive investing - we said they are needlessly costly to trade (triple layer of fees & FX cost) and tax (withholding tax and estate tax). If we access institutional class funds or rebate 100% of trailer fees (an industry first!), we can get to a lower cost and make it better by providing SGD-denominated or SGD-hedged products that are tax-efficient and can even go into the CPF-IS included fund list.
People had a poor experience with CPF investing, going through a painful, onerous process and the high costs, which led to poor outcomes. Everybody told us the industry is entrenched and there was no way we could bring costs down enough to make it work. And besides, there were no passive funds available on CPFIS.
We said: then let’s fix that. We brought our partner UOB Kay Hian in to be the fourth CPF investment administrator and the first in 14 years to lower the costs. We introduced a 100% rebate of trailer fees. We cut our own fees. We wanted to bring fees down from 3~5% to below 1% all-in. It took us almost 2 years but we got there.
We brought the first two passive index funds managed by Vanguard into CPF and made it exclusive to Endowus. It is currently the cheapest and only passive way to invest your CPF.
“When there are multiple solutions to a problem, choose the simplest one.”
- Jack Bogle
There’s so much more to come from Endowus!
But the point is not just to be different. Our aim is to make it better and as simple as possible for our clients. By providing access to best-in-class funds and products in the most cost and tax-efficient way in Singapore, and by removing needless risk or hassle in implementation.
Following the launch of the two Vanguard passive index funds into CPF, we are thrilled to be bringing more best-in-class funds for our Cash & SRS clients now, through these new portfolios today. While this is the first major portfolio upgrade we have implemented across the board since the launch of our services in 2018, we will continue to strive towards improving the overall quality and efficiency of the portfolio. Our focus will remain in improving the outcome of your investment goals and lowering costs at every level.
Join Endowus today to get the most out of these new portfolios, be it through the investment of your Cash, CPF, or SRS. There is plenty more to come so please look out for more announcements soon! We are constantly thinking out of the box to imagine the way things should be when it comes to investing and managing your money here in Singapore. We are working hard as a team to improve your experience and outcomes. We are happy to address any enquiries about our service or the new portfolios. Please reach out to your Endowus representative or contact us on firstname.lastname@example.org. We welcome any and all feedback as well.
We are here for you. In the meantime, thank you for your trust and support. We wish you a wonderful week ahead and please stay safe and healthy!
"The most important thing about an investment philosophy is that you have one you can stick with."
- David Booth