NEW: Enhancements to Endowus Income Portfolios
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NEW: Enhancements to Endowus Income Portfolios

Updated
6
Dec 2023
published
28
Nov 2023
enhancements-to-endowus-income-portfolios
  • Our latest recommended portfolio change improves all three Income Portfolios by reducing overall portfolio risk, bringing further diversification cost reduction, all while maintaining the competitive payout targets.
  • Watch our webinar to learn more about the recommended portfolio change. To start investing with Endowus, click here.

Introduction 

For those who are new to us, the Endowus Income Portfolios are crafted with a unique life-stage approach, tailored to meet diverse investor needs for both passive income and long-term growth across evolving needs throughout their life. 

The Endowus Investment Office periodically reviews the universe of Endowus investment solutions employing the Smart+ framework, and may as a result recommend changes that can improve overall performance of the funds in view of market updates, new funds being onboarded, and more. 

Below is a quick overview on the objectives, asset allocation, target payouts and corresponding demographic for each Income Portfolio. 

In our latest recommended portfolio change (RPC), Endowus is updating fund allocations across all three Income Portfolios. The recommended changes have been carefully considered given the backdrop of a higher interest rate environment. 

These changes, if accepted, will reduce the overall portfolio risk, bring further diversification to the portfolio and slightly reduce investment costs, all while maintaining competitive payout targets.

Clients can choose to accept or reject the recommended changes.

Key enhancements to Endowus Income Portfolios 

Strategic de-risking of the portfolios

In the past, low-interest rates compelled income investors to take additional risks in order to achieve higher yields. The current high interest rate environment allows for a reduction in overall portfolio risk without affecting prevailing payout targets.

The key adjustments to de-risk the fixed income and equities allocations of the three Income Portfolios include: 

For fixed income allocations:

  • Reduction of exposure to Asia and Emerging Markets risk in Stable and Future Income.
  • Reduction of  exposure to high yield credit risk in Higher Income. 

For equities allocations: 

  • Reduction of significant sectoral and geographic deviations against MSCI ACWI Index, hence reducing active risk via sector and geography positioning. 

The below table shows the worst annualised total return over different holding periods for each Income Portfolio before and after the RPC. 

These numbers provide investors with a reference on the worst return outcomes that would have happened if investors held the portfolio for 1 year, 3 years, 5 years and 10 years respectively.  The strategic de-risking is reflected in improved downside scenarios across the different time horizons. 

Higher manager diversification 

Eight new funds across five new fund managers are being introduced in this recent change, further enhancing manager diversification. 

Each fund is carefully selected to be the best fitting for the respective Income Portfolio’s objective. They each bring incremental value to the portfolios, including providing exposure to specific markets and exploiting alpha opportunities through active management.The Income Portfolios now have a good mix of passive, systematic and active managers, handpicked by Endowus Investment Office. 

New Funds Added to the Income Portfolios

Fund Manager Fund Name Asset Class Style
JP Morgan JPM Income Fund Flexible Bond Active
Neuberger Berman Neuberger Berman Strategic Income Fund Flexible Bond Active
Pinebridge Pinebridge Asia Pacific Investment Grade Fund Asian Investment Grade Bond Active
Alliance Berstein AB Low Volatility Equity Portfolio Global Equity Active
Fidelity Fidelity Asia Pacific Dividend Fund Asia-ex-Japan Equity Active
UBS UBS US Total Yield Sustainable Fund US Equity Systematic
GMO GMO Quality Investment Fund US Equity Active
Amundi Amundi Prime USA Fund US Equity Passive

Further lowering of investment fees 

The new Income Portfolios would also come at a lower cost—2bps, 4bps, and 6bps cheaper for Stable, Higher, and Future Income Portfolios, respectively, coupled with our 100% Cashback on trailer fees. Reduced costs directly contribute to improved investment returns. 

Payout targets remain unchanged

Finally, with all the above improvements, the payout targets for each Income Portfolio remain unchanged—5-6% for Stable Income, 5.5%-6.5% for Higher Income, and 3.5-4.5% for Future Income.

One of the investment office’s mandates is to regularly review, and endeavour to maintain consistent payout targets, for as long as possible, as this offers investors with a higher predictability on future cash flow. However, investors should note that payouts are not fixed, with changes in market conditions inevitably leading to changes in payout levels achievable. 

Portfolio characteristics comparison 

The changes in portfolio characteristics is a direct reflection of the key enhancements made to each Income Portfolio. 

Portfolio characteristics of fixed income allocations 

The chart below illustrates the top fixed income sector allocations in each Income Portfolio. 

For Stable Income and Future Income Portfolios, which have an existing high credit quality tilt, the noticeable reduction in emerging markets debt allocation is a reflection of risk reduction from reining in Asia and Emerging markets country exposures. 

For the Higher Income Portfolio, the first version had a more pronounced tilt towards high yield credit in order to achieve a higher payout target. The upgraded portfolio has reduced risk by scaling back its allocation to high-yield corporate bonds. 

Finally, the table below shows the latest duration and yield to maturity of the fixed income allocation within each portfolio. The changes between the old and new portfolios are marginal. What is more interesting is the fact that the current level of yield to maturity of the fixed income allocations paints a rather optimistic picture on the forward-looking return expectations of the fixed income markets. 

Portfolio characteristics of equity allocations 

For the equity allocations of the Higher Income and Future Income portfolios, sector and geographical risk exposures have been brought largely in line with the MSCI ACWI index. 

The equity allocations of the upgraded portfolios hence boast a more balanced profile in terms of sectoral and geographical allocation relative to the MSCI ACWI Index.

The below two tables illustrate the sectoral and geographical over- and under-weight positions against MSCI ACWI Index for the equity components of the Higher and Future Income Portfolios. 

The old Higher and Future Income portfolios exhibit large deviations from the MSCI ACWI Index, such as a higher allocation to utilities and real estate sectors in Higher Income Portfolio and a lower allocation to the US market in both portfolios.

While inherent biases toward higher dividend stocks, sectors, and regions persist, the new Higher and Future Income portfolios have reduced these biases while maintaining dividend levels. 

Historical performance comparison 

The table below illustrates the historical performance of each Income Portfolio before and after RPC, versus their respective benchmarks. 

The new Income Portfolios have demonstrated higher long-term returns and slightly lower volatility compared to their predecessors. This translates to an improved risk-reward trade-off for investors.

The superior risk-reward of the new Income Portfolios holds true when one compares them to their respective benchmarks as well. 

We would also like to highlight a revision to the benchmark. 

Despite the simplicity of keeping the global fixed income benchmark to be Bloomberg Global Aggregate across the platform, we believe that selecting a benchmark that better represents the portfolio’s underlying risk is also important. Therefore, the fixed income part of the benchmark has been updated to be Bloomberg Global Aggregate Credit Index, which better represents the higher level of credit risk that the Income Portfolios undertake. 

A guide to accepting the recommended portfolio change 

When the RPC is initiated, you can opt for the change via either one of these methods:

  • Click on the Login button directly from the RPC email you would have received
  • Click on the notification bell on the Dashboard
  • Alternatively, click on the relevant page under the My Goals section, then select “View the Recommended Portfolio Change” under Goal Settings

The platform will take you through a comparison of the existing portfolio allocation and the updated portfolio allocation.

Choose to accept or reject the recommendation. If you reject the recommendation but subsequently change your mind, you can always come back to modify your choice via the Goal Settings button.

Once the recommendation is accepted, the portfolio will be rebalanced. The units of the old share class or classes will be sold. Proceeds from the redemption sale will then be used to buy units in the updated share class or classes.

As a value-added service from Endowus, we will also take the opportunity to rebalance your portfolio in a holistic way, back to its target asset allocation. This will be done even if the usual 15% deviation threshold is not breached.

The entire process will take about 5 to 10 business days to complete. You may continue to invest in and partially redeem funds from the portfolio during rebalancing. However, a full redemption cannot be performed until the rebalancing process is completed.

Enjoy upgraded passive income portfolios created for your life-stage with Endowus

The Endowus Investment Office is constantly monitoring your advised portfolios and searching for new options that will improve these portfolios. Opt in for the recommended portfolio change today to upgrade your Income Portfolios.

Appendix 

Introduction and Rationale for Inclusion for New Funds 

Asset Class Rationale for Inclusion
JPM Income Fund Flexible Bond
  • Targets maximum level of income subject to risk constraint of 4-6% over a market cycle by investing across the entire global fixed income universe.
  • Employs a differentiated asset allocation framework, reflecting macro views from JP Morgan.
Neuberger Berman Strategic Income Fund Flexible Bond
  • Targets attractive total return and consistent income stream with an overall investment grade risk profile by investing flexibly in a diversified mix of fixed income securities.
  • Tend to provide more duration exposure and takes less securitised risk than PIMCO and JPM Income Fund; historical return was not reliant on any single market sector bias.
Pinebridge Asia Pacific Investment Grade Fund Asian Investment Grade Bond
  • Aims to provide stable return and long term capital growth by investing in investment grade debt within the Asia Pacific Region.
  • Offers exposure to Japan and Australia bond markets, and is more conservative than Fidelity Asian Bond Fund.
Fidelity Asia Pacific Dividend Fund Asia-ex-Japan Equity
  • Aims to achieve income and long term capital growth by investing primarily in income-producing Asia-Pacific based stocks.
  • Provides steady monthly income stream through exposure to high quality dividend-paying companies in APAC.
UBS US Total Yield Sustainable Fund US Equity
  • Invests in selected US companies that are expected to deliver above-market average total yields (sum of yields from dividend distributions and share buybacks), focusing on quality factors, with low single stock weights and broad sector allocation.
  • Offers exposure to the US equities market accompanied with a high level of income payouts generated from dividend and share buybacks.
AB Low Volatility Equity Portfolio Global Equity
  • Aims to achieve long term capital growth by selecting securities that appear to be high quality, to have low volatility and reasonable valuations.
  • Offers only a moderate income level, leaving more space for long term capital growth, suitable for Future Income Portfolio.
GMO Quality Investment Fund US Equity
  • Aims to achieve long term capital growth by investing in equities the team believes to be of high quality.
  • Offers exposure to the US equities market with the potential to deliver long term outperformance.
Amundi Prime USA Fund US Equity
  • Aims to track the performance of the US large and mid cap equities market.
  • Offers passive exposure to the US equities market with extremely low cost.

Source: Endowus Research. As of Oct 31, 2023

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