NEW: Enhancements to Endowus Megatrends Portfolio

The latest RPC is part of Endowus’ commitment to source funds that will optimise your portfolios. Clients can choose to accept or reject the recommended changes.

Recap: The objective and value-add of the Megatrends Portfolio

The table below summarises the recommended portfolio changes:

New funds to enhance existing themes/sub-themes

1) DWS Invest Global Agribusiness - More reactive to changes to food prices and supply chain disruptions

Introduction: DWS Invest Global Agribusiness is a thematic fund that considers the whole agricultural value chain (up- and downstream companies) to maximise risk diversification benefits and to capture growth trends in the entire value chain.

Investment approach: While bottom-up stock selection is a key part of the investment process, the team also considers macroeconomic factors as these factors can have an outsized impact on food prices. For example, prior to 2021, the team had been increasing exposure to the Fertilisers and Seed & Crop Protection segments as they believed that macroeconomic conditions were favourable.

How the Fund adds value: Due to the Fund’s ability to tactically allocate across segments, the Fund can be more reactive to movements in food prices or food security in general, which is an increasingly important global theme. This ability has, in turn, allowed the Fund to generate strong performance, such as in 2021 and 2022 where the Fund’s sizable allocation to Fertilisers was a key return driver.  

2) GMO Climate Change - Targeted, pure-play approach to the climate change sector

Introduction: The GMO Climate Change Strategy seeks to deliver a high total return by investing in companies focused on climate change mitigation and adaptation solutions.

Investment approach: A strategic allocation is first defined, to both diversify across important segments of the climate change sector as well as balancing the importance of market segments with investability considerations. Purity of the theme is a key component of the investment approach, as the Fund aims to invest in companies which will benefit from efforts to combat climate change. The team also has a value orientation that has guided the Fund away from expensively valued companies and towards small companies that tend to be overlooked.  

How the Fund adds value: The team’s focus on having pure exposure to its chosen theme means that the Fund’s performance is driven largely by the climate change segment, and its investments in real assets such as clean energy, utilities and agriculture potentially provide the Megatrends Portfolio with some inflation hedge. Its value approach also makes the  Fund relatively more resilient against the higher levels of volatility and drawdowns associated with climate change investing.  

3) Neuberger Berman Global Megatrends  - Differentiated, high-conviction approach to thematic investing

Introduction: The Fund seeks to achieve long-term capital appreciation through investment in a portfolio of equity holdings that are exposed to global long-term themes. The strategy is helmed by a highly experienced team, with a majority of the portfolio managers having a tenure of more than twenty years at Neuberger Berman.

Investment approach: The team identifies multiple investment themes that are based on powerful, global, secular shifts, in turn leading to an identification of businesses with clear long-term tailwinds. The team believes that themes enhance visibility and predictability of underlying businesses, consequently allowing for investment through economic cycles, and elevating its conviction in the portfolio holdings. With themes as a guide, the team then selects businesses based on their individual qualities, adopting a convicted approach that results in a concentrated portfolio of 20-30 names.

How the Fund adds value: The team’s differentiated and high-conviction approach to thematic investing provides the Megatrends Portfolio with a more targeted exposure to quality businesses that also benefit from global trends. The team’s valuation discipline also leads the Fund away from momentum-driven companies or sectors trading at excessive valuations. Along with the concentrated nature of the Fund, returns generated do not necessarily track overall equity markets in the long run but are more dependent on the underlying companies’ performances.

New funds to introduce new themes/sub-themes

1) Janus Henderson Horizon Biotechnology Fund - Capturing the high growth opportunities that the Biotechnology space has to offer.

Introduction: The Fund aims to provide capital growth by focusing on biotechnology investments, a segment within healthcare that has significant growth potential. Biotechnology companies are typically engaged in novel drug development and clinical research, with the most successful blockbuster drugs generating billions in revenue.

Investment Approach: The Fund employs an active all-cap approach to biotechnology investing, allocating across developmental, early commercial and profitable stages, with a tilt towards smaller-sized developmental stage companies. The Fund also performs intensive fundamental analysis that goes beyond engaging company management and often collaborates with physicians and industry experts to glean insights.  

How the Fund Value-Adds: The Fund provides the Megatrends Portfolio with meaningful exposure to biotechnology, a segment within Healthcare that addresses many global challenges such as the ageing population and major diseases. Investing in a niche and highly technical domain such as biotech, often requires specialised expertise and that is where this Fund has a competitive advantage. Its team of healthcare experts are better able to navigate the nuances of investing in this niche segment.

The Fund’s ability to capture the high-growth potential of the Biotechnology sector is very much aligned with the Megatrends Portfolio’s objective of investing in trends that have the ability to outstrip growth in the broader equity markets.

2) Thematics AI and Robotics Fund - Invest in companies at the forefront of developing solutions powered by artificial intelligence and robotics.

Introduction: The Fund aims to achieve long-term growth of capital by investing in companies that focus on the provision of products and services powered by AI and/or Robotics.

Investment approach: Through a focused, bottom-up investment process, the Fund invests predominantly in profitable, well-capitalised companies with attractive risk and return profiles in the artificial intelligence, robotics and automation value chain.

The Fund goes beyond the realm of traditional technology, characterised by the likes of the “Magnificent Seven” and instead focuses on companies that enable automation and/or enhancements in workplaces. Such companies include robotic manufacturers and design software makers that are seeing increasingly rapid adoption in various industries.  

How the Fund adds value: The Fund provides the Megatrends Portfolio with exposure to a sub-sector of the technology industry, where long-term structural trends are driving the increasing adoption of automation and the use of artificial intelligence. Allocation to six distinct segments within the thematic universe provides exposure to areas such as office automation and design software. This variety allows for diversification across sub-themes, market cycles and demand drivers. With the Fund’s investments in lesser-known but important technology companies, the portfolio can tap into the industry’s strong growth potential while avoiding the more crowded names.

Megatrends Portfolio Allocation Breakdown

Comparing the sector allocation of the two portfolios, Healthcare, Industrials and Technology remain unchanged as the core allocations, with a combined weight of 70%. This is in line with the global trends that the Megatrends Portfolio aims to provide exposure to, with these sectors serving as either beneficiaries or enablers of such trends.

Notably, the Consumer sectors now occupy a lower weight, while the exposure to Basic Materials and Energy sectors has increased due to a more targeted focus within the climate transition theme.

Diversification and differentiation - Another key aspect of the Portfolio is its ability to serve as a satellite, one that is complementary to a core allocation like the Endowus Flagship Portfolios. To that end, we can see that each of the underlying funds does not have major overlaps with the MSCI ACWI proxy and amongst themselves as well. The Megatrends Portfolio also consists of more than 400 holdings, with the largest holding less than 2% in weight.

While hindsight often leads to better-optimised returns, we believe the more robust capturing of underlying megatrends and introduction of new funds/sub-themes, have contributed to the improved performance. The quality of a Fund’s thematic process and management team is of key importance to us, for which we look beyond just performance. Notably, some of the new funds have experienced drawdowns as of late. Nonetheless, we maintain conviction in the ability of these funds to outperform over the longer term, as driven by theme selection and trend exposure.

From the tables we can observe several improvements:

1. Higher upside capture relative to the benchmark MSCI ACWI Index. This implies that when market conditions are favourable, the new Portfolio should perform better than the existing portfolio.
2. Higher beta and volatility: This is in line with the changes we have made, to allow the Portfolio to be higher octane in nature, capturing the growth from Megatrends. Larger swings in the Portfolio’s daily and monthly returns and a greater sensitivity to market conditions are to be expected.

Our approach to core-satellite investing

At Endowus, we believe everybody is different, with different risk appetites and different goals for their investments. Some investors may not even require satellite portfolios, while for some it might be a 10% allocation while others with a higher risk appetite could be an allocation of 50%.

Needless to say, it is important to look at one’s overall holdings holistically. It is easy to lose sight of the overall total picture or how these various goals and portfolios are working together towards your common financial goals.

The Endowus platform was created to provide you with a bird’s eye view of your overall portfolio and also allow you to view your wealth by goal or funding source.

You can utilise our pre-constructed Endowus Satellite model portfolios, or create your own satellite portfolio using Endowus Fund Smart, a powerful, low-cost platform that offers over 200 Best-In-Class Funds, where you can save 50% or more on your investment costs.

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.

Clients may also accept the RPC by clicking on the Login button from the RPC alert email.

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 lower fees, and stronger long-term gains 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 Flagship Portfolios.

Appendix

Have more questions? The Endowus Investment Office is here to guide you through them.

What is Endowus’ Strategic and Passive Asset Allocation framework?

Endowus takes an evidence-based approach to investing for the highest probability of success, which brings together strategic passive asset allocation and global diversification, expressed through best-in-class funds, at a low cost. We use these building blocks to design portfolios customised to your goals and preferences.

Endowus’ Strategic Passive Asset Allocation (SPAA) framework is:

• Strategic top-down, meaning the allocation to different asset classes such as equities, fixed income, geography, style or factors, are set based on the goal of the portfolio
• Passive in implementation, meaning Endowus does not believe in tactically or actively changing your allocations based on market conditions or economic indicators
• Curation of portfolio design bottom-up, meaning Endowus carefully selects best-in-class funds to best represent your goal’s SPAA. We access leading global fund managers with the expertise, scale, and a low-cost structure. They have real, proven track records in implementing their strategies with tens and hundreds of billions of assets successfully over time. These strategies can be passive, systematic or active, depending on the asset class they try to represent, and the investment objective.
  

You may read more about our SPAA framework here.

Why is the recommended portfolio change suitable for me?

Monitoring the investments in your portfolio and trying to optimise for improvements can be a time-consuming and complicated affair. This is where working with a trusted financial adviser like Endowus can help you improve the way you invest.

We represent non-institutional investors in negotiating for a more efficient share class with established fund management companies.

Endowus also recognises that every individual is on their own investment journey. It remains a priority that our clients can choose to opt in or out of the recommended changes.