Upgrading Flagship Portfolios with Amundi's new low-cost Passive Index Funds
Endowus Insights

Upgrading Flagship Portfolios with Amundi's new low-cost Passive Index Funds

Updated
11
Aug 2022
published
11
Aug 2022
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Recommended portfolio change with lower fees - Amundi passive index funds
  • Lower fees in your Flagship Portfolios via our new recommended portfolio change (RPC)
  • Latest RPC introduces two Amundi passive index funds, including the lowest-cost US index fund available to Singapore retail investors
  • For the Flagship 100% Equities Portfolio, the annual fund-level fee drops from 0.33% to 0.24%. For the Flagship 100% Fixed Income Portfolio, it is cut from 0.50% to 0.43%
  • The Flagship Portfolios stay efficient, offering better risk-adjusted return prospects going forward

In our latest Recommended Portfolio Change (RPC), Endowus is recommending to clients changes to both the equities and fixed income components of the Flagship Portfolios. 

These changes, if taken up, will provide clients with a closer — and passive — tracking of the benchmark indices. Crucially, this switch will lower costs for clients. 

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

Lower fees for your Flagship Portfolios

For the equities exposure of the Flagship Portfolios, we are proposing these two changes:

  • Replacing the LionGlobal Infinity US 500 Stock Index Fund with the Amundi Prime USA Fund — now the lowest-cost US index fund available to Singapore retail investors. Its fund-level fee is at just 5 basis points (bps), or 0.05%, per annum.
  • Marginally raising allocation to the Dimensional Global Core Equity Fund. This brings the geographical allocations closer in line with the global MSCI All Country World Index benchmark. 

For the fixed-income exposure of the Flagship Portfolios, we are proposing two changes:

  • Add exposure to the Amundi Index Global Agg 500m Fund, which has a low fund-level fee of just 10bps, or 0.1%, per annum.
  • Reduce exposure to the PIMCO GIS Income Fund and Dimensional Global Core Fixed Income Fund.

The changes will reduce overall portfolio costs and add further diversification.

The proposed improvements do not compromise the structure and efficiencies of the portfolios. They are aimed at improving the expected risk-adjusted returns for our clients. 

When we conduct recommended portfolio changes, they are guided by our Strategic and Passive Asset Allocation (SPAA) framework. We do not make tactical shifts of country, sector, or factor weights to try to beat the market. Instead, we constantly review ways to enhance our advised portfolios. For more on our SPAA framework, please refer to the Appendix below.

Here are how the proposed improvements will change the 100% equities and 100% fixed income portfolios, to illustrate the latest RPC.

Flagship 100% Equities Portfolio

Endowus is recommending to have the Amundi Prime USA Fund replace the LionGlobal Infinity US 500 Stock Index Fund. The choice is clear, given the lower cost and similar market exposure. With a significant reduction in fees, clients can look forward to better expected investment performance over the long term, should they opt in to the RPC.

In addition, we are proposing to lower exposure to the newly introduced Amundi Prime USA fund by 4 percentage points, while raising the allocation to the Dimensional Global Core Equity Fund by 4 percentage points. This change reduces the portfolio's overweight position in the United States. There is negligible impact on the exposure to other geographies and sectors, as seen in the comparison tables below. 

Importantly, the portfolio continues to be globally diversified, but at a lower cost.

Portfolio comparison by region

Source: Endowus, Morningstar. Data as of 31 May 2022.

Portfolio comparison by sector

Source: Endowus, Morningstar. Data as of 31 May 2022.

Flagship 100% Fixed Income Portfolio

The proposed inclusion of the passive Amundi Index Global Agg 500m Fund enables Endowus to better optimise the portfolio by balancing the mix of active and passive options. Including this fund would lower the overall portfolio cost, while adding diversification through high quality fixed-income exposure. 

With the RPC, the new Flagship Cash/SRS 100% Fixed Income Portfolio will be more in line with the benchmark Bloomberg Global Aggregate Bond Index for the following reasons.

  • It will reduce long-term tracking error, which measures how much a portfolio’s performance diverges from that of its relevant benchmark. 
  • On a sector basis, the portfolio has reduced its underweight to government bonds, while trimming its overweight allocation to corporate and securitised bonds.
  • Geographically, country allocations have moved closer to the benchmark. 

To be clear, the portfolio as a whole remains largely allocated to actively managed funds, which provides room to generate alpha — the additional returns creamed off through active investment strategies as opposed to passive tracking of a benchmark. Active management is still relevant in fixed-income investing, given the inherent inefficiencies of bond markets.

Comparison of top 10 sectors

Source: Morningstar. Net exposure of portfolio as of 31 March 2022. Net exposure of benchmark as of 15 July 2022.
*Benchmark data is proxied by iShares Global Core Aggregate Bond ETF data.

Comparison by region

Source: Morningstar. Net exposure of portfolio as of 31 March 2022. Net exposure of benchmark as of 15 July 2022.
*Benchmark data is proxied by iShares Global Core Aggregate Bond ETF data.

For more details on the comparison of the current and new portfolios, please refer to the Appendix below.

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 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 lower fees, stronger long-term gains with Endowus

The new Flagship Cash/SRS Portfolios continue to offer investors global diversification and access to funds from leading fund managers, with low management fees. As costs have a direct impact on performance, all else being equal, lower investment costs should lead to better long-term investment results. 

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. 

Join our webinar on 15 August 2022 to learn more about the RPC — click here.

Appendix

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

How does the performance of the new portfolio compare with the current portfolio?

Past performance is not indicative of future performance. However, an analysis on the historical performance helps shed some light on the underlying composition change. We provide some comparison tables for both the equities and fixed income allocations. 

For the equities allocation, to be very clear, the Amundi Prime USA Fund and LionGlobal Infinity US 500 Stock Index are highly correlated and track the US equities market, but are not exactly the same. The former tracks Solactive US Large & Mid Cap Index and the latter tracks the S&P 500 Index. The exact composition of the two indices are very similar with small differences. Therefore, in the short term, there could be small deviations between the performance of the two. The long-term correlation between the two indices, however, is as high as 99.9% (based on each index's monthly performance from June 2006, their common inception date, to July 2022).

The bottomline is that both portfolios offer very similar geographic and sectoral exposure. The main differences are that the new portfolio is significantly lower in cost and has a more neutral allocation to the US relative to the MSCI All Country World Index. 

The marginal long-term improvement and short-term deviation of the new equities allocation as compared to the old equities allocation is consistent with the small allocation adjustment for the portfolio.

Source: Endowus, Morningstar. Performance data is as of July 31, 2022, based on historical performance calculation methodology.
Past performance is not indicative of future performance. Performance is net of fund-level fee and gross of Endowus access fee. 

For the fixed-income allocation, with the new portfolio, the tracking error against the index is expected to be lower. We can see this in the decrease in the long-term standard deviation measurement, as it is now more in line with the index. 

To explain, standard deviation of a portfolio’s performance tracks how much it deviates — or varies — from the benchmark return. It lets investors know how much volatility they may see in a portfolio’s expected return. That’s from accounting for the portfolio risk, which is in turn affected by the risk behind the securities, whether their prices react to different market events positively or negatively, and how severe the reactions are.

That is why having a diversified portfolio across many different securities in different asset classes and from a range of sectors and geographies is key to lowering the risk of a portfolio.

The proposed allocation to the Amundi Index Global Agg 500m Fund results in a slightly lower return when measured over the past decade — that was when the fixed-income market rode a bull run, benefitting higher-risk strategies. 

Source: Endowus, Morningstar. Performance data is as of 31 July 2022, based on historical performance calculation methodology. Past performance is not indicative of future performance. Performance is net of fund-level fee and gross of Endowus access fee. 

What is Endowus' Strategic and Passive Asset Allocation framework?

Our Strategic and Passive Asset Allocation (SPAA) framework and investment philosophy remain unchanged: we believe that globally diversified portfolios at a low cost give investors the best chance of reaching their financial goals over the long term. 

We do not try to speculate or time the market with these RPCs. Endowus does not make tactical shifts into a country, sector, or factor weights on a whim. 

As a result of the RPC, both the equities and fixed income portfolios will move closer to the benchmark passive index weights and at a much lower cost. You may read more about our SPAA framework here.

The Endowus Investment Office is always seeking more efficient ways to construct our advised portfolios. This rigorous process through which we select and review funds best represents our philosophy. 

Who is Amundi?

Amundi is the largest European fund manager and leading passive index fund provider with over $2 trillion in assets under management. 

Endowus has worked with Amundi to launch an exclusive series of passive index funds to reduce the cost of investment options for investors in Singapore. The lower fees and re-optimisation should improve long-term returns, as well as reduce volatility and tracking error for the portfolios. 

Learn more about how Endowus and Amundi launched the lowest cost passive index fund series in Singapore 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.

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Disclaimer: Investment involves risk. Past performance is not necessarily a guide to future performance or returns. The value of investments and the income from them can go down as well as up, and you may not get the full amount you invested. Rates of exchange may cause the value of investments to go up or down. Individual stock performance does not represent the return of a fund.

Any forward-looking statements, prediction, projection or forecast on the economy, stock market, bond market or economic trends of the markets contained in this material are subject to market influences and contingent upon matters outside the control of Endow.us Pte. Ltd (“Endowus”) and therefore may not be realised in the future. Further, any opinion or estimate is made on a general basis and subject to change without notice. In presenting the information above, none of Endowus Pte. Ltd., its affiliates, directors, employees, representatives or agents have given any consideration to, nor have made any investigation of the objective, financial situation or particular need of any user, reader, any specific person or group of persons. Therefore, no representation is made as to the completeness and adequacy of the information to make an informed decision. You should carefully consider (i) whether any investment views and products/ services are appropriate in view of your investment experience, objectives, financial resources and relevant circumstances. You may also wish to seek financial advice through a financial advisor or the Endowus platform and independent legal, accounting, regulatory or tax advice, as appropriate.

Investment into collective investment schemes: Please refer to respective funds’ prospectuses for details of the funds, their related fees, charges and risk factors, The listing of units of the fund on a stock exchange does not guarantee a liquid market for the units. Before making an investment decision, you are reminded to refer to the relevant prospectus for specific risk considerations.

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