Flagship Cash/SRS Portfolios made better with BlackRock iShares, Amundi low-cost index funds
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Flagship Cash/SRS Portfolios made better with BlackRock iShares, Amundi low-cost index funds

Updated
21
Aug 2023
published
25
Apr 2023
Endowus Flagship Cash/SRS Portfolios made better with BlackRock iShares and Amundi low-cost passive index funds
  • By leveraging the expertise of global best-in-class fund managers, Endowus provides investors with low-cost and broad globally diversified exposure to equities and fixed income markets through our Flagship Portfolios.
  • The recommended portfolio change (RPC) — to the equity and fixed income components of the Flagship Cash/SRS Portfolios — improves the tracking of global benchmarks, provides a more balanced, diversified exposure to markets, and lowers the cost of investments. 
  • This is achieved by introducing exclusive to Endowus low-cost passive index funds from BlackRock iShares and Amundi. Endowus has been working in partnership with some of our most important fund management partners such as BlackRock and Amundi, to bring in some of the lowest-cost passive index funds and making them available to Singapore retail investors.
  • Watch our webinar to learn more about the recommended portfolio change. For details on the proposed changes to the Flagship CPF Portfolios, refer to this article.
  • To get started with Endowus, click here.

In our latest recommended portfolio change (RPC), Endowus is recommending to clients changes to both the equities and fixed income components of the Flagship Cash/SRS Portfolios. 

These changes, if taken up, will lower the cost of investments for clients, provide a closer tracking of the respective benchmarks, and a more balanced exposure to investment styles.

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

To learn about the RPC for Flagship CPF Portfolios, click here.

Lower cost and more balance for your Flagship Cash/SRS Portfolios

The two tables below summarise the recommended portfolio changes, for the Flagship 100% Equities Portfolio and the Flagship 100% Fixed Income Portfolio.

Flagship Cash/SRS 100% Equities Portfolio

Endowus Flagship Cash/SRS 100% Fixed Income Portfolio - underlying funds, new weights, total expense ratios (TER) - includes BlackRock iShares funds and Amundi fund

Flagship Cash/SRS 100% Fixed Income Portfolio

Flagship 100% Equities Portfolio

For the equity portion of the Flagship Portfolio, we are proposing these three changes:

  • With emerging markets and developed markets, we are reallocating exposure from systematic factors — such as value, small cap and profitability — to passive equity.
  • We are reducing exposure to the Pacific Basin countries, and increase exposure to emerging markets; and
  • We are adding the BlackRock iShares US Index Fund to the US exposure.

These changes to the equity sleeve of the Flagship Portfolio series will result in a slight overweight to emerging markets, a reduction of the underweight to developed Europe, and a reduction of the overweight to Japan.

The Investment Office has assessed that having both the Amundi Prime USA Fund and the BlackRock iShares US index Fund in the US allocation makes sense for the following reasons:

  • The two funds are highly correlated to the US equity market but in some situations, there may be slight differences in the holdings.
  • This approach provides more diversification as the BlackRock iShares US Index Fund utilises synthetic replication to track the S&P 500 Index and the Amundi Prime USA Fund utilises direct physical replication to track the Solactive GBS United States Large & Mid Cap Index.
  • Each of the funds has its own unique competitive advantages. The BlackRock iShares US Index Fund has no dividend withholding tax but the Amundi fund does. However, the Amundi fund is lower in fees compared to the BlackRock iShares fund.

Geographical allocation comparison (%)

Market exposure Current 100% Equity Portfolio New 100% Equity Portfolio MSCI ACWI
Developed 90.7 89.0 92.0
Emerging 8.9 10.7 8.0
Latin America 1.3 1.5 1.0
Developed Asia 7.4 7.0 4.0
Developed Europe 5.7 6.5 12.7
Emerging Europe 0.3 0.3 0.2
US 60.9 60.8 59.9
Canada 1.5 1.7 3.1
UK 2.0 2.2 4.1
Japan 9.8 7.7 5.6
Australasia 3.0 2.5 2.1
Emerging Asia 6.2 7.6 5.9
Others 1.8 2.1 1.4

Source: Endowus Research, Morningstar Direct, fund managers. Note: ​​Using Morningstar’s classification. Data is as of the most recent available portfolio in Morningstar Direct.

In terms of sector allocations, the new portfolio differs marginally from the current portfolio. The sector allocations stay close to that of the MSCI All Country World Index (ACWI), with the largest deviation at about 2%.

Sectoral allocation comparison (%)

Sector exposure Current 100% Equity Portfolio New 100% Equity Portfolio MSCI ACWI
Basic materials 6.7 6.3 4.8
Consumer cyclical 6.5 6.6 10.1
Financial services 11.4 11.0 16.4
Real estate 6.8 7.0 2.7
Communication services 11.0 11.4 7.0
Energy 11.7 11.2 5.6
Industrials 3.1 3.0 10.2
Technology 19.6 19.4 18.6
Consumer defensive 6.1 6.1 8.0
Healthcare 14.3 15.1 13.5
Utilities 2.5 2.6 3.1

Source: Endowus Research, Morningstar Direct, fund managers. Note: Using Morningstar’s sector definition and classification. Data is as of the most recent available portfolio in Morningstar Direct.

Comparing the two portfolios and the index across the different market cap segments, we see that the updated portfolio would have a reduction in the underweight to giant market-cap stocks versus the index. However, when compared to the index, which only focuses on giant, large and mid-cap stocks, the portfolio is much more diversified with allocations to small and micro stocks as well.

Market cap allocation comparison (%)

Market cap exposure Current 100% Equity Portfolio New 100% Equity Portfolio MSCI ACWI
Giant 33.6 37.7 48.0
Large 28.3 30.3 36.1
Mid 25.2 22.5 15.7
Small 9.6 6.9 0.2
Micro 2.9 2.1 0.0

Source: Endowus Research, Morningstar Direct, fund managers. Note: ​​Using Morningstar’s classification. Data is as of the most recent available portfolio in Morningstar Direct.

We expect these changes to not only make the Flagship Equity Portfolio more diversified in terms of fund manager names and investment approaches, but to also make the portfolio more balanced in terms of size, sector, and geographical allocations — all while lowering the TER. 

Performance

As the table above shows, the performance of the new Flagship 100% Equity Portfolio is very similar to that of the current portfolio. The shorter-term returns of the new portfolio are marginally lower than those of the current portfolio, but better than the MSCI ACWI benchmark. As for the standard deviation, the 1-year, 3-year, and 5-year figures for the new portfolio are also slightly lower than those of the current portfolio.

Flagship 100% Fixed Income Portfolio 

For the fixed income portion of the Flagship Portfolio, we are proposing these two changes:

  • Reduce exposure to active and systematic core global bond funds via PIMCO and Dimensional, and add exposure to a passive short-duration global bond fund via iShares. 
  • Reduce exposure to an active core emerging-market bond fund via PIMCO, and add exposure to a passive core emerging-market bond fund via iShares.

Our aim is to improve the diversification and balance of the Flagship Portfolio, while also reducing overall costs and lowering volatility.

These changes will result in marginal differences in the sector allocations of the portfolio, as illustrated in the table below. More importantly, our Flagship Cash/SRS 100% Fixed Income Portfolio offers a higher degree of diversification across sectors than the benchmark Bloomberg Global Aggregate Bond Index.  

Sector allocation comparison (%)

Sector exposure Current 100% Fixed Income Portfolio New 100% Fixed Income Portfolio Bloomberg Global Aggregate Bond Index
DM treasury/govt related 29.8 30.6 52.7
Investment-grade credit 22.0 19.0 17.8
High-yield credit 4.2 4.1 0.0
EM debt 19.2 23.2 15.0
Municipals 2.0 1.2 0.3
Securitised 21.7 20.8 14.3
Inflation linked 1.0 0.9 0.0

Source: Endowus Research, fund managers. Data for the portfolios is as of 31 Dec 2022.
Note: DM: developed markets. EM: emerging markets.

In terms of the portfolio’s characteristics — yield, duration, and credit quality — the recommended changes will similarly result in marginal differences. That being said, we expect that the new portfolio will potentially deliver slightly lower volatility and tracking error to the index as compared with the current portfolio, as the table below shows.

The table also highlights the superior characteristics of our Flagship Cash/SRS 100% Fixed Income Portfolio as compared with the benchmark Bloomberg Global Aggregate Bond Index. Despite having a similar level of credit quality, the Endowus portfolio offers a higher yield to maturity at a lower duration than the benchmark index.

We believe that these recommended changes will further strengthen the fixed-income exposure of the Flagship Portfolio and help investors better achieve their long-term investment goals.

Comparison of portfolio characteristics

Portfolio characteristic Current 100% Fixed Income Portfolio New 100% Fixed Income Portfolio Bloomberg Global Aggregate Bond Index
Yield to maturity 5.8% 5.6% 3.8%
Duration (years) 5.6 5.3 6.7
Credit rating A/AA A/AA A/AA
5-year volatility 5.8% 5.1% 4.4%
5-year tracking error* 1.4% 1.1% -

*Tracking error is a measurement of how closely an investment portfolio follows its benchmark index. Note: SPDR Bloomberg Global Aggregate Bond UCITS ETF used as a proxy for Bloomberg Global Aggregate Bond Index. Portfolio credit rating is an estimate by Endowus based on credit rating breakdowns.
Source: Endowus Research, fund managers. Data for the portfolios is as of 28 Feb 2023.

Performance

As the table above shows, on a trailing 1-year, 3-year, and 5-year basis, the new Flagship 100% Fixed Income Portfolio generally had generated higher returns than the current portfolio, and with lower volatility (as represented by the standard deviation). 

Our philosophy to better investing

At Endowus, we believe in a long-term approach to investing. We use our Strategic and Passive Asset Allocation (SPAA) framework to guide our recommended portfolio changes. Rather than trying to beat the market by making tactical shifts, we focus on enhancing our advised portfolios. For more on our SPAA framework, please refer to the Appendix.

The Endowus Flagship Portfolios’ goal is to provide low-cost, globally diversified exposure to the equity and fixed-income markets, with the allocations weighted differently to suit different investors' risk tolerance levels. 

Our Flagship Portfolios also benefit from funds using a variety of investment approaches, such as passive, systematic/quantitative, and active; we believe that there is merit to each of these approaches. This enables the portfolio to draw on varying sources of return and investment approaches in different market environments. Passive funds provide broadly diversified exposure to the market at a very low cost, systematic funds offer exposure to empirically proven factors with positive expected returns, and active funds exploit inefficient parts of the market to increase excess returns.

Pure passive funds have always been a type of product offering that has been curiously inaccessible for the Singapore retail investors. To address this, we've worked with our partners, BlackRock and Amundi, to launch passive index-tracking funds for retail investors in both equities and fixed income, and to make them available on the Endowus platform. This allows us to lower the cost of our Flagship Portfolios and to improve the balance between investment approaches.

These efforts are in addition to our partnership with Dimensional and PIMCO, through which we bring best-in-class systematic and active funds to Singapore retail investors — and critically, at a fraction of the cost investors usually get from other financial institutions.

For more information on the BlackRock and Amundi funds, refer to these in-depth articles: 

Besides the recommended changes to the Flagship Cash/SRS Portfolios, Endowus is also proposing changes to the equity component of the Flagship CPF Portfolios — read about it here.

Watch our webinar to learn more about the recommended portfolio change. 

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, 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.

Who is BlackRock?

BlackRock is a global investment management corporation that offers a range of financial products and services. iShares is a subsidiary of BlackRock and a key component of BlackRock's business —  it was owned by Barclays in the early 2000s and later acquired by BlackRock in 2009.

At the end of September 2021, iShares was managing about US$2.5 trillion in assets. To provide some context, if we compare the assets under management of iShares with the 2022 gross domestic product (GDP) of economies worldwide, iShares would rank as the eighth largest, just behind France and in front of Italy.

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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