Higher Income Portfolio Update: Fund Selection Upgrades for Better Risk-Adjusted Returns

The Endowus Investment Office continuously monitors the funds in our portfolios—not just for risk-adjusted performance, but for the quality of the investors, a robust investment process, and alignment with the portfolio's objectives. When we identify higher-quality funds that we think can improve outcomes for our investors, we make changes.

We are making targeted fund upgrades to the Higher Income Portfolio. These changes seek to improve the portfolio's total return profile while maintaining the same payout target of 5.0–6.0% per annum.

What's changing

We are making three changes:

Equity sleeve (20% of portfolio)

We are replacing abrdn Global Dynamic Dividend Fund with the Allspring Global Equity Enhanced Income Fund. Allspring combines a fundamentally-driven global equity portfolio with a disciplined option overlay strategy, offering a more diversified source of income (dividends plus option premium) and a stronger track record of stock selection.

Fixed income sleeve (80% of portfolio)

• Allianz Global High Yield is being replaced with Barings Global High Yield Bond Fund and Robeco QI Dynamic High Yield Fund. Barings brings a stronger long-term track record in global high yield, while Robeco adds a differentiated quantitative approach to high yield investing—providing diversification in investment style and reducing reliance on any single manager's active credit views.
• Consolidation of the Asian fixed income allocation to streamline exposure into a more focused investment-grade allocation via PineBridge Asia Investment Grade Bond Fund. 

Notably, both Barings and Robeco were previously available only to accredited investors in Singapore. Their recent retail registration means that all Endowus investors can now access these institutional-quality strategies. 

Why we're making these changes

Our fund selection for advised portfolios is driven by the following principles: quality of the investment team and process, strength of the track record, alignment with the portfolio's objectives, and cost efficiency.

In this case, the incoming funds score higher across these criteria and, importantly, help  improve the portfolio's total return potential—the combination of income distributed and capital appreciation—which is the metric that ultimately determines long-term wealth outcomes for our investors.

Performance comparison

The table below shows the backtested total return of the portfolio before and after the fund changes. All returns are in SGD.

The improvement is driven by better fund selection across both the equity and fixed income sleeves. The portfolio's risk profile—as measured by volatility—remains broadly unchanged.

What's not changing

The portfolio's target payout of 5.0–6.0% per annum remains the same. The asset allocation (80% fixed income, 20% equities) is also unchanged. These are fund-level changes, not a shift in the portfolio's investment strategy or risk profile.

A note on total return: why it matters as much as payout yield

When evaluating an income portfolio, it is natural to focus on the distribution yield—the cash you receive each month. But total return tells a more complete story.

Total return is the sum of two components: the income you receive in distributions, and any change in the value of your invested capital. A portfolio that pays 5% in distributions but loses 3% in capital value has a total return of only 2%. A portfolio that pays 4% in distributions but grows capital by 2% has a total return of 6%—and leaves you better off over time. Importantly, by protecting the capital value better it also enhances the probability that the future distributions are more sustainable and eventually larger due to the better capital protection for investors.  

For Singapore-dollar investors, there is currently a structural headwind that makes total return even more critical to focus on—foreign currency exchange risk.

When our portfolios invest in global bonds denominated in US dollars—as most high-quality fixed income funds are—the cost of hedging those investments back to SGD reduces the effective return. This hedging cost, currently around 2.0–2.5% per year, is driven by the interest rate gap between the US and Singapore. It is not a reflection of bond quality or fund manager skill—it is simply the price of hedging USD returns into SGD.

What does this mean in practice? A global bond fund earning 6% in USD terms may deliver only 3.5–4.0% after hedging to SGD. This limits the total return that any SGD-hedged fixed income portfolio can realistically generate—which in turn limits how much can be sustainably paid out to investors.

In this environment, stretching for a higher distribution yield can be counterproductive. If a fund pays out 6% but its total return after hedging is only 3%, the remaining 3% is coming directly from your capital. Over time, this erodes the very asset base that generates your income.

This is why our fund selection upgrades focus on improving total return rather than chasing higher payout yields. By selecting funds with stronger risk-adjusted performance, the portfolio is better positioned to sustain its distributions over the long term without depleting your capital. The target payout range of 5.0–6.0% remains unchanged—but the underlying engine powering that payout is now stronger.

As the US Federal Reserve continues its easing cycle, the hedging cost is expected to gradually decline, which will be a tailwind for SGD income investors. In the meantime, total return remains the most important number to watch.

The Higher Income Portfolio is designed for working adults with higher living expenses who seek regular income with some capital appreciation. For more details on the portfolio's objectives and allocation, visit endowus.com/income.