Note: As of Nov'21, Endowus Cash Smart Core is now referred to as Endowus Cash Smart Secure. There is no change in the underlying investment offerings.
Interest rates are falling rapidly around the world. Bank deposit rates are also getting cut and yields are falling. Central banks globally are increasing liquidity and cutting rates to support the post-pandemic economy devastated by COVID-19. Investors are now struggling to find yields and searching for financial products in cash-like instruments, as interest rates and deposit rates hit unprecedented new lows.
Are there safe, higher yielding products out there for regular people on the street to put their money into before they make that investment decision or to keep their rainy day funds? What are the risks associated with these products and how do they differ from bank deposits and similar products?
In this session, Samuel Rhee, CIO and Chairman of Endowus, and Gregory Van, CEO of Endowus, share about some of the key strategies behind making your cash work harder for you across short and long term periods. This includes various cash management solutions including the popular money market funds.
0:00 Introduction to Endowus
0:30 Introducing Endowus Cash Smart
11:01 Cash Smart Core & Cash Smart Enhanced
12:21 Low Market Interest Rates Environment
15:56 Use of Money Market Funds for liquidity management
19:00 Endowus Cash Smart Yield Projection
25:29 How does Cash Smart get higher returns than bank deposits?
30:39 Projected Yield and historical return of Fullerton SGD Cash Fund, LionGlobal Enhanced Liquidity Fund and UOB United SGD Fund
37:21 Projected Yield of Endowus Cash Smart Core and Enhanced
43:00 Core and Enhanced performance during worst period in March
54:16 Historical performance of Endowus Cash Smart versus competitors
1:03:20 Demo on how to create a Cash Smart portfolio
Excerpts from the Presentation
What are the differences in risks between Bank Deposits and Endowus Cash Smart (25:29)?
If you make a deposit to a bank, the bank will likely lend it out and then pay you an interest on it, while taking the difference. The banks may lend that money out in the form of unsecured lending, housing loans etc.
If a global financial crisis-like situation happens, your bank deposit will only be insured up to $75,000 by the Singapore Deposit Insurance Corporation (SDIC).
While the SDIC has never been activated, it is worthwhile to note that during the Global Financial Crisis banks did go bankrupt and people lost their deposits. During times like the Great Depression, there were bank runs where everyone was running to the bank to pull out their money out.
Endowus Cash Smart is a portfolio of funds with institutional fixed deposits, short duration and high quality government bonds, and short duration and high-quality corporate debt. What you own is a portfolio of fixed income instruments with short duration high quality risk, that is spread out across many counter-parties.
In our product, the money is invested through Fullerton, UOB Asset Management and LionGlobal, based on the investment parameters of their funds.
It can be seen as a much more efficient way to park your cash and in some ways lower risk because rather than exposing yourself to one entity borrowing money, you are spreading your counterparty risk widely.
How did Endowus Cash Smart Underlying Funds perform during high volatility (37:28)?
As shown in the table below, the Fullerton SGD Cash Fund, which is made up of institutional fixed deposits, has followed the interest rate movement during the COVID-19 crisis dropping from 1.5% to 0.7% projected yield.
The LionGlobal Enhanced Liquidity Fund, has dipped during the crisis, but went back up in April and May.
The United SGD Fund, which has more flexibility and can take on more risk, has taken the market dislocations in pricing to take up higher yielding bonds during the crisis and acquire bonds that have dropped in price temporarily.
This is why we provide a range in yield rather than a fixed number to reflect the variability in yield.
The table below shows the worst case scenario for from 2019 to 2020.
There was a single day loss of 0.047% for the Endowus Cash Smart Core portfolio due to liquidity constraints for the LionGlobal Enhanced Liquidity Fund as the fund size was small.
In March 2020, there was also a single day loss of 0.02% due to liquidity crunch from COVID-19. These losses are made up within a day or two.
The Enhanced Portfolio, which is made up of 50% of United SGD Fund instead of Fullerton SGD Cash Fund, has seen a loss of 0.92% in the worst period during the CoVID-19 crisis.
While this drop was recovered within 50 days, clients interested in the Enhanced Portfolio should take that into consideration if they were to choose the Enhanced Portfolio over the Core portfolio.
Both the LionGlobal Enhanced Liquidity Fund and the United SGD Fund have a weighted average credit quality of A. They have both higher quality and lower quality bond holdings in their portfolio, but a track record of managing the risk very well.