Webinar: Endowus Q1 2021 Portfolio Review and Returns Analysis

0:00 Introduction

6:52 Performance update of Equities and Fixed Income markets

9:15 Strong economic rebound driving earnings recovery

12:57 Sectors that have outperformed in Q1

14:59 Returns on different equity markets

19:42 Recent trend in long end interest rates

22:00 Does Fixed income markets still help with diversification?

27:48 Endowus Core Portfolio performance

34:59 Market view for Covid-19

40:02 Stock and Bond Correlations vs. Transient inflationary expectations

43:45 Where are we currently in the market cycle?

45:37 Futility of market timing

58:27 QnA: Is Endowus developing new solutions, such as income based solutions?

1:03:06 QnA: Will Endowus explore adding any funds that emphasise growth?

1:06:00 QnA: Given that rates may rise would Cash Smart clients experience more mark to market volatility?

14:59 Returns on different equity markets

Wei Mei: There are market observers who suggest tracking vaccination rates from different countries, to ascertain which stock market does the best. However, vaccination rates have almost no correlation to stock market returns, in fact, the markets that have outperformed are Japan and Europe. We know that in these two countries, vaccination rates have been much slower compared to the U.S. and the U.K.

As a proxy, Europe, as at the end of the first quarter, had a vaccination rate of 11%, whereas, Japan had a vaccination rate of 1% as part of their overall population. TOPIX has been the strongest performer this quarter, while, in the U.S. and the U.K. are much further ahead with their vaccination rates have in fact trailed behind in market performance. Nonetheless, manufacturing and service sector surveys have shown that the U.S. is catching up quite quickly. Both the U.S. and U.K. markets are the markets where both manufacturing and service sectors have started to do better. I think the reason for this is the pent-up demand and that consumer confidence has started to improve. This gives us a broader picture on how the market as a whole has been doing.

22:00 Does Fixed income markets still help with diversification?

Sam: In the safer sovereign fixed income space, an increasing number of countries and an increasing portion of the government bond investable universe is now yielding really really low numbers. While the U.S. market is picking up, we have seen very little pick up in Europe or Japan or other developing markets. In many emerging markets we're still seeing long rates being suppressed or falling.

People have talked about the risks of investing in fixed income as a result of these low numbers. Fixed income has underperformed as we have shown in the performance chart but if you look at the reason why we diversify the portfolio with exposure to fixed income is really for these times of crisis because long term these corrections and periods of cyclical downturn is when fixed income really shines.

These are three major global fixed income markets and how they performed during the four major financial crises and economic downturns that we saw in the recent decades. Starting from the tech bubble in the 90s to 200s, the market fell almost 50% in the U.S. and during that time fixed income actually performed because of the falling interest rates. Covid was no different, initially fixed income markets took a hit largely because of a liquidity shortage. However, as the federal reserve responded by quantitative easing the market came back rapidly and exceptionally well compared to equities and protected our exposure.

27:48 Endowus Core Portfolio performance (on CPF)

Sam: We are much more limited in the way we can build the CPF portfolios. Dimensional is not in CPF right now although we hope to have them included very soon. For now, we have a globally diversified multi-manager and multi-asset portfolio for CPF. You can see that the portfolios across equities and fixed income, just like Cash and SRS outperformed last year, are doing slightly better than benchmarking indices. This year we are continuing that trend, with equities doing slightly below benchmark but largely tracking the benchmark quite well, and the fixed income has actually almost the exact return as the Cash and SRS portfolio as last year.

Core enhanced and ultra has all tracked their risk metrics and last year gave us above expectations and above our conservative forecast net yield. However, the 100% fixed income portfolios, which are the ultra defensive portfolios, both fell in negative territory in the first quarter with the defensive portfolio being slightly more defensive as it should with this exposure to some short duration funds.

58:27 QnA: Is Endowus developing new solutions, such as income based solutions?

Sam: This is actually a project that Wei Mei, myself and the team is working very hard on.This is in progress, we've always said that this is something that is needed and we'll launch. However, it is not a priority because on our platform you can actually invest in broad diversified portfolios and we have no transaction cost. It is a seamless platform where you can put in money and take out the very next day with no cost or friction.

What you should do is actually maximize the returns long term of your portfolios and in the accumulation share class that we choose for you which is the more efficient way to build wealth over the long term. If you need to take money out, you should just take it out in the exact amount that you want when you want it directly from your portfolio. Many people have been conditioned to withhold from withdrawing from unit trusts too early because of the penalties or transaction costs involved but Endowus is built to flexibly and seamlessly to withdraw the money out into your bank account. We are developing really unique income solutions that will be suitable for retirement targeting that is for older people who want some supplementary income and for younger generations that have pocket money and want to grow their wealth.

ETFs are a wonderful instrument but we just wish there were SGX and local listed Singapore dollar denominated ETFs here available for us to trade in today. Unfortunately they are not, and many of the other robos and digital platforms utilise US-listed ETFs because there is no other choice but it is highly inefficient in terms of effects because some of these platforms charge you an exorbitant effects cost. Further, there are issues such as U.S. withholding tax which is quite high at 30% and an estate and inheritance tax because it is a U.S. asset that you may be liable to. These portfolios are very passive and most robos these days use active ETF which is not true passive investing.