How does Endowus calculate representative historical performance?

Why we calculate representative historical performance 
Calculating representative historical performance helps us understand fund manager and asset class performance over long periods of time, as well as the correlation of asset classes in the creation of an investment portfolio. 

For avoidance of doubt, this performance data makes no assumptions that would require market timing, portfolio changes, underlying fund (unit trust) changes, or asset allocation weight changes. We believe such assumptions are unrealistic and unreasonable. 

The goal of this analysis is to help investors understand how a strategic portfolio with a passive asset allocation would have performed in past scenarios, including the 2008 Global Financial Crisis (a statistical anomaly), if data is available.

We believe that understanding the long term risk, volatility, and return of an asset class, to which the unit trust’s strategy is exposed to and highly correlated with, is important to an informed and long term investment decision. Financial markets go through cycles and can also experience prolonged periods of bull and bear markets. 

This is a critically important input into the risk assessment process for investors to find the most suitable underlying fund components to build an asset allocation portfolio that will meet their investment goals. Without the long term view, we are prone to chase after short term performance or not have a complete or accurate picture of the portfolio asset allocation. 

This methodology document is for information purposes only and is not and should not be construed as an offer or the solicitation of an offer or a recommendation for the purchase or sale of any investment or subscribe for, or to participate in, any services. Endowus is not recommending or soliciting any action based on it. Past performance is not a reliable indicator of future performance and representative historical performance should not be relied upon as an indication of future results (including but not limited to instances where these may be presented as forward looking statements). Representative historical performance information may also be out of date. 

How we calculate representative historical performance of a fund (unit trust)
Endowus may provide the returns of the best proxy to a fund prior to the inception of the fund. One fund may have several share classes with different inception dates, different fees, and different denomination currencies. In addition, the fund manager could run the same strategy in other fund vehicles prior to the inception of the subscription fund vehicle. 

Where possible, Endowus provides the representative historical performance from January 2003, and we present the cumulative return in a table, including the yearly returns since the earliest available performance data, YTD, 1M, 6M, 3Y, 6Y and 10Y returns, and in a chart, which shows growth of capital using monthly performance data. The annualised 1Y, 3Y, 5Y, 10Y returns are also presented. 

Therefore in order to illustrate and make a best effort to closely match performance results for longer historical periods, we use the following hierarchy of monthly returns data, moving down the list only when the higher priority data does not exist:

  1. Subscription share-class (the exact fund you are buying)
  2. Oldest share-class of the same fund vehicle, adjusted for currency and fees
  3. Fund strategy returns in the form of another fund vehicle by the manager or a systematic benchmark by the manager, adjusted for currency and fees
  4. Asset class benchmark proxy, adjusted for currency and fees*

*In choosing the best benchmark asset class proxy, Endowus’ Investment Office first considers the prospectus benchmark provided by the fund manager. In the case that the prospectus benchmark is unsuitable or unavailable, the Investment Office may choose common commercial indices that best represent the unit trust’s asset class (including asset type, geography, sector, factor, etc.) exposure (the “asset class benchmark”). The asset class benchmark may be a blend of indices and needs to be at least 85% correlated with the strategy’s live return history. 

We strive to provide full transparency to our clients, and we believe that being able to visualize how the unit trust’s strategy has performed since its earliest inception and how the corresponding asset class has performed over multiple market cycles at one place is a value-adding service we provide to our clients, as Individual investors usually lack the access to multiple sources of data needed to enable these analytics. 

However, representative historical performance cannot be relied upon on its own for financial decision making. Any investment views and investment products/services should be reviewed against a person’s investment experience, objectives, financial resources and personal circumstances. 

In Appendix A below, please see a list of the current prospectus benchmarks used, and where appropriate, asset class benchmarks we use for the unit trusts on our platform with an insufficient history of live track record. 

How we calculate the representative historical performance of a portfolio of funds
Representative historical performance of a portfolio of funds is calculated in the following steps:

  1. Combines the fund returns in their appropriate weight from their earliest common start date
  2. Runs the returns of the portfolio and includes threshold-breach based rebalancing if and when the portfolio would have materially drifted from the specified target asset allocation (Read more about how this works here)

While we believe this methodology results in a returns data that is most similar to the portfolio prior to its existence, it is not, and cannot be, completely precise.

Fees treatment
Portfolio performance includes fund-level fees and does not include Endowus Access Fees, which range from 0.05% to 0.60% per annum depending on investment objective, source of investment (CPF, SRS or Cash) and client assets under advice (“AUA”). 

Data source
Endowus licenses the use of data from Intermediaries, including, in part, from Morningstar Direct, a third-party provider of stock market data. Endowus makes no guarantee, representation or warranty and accepts no responsibility for the accuracy and/or completeness of the information. Where data is cited from Morningstar Direct, the following disclosures apply: ©2021 Morningstar, Inc. All rights reserved. The information provided by Morningstar Direct and contained herein: (1) is proprietary to Morningstar and/or its content providers; (2) may not be copied or distributed; and (3) is not warranted to be accurate, complete or timely. Neither Morningstar nor its content providers are responsible for any damages or losses arising from any use of this information.

Appendix A: Prospectus and asset class benchmarks for select funds

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As of August 2021