Endowus Cash Smart solutions
I have previously written about the various options available for a Singaporean investor to invest in his/her SRS account. Note that funds kept in the SRS account generate close to nothing in terms of investment returns. However, I have also pointed out that the “risk-free” tax savings generated from putting capital into the SRS account can theoretically be considered as an investment return in itself.
The two articles on SRS that I wrote previously can be found below:
Additional Reading: Ultimate Guide to investing using SRS account
Additional Reading: Generating “risk-free” returns using SRS and the art of withdrawal
With some spare capital park in my SRS, I have decided to invest them in Endowus Cash Smart solution. My goal is simply to increase the “risk-free returns” on my SRS funds as much as possible and not necessarily to generate a high return on my capital, at least for now.
I am not particularly a big fan of Cash Smart solutions although I believe that it is a complementary product offering that all Robo advisors should provide. However, the emphasis should not be on competing to offer the highest money management solutions to entice investors to part with their cash (although I have got to admit that it is definitely an effective marketing strategy amid the current low-interest-rate environment).
Additional Reading: Robo Advisors. High cash management rate just a marketing ploy to get your money?
What Robo advisors should focus on is to continually improve on their core investment offerings to better serve newbie investors, many of them being first-time investors and willing to give Robo Advisors a shot due to the low barrier of capital required to get started as well as the easy online onboarding process.
Endowus Cash Smart
Endowus Cash Smart offering has 3 options:
- Core which seeks to generate projected returns of 0.7% to 0.8% pa after all fees
- Enhanced which seeks to generate projected returns of 1.1% to 1.3% pa after all fees
- Ultra which seeks to generate projected returns of 1.8% to 2.0% pa after all fees
Investors should know that there is no free lunch in the world. As one’s returns get higher, this should be accompanied by higher risk.
Core Cash Management Portfolio
According to Endowus, the Core cash management portfolio is as safe as it can get with almost zero chance of capital loss. The portfolio invests in 2 key funds: 1) Fullerton SGD Cash Fund (50%) and 2) LionGlobal SGD Enhanced Liquidity Fund (50%). These funds invest in high-quality short-term debt/fixed income instruments as well as money market funds.
Enhanced Cash Management Portfolio
This portfolio generates a higher return compared to the Core portfolio and while there might be a risk of capital loss on a daily basis, investors’ capital should be relatively safe with a holding period of at least 1 month. The portfolio invests in 2 key funds: 1) UOB United SGD Fund (50%) and 2) LionGlobal SGD Enhanced Liquidity Fund (50%). 96.2% of its holdings are in short-term fixed-income securities.
Ultra Cash Management Portfolio
This portfolio generates the highest projected return after fees at 1.8% to 2.0% pa but likely also comes with the greatest risk, with Endowus highlighting that daily fluctuation could result in capital loss and a holding period of more than 3 months is preferred for capital preservation.
The portfolio invests in 5 funds: 1) LionGlobal SGD Enhanced Liquidity Fund (27.5%), 2) Fullerton Short Term Interest Rate Fund (25%), 3) LionGlobal short Duration Bond Fund (25%), 4) Nikko AM Shenton Income Fund (12.5%) and PIMCO GIS Low Duration Income Fund (10%). Again, the bulk of the capital (98.3%) is allocated to short-term fixed-income assets.
What am I investing in?
I was “enticed” into investing in their Ultra cash management portfolio as there is absolutely no requirement for me, neither can I “withdraw” my SRS funds anytime soon. Hence, I am prepared to take on that slightly higher risk to generate higher returns in this case.
In the event of a huge market volatility environment like a repeat of the COVID-19 selldown back in early 2020, I would expect this portfolio to still be negatively impacted, although unlikely by much, say low single-digit decline at worst due to their short duration nature.
I could select to “ride out the storm” and still generate a low single-digit return at the end of the day or to liquidate, take a small loss and capitalize on the more volatile “equity funds” that are now going on a discount.
Note that this is my strategy when it comes to deploying my SRS funds, one which I am taking a super conservative stance (as I already have substantial investments in higher-risk assets) for now and playing the waiting game to capitalize on market weakness.
The 1.8-2% annualized return ain’t gonna make me rich but at least it is still better than ZERO. One can track the performance of this cash smart portfolio on a daily basis since interest is accrued daily.
Endowus Fund Smart Portfolio Offerings
I will probably do a separate write-up on Endowus Core as well as ESG portfolio offerings in due time but I will like to just touch on its recent offering: Fund Smart which allows its clients to select their unit trust funds in their portfolio.
For the full list of participating investment funds, one can refer to this link here. The fund cost ranges from a low of 0.15%/annum (cash funds) to 2.38%/annum for the real estate fund by UOBAM. These costs are before rebates by Endowus.
The Fund Smart portfolio is a novel way to introduce an element of “customization” for its clients.
The idea is good but I find that is too complicated or too much hassle for a retail client to “pick and select” all by himself. A retail investor who might be new to the investing game will likely not be aware of the background of these unit trusts and when faced with a huge array of choices, it will just result in “decision paralysis”.
There is just no way to easily fathom which are the unit trusts to choose even if you know what type of funds they are. Should one select a Schroders Growth Fund with a fund cost of 1.7% or a First Sentier Growth Fund with a fund cost of 1.74%, both targeting the Greater China region?
A lot more work needs to be done to determine which fund is better in terms of historical performances (and that itself is by no means representative of future performances) and the subtle differences between both these funds.
These are unit trusts that most retail investors will not be aware of. It is unlike creating a portfolio of your favorite blue-chip US or international stocks which one will be innately familiarly with and engage a consistent dollar-cost averaging investment strategy.
I am surprised and disappointed that at this current juncture, no Robo Advisors in Singapore can yet provide such offerings.
One might argue that investing in a portfolio of unit trusts or ETFs provides the necessary diversification but at times I do wonder how much more reduction in risks (measured by standard deviation) a portfolio of equity unit trusts/ETFs might provide vs. a portfolio consisting of 30 blue-chip US stocks.
Once again, I applaud Endowus for innovating and increasing its product offerings to investors. However, and this is my own unbiased opinion, they should look to structure product offerings based on “themes” which retail investors can easily relate to.
For example, if a retail investor is interested to partake in the China Growth story, then the platform can pre-select a handful of unit trust options (carefully hand-picked by Endowus) that focuses on this theme. If one wishes to buy into the 5G theme, what might be the “best” unit trusts out there that fit this particular theme.
One can then choose to create his/her unique portfolio that combines all of these “themes” into one. That will provide a relatively high degree of “customization” and is something that retail investors can more easily relate to.
Conclusion
I believe that the Singapore Robo Advisors currently provide an easy solution for one to “park” his/her access cash in their cash management services that provide a much higher level of interest rates vs. what banks are currently offering.
These are, however, not risk-free products and the higher returns these cash management funds provide, the higher is the risk of capital losses that one might incur.
I am selecting to use my SRS funds to “invest” into Endowus’s Ultra Cash Management Portfolio, potentially generating an annual return of 1.8%-2.0% (not sure if that is still a realistic and achievable target). While there is a risk of capital loss, I am well-prepared for such a scenario.
Investors who wish to safely park their cash into lower-risk cash management products should select their core or enhanced cash management portfolio.
I do hope that Endowus will be able to provide its clients with the option to invest in “thematic” funds in the future, one which also takes into consideration the fund cost. It doesn’t make sense to offer a unit trust where the fund cost is over 2% (Yes, before rebates, but still a big number) unless that fund is a super-star fund with a track record mimicking Cathie Woods, for example.
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SEE OUR OTHER WRITE-UPS
- Syfe review: Is this now the most comprehensive Robo advisor in Singapore?
- Syfe Review: Which of its portfolio offering will I select?
- OCBC RoboInvest: Getting started on thematic investing in Singapore
- Ultimate Robo advisors Singapore Guide. Key facts you need to know (2020)
- Stashaway Simple Review + Other No frills Cash Savings [Update May 2020]
- OCBC BCIP: Why should you Dollar Cost Average into OCBC Blue Chip Investment Plan
Disclosure: The accuracy of the material found in this article cannot be guaranteed. Past performance is not an assurance of future results. This article is not to be construed as a recommendation to Buy or Sell any shares or derivative products and is solely for reference only.
