Endowus Cash/SRS Portfolio Changes: What you need to know

Endowus has launched an upgraded cash/SRS portfolio with several enhancements in a lengthy blog post.

As a client myself, I thought I’d digest, rationalise and simplify the changes to readers who are wondering what the changes are about. Without further ado, let’s get started.

Endowus is expanding its range of funds in the portfolio

  • The number of funds in the investment universe has expanded to 4 in equities and 4 in fixed income
  • The goal is to align their asset allocation strategy with their CPF portfolios and optimise for the best risk-return ratio for every level of risk

New equities portfolio with further optimisation

  • In the equities allocation, the portfolio should include close to 10,000 stock holdings across developed markets, emerging markets, US and Asia-Pacific
  • The fund that they are replacing, the Dimensional World Equity Fund, has also more than 10,000 holdings (11,052 as of April 2020 to be exact)
  • The weighted average total expense ratio (0.40%) across the 4 new funds is the same as the previous fund (0.40%)
  • The new Dimensional Pacific Basin Small Companies Fund has a broadly diversified exposure to smaller companies in both developed and emerging markets within the Asia Pacific region
  • Although it comes at a higher cost (TER: 0.64%), Endowus claims that including this fund in its portfolio has further diversification benefits due to its low correlation to other equities funds
  • They are also including the Lion Global Infinity US 500 Stock Index Fund (TER: 0.40% after trailer fee rebates) for exposure to the US market – this follows their CPF portfolios
  • The other two funds in the equities list provide developed markets and emerging markets exposure

In terms of allocation, the portfolio weights towards DM and EM are in-line with the global free float market capitalisation ratio between DM and EM, which means the allocation is 100% passive in terms of tracking the entire global stock market, as described in my Bogleheads Asset Allocation article.

Fixed income portfolio changes to reflect broad ‘all-weather’ strategies across market cycles

  • Endowus seeks to diversify across geographies (DM vs EM), the risk spectrum (Credit vs Sovereign) and across duration (short term vs long term) for their bond portfolio
  • They will utilize funds across 2 fund managers, Dimensional and PIMCO for broad fixed income exposure

The new Fixed Income fund mix will bring diversification as follows:

  • The Dimensional Global Core Fixed Income Fund acts the anchor in the portfolio, investing mainly in a wide range of investment grade corporate debt
  • The PIMCO GIS Global Bond Fund that invests in a mix of government and investment grade debt globally
  • There’s also the inclusion of the PIMCO GIS Income Fund and PIMCO GIS Emerging Markets Bond Fund – two higher yielding fixed income funds that provide higher yields over an extended period of time through riskier investment strategies and the use of derivatives

Brought together, the new portfolio should reduce risk and increase long-term returns

Endowus is projecting a higher annualised return (y-axis) for the same risk level (x-axis) based on historical backtesting, with the same approximate level of fees.

While the past is not a predictor of future returns, history often rhymes.

Why is Endowus revamping their portfolios?

  • To bring a greater alignment of their portfolios across all source of funds for the Singaporean investor – Cash, SRS and CPF
  • This means that they are able to strategically allocate all your capital across based on their investment views
  • It could also mean that they might be able to further lower fees for the collective benefit of all investors
  • They fully rebate trailer fees and take no commissions from fund distributors hence they will switch funds if there is a better or lower cost alternative to their existing fund(s)

How do I proceed with the enhanced portfolio?

Login to your Endowus account (if you don’t have one, you can sign up for one here and get S$10,000 managed for free for 6 months).

Look for the Notifications button on the top right hand corner and click View recommendations.

Follow the screen and you will be presented with the fund changes for both equities and bonds for your portfolio.

Confirm the changes by SMS and Endowus will take care of the rest over the next few days.

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  1. I’m curious if you think that the Endowus cash/SRS asset allocation remains as ‘passive-plus’ and evidence-based as it was. After all, it’s now sliced and diced to be slightly overweight specifically on Pacific Basin small cap and on U.S. large cap, instead of just relying on Dimensional’s evidence-based tilts in the global and emerging markets funds.

    1. It’s a tricky question because passive might have a different meaning to different people. In my opinion, the funds Endowus choose are systematically tilted towards those evidence-based factors, and while this represents a deviation from a pure passive total market index, it’s still a passive index fund – just with a different index. Their new portfolios slice-and-dice the total market, but the allocation to the various funds remains fixed – although it might be arguable that the weights might be somewhat arbitrarily chosen – there is no active management in the portfolio. This becomes a portfolio construction problem, and whether you trust Endowus (as a financial advisor) to choose the best funds in the right weights to represent their investment views. Is a pure passive (total stock market + total bond market) approach better? Nobody knows for sure.

    1. I keep it on to keep the risk level constant over time – I think Endowus rebalances to your target allocation once there’s more than a 15% deviance from your target %. But every new deposit should also be automatically allocated to bring you back to your target %. But if you turn it on they might buy/sell funds periodically that keep you out of the market temporarily.

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