Endowus updates: Fund changes to make CPF investing cheaper and more diversified

I’ve occasionally talked about costs (and fees) in my investment strategy and also when it comes to reviewing financial products in the market, the cost of investing remains a key evaluation metric.

Why are costs so important?

Well, the only thing that you can control in any investment decision is the fees that you pay to your financial advisor or robo-advisor. You obviously cannot control your investment returns, nor can you control how much your portfolio falls when the market crashes. But you can control how much you pay.

Endowus is one of the two robos that I use and frequently recommend to my readers because I am a firm believer in passive investing and tracking the broad market. You cannot consistently beat the market, and if you study financial theory, you would learn from modern portfolio theory that the best way to own stocks and gain the maximum return for the level of risk is to own them on the efficient frontier, i.e. broadly diversified.

“Diversification is the only free lunch in investing”

Nobel Prize Laureate, Harry Markowitz

Anyway, they have recently announced an upgraded version of their CPF portfolios, by giving CPF investors access to a new, cheaper, and more broadly diversified global stock portfolio.

The new fund, the Infinity Global Stock Index Fund, will replace the older Natixis Harris Associate Global Equities Funds for the developed markets portion of their portfolio construction.

The new Infinity Global Stock Index Fund is more broadly diversified and cheaper to own

Firstly, it’s more broadly diversified with over 1600 holdings, compared to just 44 held in the previous fund. This means you are less exposed to any individual company-specific risk, which is especially important in this economic climate (you won’t know which is a bad company or which one will be negatively exposed to an economic shock or event like an oil crisis or travel ban).

They do this by feeding into the Vanguard Global Stock Index Fund, which tracks the MSCI World Index, and captures large and mid cap representation across 23 Developed Markets countries.

The index (and fund) covers approximately 85% of the free float-adjusted market capitalization in each country. It is the broadest developed market index fund product available.

Next, it’s cheaper! Almost 50% cheaper, at the total expense ratio (TER) level. 0.46% a year for owning 1600 stocks is a great deal. Sure, it’s passive, and it shouldn’t command a huge premium, but it’s a rare find in Singapore as our market is too small for big industry players like Vanguard to enter and drive the costs lower.

The underlying fund actually charges 0.735% TER annually, and Endowus is rebating 100% of trailer fees of 0.275% per annum back to clients to achieve the 0.46% TER.

After incorporating the new fund, the new CPF portfolio will be cheaper to own with better risk-adjusted returns

How does it compare to the best ETF available? DIY investors will definitely compare the new fund to IWDA, the iShares Core MSCI World UCITS ETF.

On first glance, the number of holdings between the two are pretty comparable, 1663 for the new fund vs 1644 for IWDA. Both are accumulating, both are Ireland domiciled for tax-efficiency and both have similar top holdings.

While IWDA is half the cost with a TER of 0.20%, investors cannot invest in IWDA with their CPF portfolios. IWDA is also denominated in USD and is traded on an exchange, so you’d need to incur currency conversion costs, cross the bid-ask spread and incur transaction costs when purchasing it each time.

If you think IWDA is a superb fund to own, then you will love this new Infinity Global Stock Index Fund because it makes your CPF money work harder (vs the 2.5% annual returns if left idle).

In my opinion, the new fund is a very welcomed addition to Endowus CPF portfolios. I actually love everything about it. It’s passive, more broadly diversified, cheaper to own, has better risk-adjusted returns, in a UCITS-structure for maximum tax efficiency and best of all, accessible to Singaporean investors (via CPF – the monies you can’t touch anyway) to build long-term wealth with your CPF monies.

I’ve previously reviewed their CPF portfolios, you can check it out if you want to further evaluate their product. If you’re keen to sign up with Endowus, you can use this referral link to get $10,000 managed for free to try their services out.

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