StashAway vs Endowus – a deeper dive into the robos

Both StashAway and Endowus are two of the most popular robo-advisors here in Singapore, among other fintech companies and larger banking players.

I am a happy customer of both platforms and each has their own merits, which is why I cannot fully port over all my investment assets to a single platform. I also occasionally write about them, so I’m perfectly happy to leave my monies in both to compare, contrast, and review their platform updates and new products in the future.

Without further ado, let’s dive right into the deep dive.

Investment methodology

StashAway uses an active-passive investment framework they term as Economic Regime-based Asset Allocation (ERAA), which according to them, consists of three pillars.

The first pillar takes into account the current economic regime by looking at the relative rate of change of growth rates and inflation rates around the world before adjusting its asset allocation preferences. In the absence of a clear trend, it uses an all-weather strategy.

The second pillar takes some technical analysis into account in something called a risk shield. The risk shield overrides the economic regime model and moves clients assets into more protective assets if it detects two or more death crosses, which is often a predictor of a bear-turn in the market.

Lastly, it takes medium-term valuation gaps into account and anticipates a reversion-to-the-mean, hence they tend to buy undervalued assets and sell overvalued ones.

The three pillars work together to adjust their clients portfolio risk to a targeted risk level in different macroeconomic conditions, whenever a re-optimisation takes place.

According to StashAway, the ERAA is designed to manage risks in market ups and downs and deliver out-performance after adjusting for the risks you take. Their goal is to bring you less painful drawdowns and stronger recovery compared to traditional portfolios.

Endowus takes a more passive approach when it comes to investing your assets and invests your money through a methodology something like a passive-plus approach.

Evidence-based investing analyses empirical data and academic evidence and applies a systematic way to invest your money, rather than using a back-tested method of investing with historical data as a guide.

They approach this by structuring their portfolios to capture additional drivers of returns (factor-based investing) that are backed by academic research. Their goal is to find diversified portfolios that generate the highest possible level of returns for each level of risk taken, reduce costs (and fees) in the long-term and pass these savings to their customers.

They also believe in the efficiency of the market rather than try to outguess other market participants and actively manage the portfolio.

As you can already tell, the investment philosophy of both is rather different. StashAway takes a more active but risk-managed way to investments while Endowus takes a more passive, but evidence-based approach to investments.

Despite their differences, both are similar to the extent where they both are strong advocates of strategic asset allocation as the core of their investment methodology, where the risk appetite of the investor decides most of the risk and return characteristics of your investment portfolio rather than through securities selection or investing in actively managed funds.

Portfolio construction

StashAway uses Exchange Traded Funds (ETFs) to construct their portfolios and express their investment views.

These ETFs are selected because they are highly liquid (or their underlying has high liquidity) with low tracking error. Their goal is to track a given index effectively and find the best ETF to do that. For example, if they want to track the S&P 500 index, they will choose the best ETF (in their case SPY) that can do that, after evaluating a multitude of factors such as fund manager, inception date, fund domicile, expense ratio, market capitalization, tracking error, and bid-ask spread comprehensively

In contrast, Endowus uses unit trusts instead of ETFs to express their investment views. The reason for doing so is the additional implied cost of buying and selling ETFs over an exchange.

Unit trusts tend to be more suitable for long-term investors who don’t need the intraday liquidity offered by ETFs, meaning they don’t have to buy and sell throughout the day. They do it just once, at the market closing price, at the actual Net Asset Value (NAV) of the fund. This means they don’t have to cross the bid-ask spread and incur transaction costs when investing into the fund.

They utilise funds from highly reputable fund managers such as Dimensional Fund Advisors to obtain investment exposure to the underlying asset class.

Why do funds from reputable managers matter?

Because not all passively managed funds are equal. Some, like Dimensional and Bridgeway, base their construction rules on decades of academic, peer-reviewed research that demonstrate which factors are persistent over long periods of time and across geographies, taking into account all costs to implement.

The use of ETFs in StashAway’s case is because they just want to track the underlying index with the lowest possible tracking error. They look for the most simple and cost-effective way to execute, especially for US-listed ones such as SPY, which comes at a mere expense ratio of 0.04% annually and superb liquidity.

Endowus, on the other hand, believes that the unit trusts they choose offer investors the best exposure to their investment views, at comparable or costs lower than what similar ETFs offer.

If you look at their Dimensional World Equity Fund, a diversified world equity fund with tilts towards several factors such as value, the fund’s all-in management fee is just 0.43% per year. Contrast this with the iShares Edge MSCI Multifactor Global ETF, which has a total expense ratio of 0.35%, but without the necessary expertise of constructing such a factor-tilted fund.

In my view, both ETFs and unit trusts have their own merits. ETFs are best for trading (if you’re an active investor) because of their added liquidity they provide on a secondary exchange, but you incur additional costs to do so. In the event that the ETF selected is highly illiquid with large bid-ask spreads (e.g. some LSE ETFs), then constantly crossing that spread adds unnecessary costs.

Unit trusts, on the other hand, don’t provide that intraday liquidity, but might benefit from the cheaper cost of ownership (because you won’t have to pay more than what the underlying is worth, don’t have to incur transaction costs, and don’t have to cross the bid-ask spread).

However, when we hear about unit trusts, we often compare them to the old-school actively managed unit trusts by traditional fund managers, which have a bad name of being highly expensive (2%+ p.a. annual management fees), concentrated with few holdings and poor historical performance. In contrast, Endowus’ unit trust selection is highly diversified, well-researched, and designed to capture market efficiency.

Currency denomination

StashAway invests mostly in US-listed ETFs, which means that they have to be purchased in US Dollars. Hence, they will convert your non-USD currencies into USD first, incurring a small FX fee both and a bid-ask execution spread on the broker’s end.

The result is that there will be a SGD-USD currency exposure (or impact) that you are undertaking, which may be positive or negative, if the USD moves against the SGD, holding all other factors constant, in addition to some foreign currency translation costs.

While your investments are denominated in USD, and invested in US-listed ETFs, they are actually globally diversified into various geographies such as China and Europe. Your investment in a non-US company through a US ETF that derives its earnings outside of US has no USD exposure. Hence, you actually have a rather diversified currency exposure as the USD is merely a trading currency.

StashAway also claims that the USD acts as a hedge because it is one of the major funding currencies in the world, alongside the Swiss Franc and Japanese Yen. That means in an economic crisis, it tends to outperform other major currencies and contributes to reducing your risks.

Endowus invests in SGD-denominated stock and SGD-hedged bond/fixed income funds by various fund managers. This means that at the retail level, you don’t have to convert your Singapore Dollars into US Dollars before investing, and you save on the foreign currency conversion costs that are incurred during that process. Instead, the fund manager handles all the FX transactions at the fund-level for greater cost efficiencies.

In my evaluation, I see merits of both arguments. While the USD tends to appreciate during times of economic stress (like what we are seeing today during the Covid-19 crisis), giving investors an unrealised P/L gain for FX movements, retiring in Singapore requires you to draw down SGD assets to fund for your purchases and lifestyle with liabilities denominated in Singapore Dollars.

If a majority of your assets are denominated in a non-SGD currency at retirement, and if that currency were to severely depreciate vis-a-vis the Singapore Dollar, then you are at a huge risk of losing a huge chunk of the value of your assets when converting them back for spending during retirement.

For bonds – especially when holding non-SGD denominated bonds that have a fixed stream of coupon payments, the foreign currency risks might outweigh the benefits bonds have in your portfolio.

The USD has actually fallen quite significantly against the SGD over the past decade, possibly as a result of the US unlimited money printing (QE) or Singapore’s gradual appreciation stance for the SGD. No one knows how it will trend in future, but just something to note when you want to take on FX risks in your portfolio.

Fund domicile and taxes

Fund domicile is a crucial aspect of fund selection, because of the withholding tax implications I talked about in this article.

To briefly summarise, Irish-domiciled funds are best for Singaporean investors because they are more tax-efficient (i.e. lower tax leakage) due to their reduced dividend withholding tax rates.

The ETFs that StashAway use in their portfolio are US-listed and US-domiciled, and are not tax-efficient for Singaporean investors. Dividends are taxed at 30%, so you lose out on a lot of the returns if this phenomenon compounds over the long run. While recouping taxes might be a possibility through tax reclaims on qualified interest income, it is most probably a lengthy and difficult process because of the invested assets being co-mingled with other investors.

On the other hand, Endowus invests in Irish-domiciled funds, which are more tax optimized for the Singaporean investor, similar to Irish-domiciled ETFs (not offered by StashAway, but available DIY). However, Irish-domiciled funds don’t have the issue of wide bid-ask spreads and high costs frequently seen on many Irish-domiciled ETFs, which make them an attractive choice.

The issue of withholding tax has actually been raised as a concern by many investors, but StashAway is firm in its belief that despite the higher withholding tax implications, US-based ETFs have better tracking of the underlying asset that reflects their investment views.

Product offerings

Let’s spend a bit of time to talk about their product offerings, because many investors will be keen to know the universe of products that they can invest in.

StashAway’s product (not their investment strategy) reminds me of a lot like Betterment’s, which comes with a variety of financial management tools like cash management (StashAway Simple), general investing, and retirement (SRS).

Their cash investment products have features like financial goal planning, which helps investors create personalized financial plans and recommend an investment portfolio to help achieve those goals.

In addition, they offer additional portfolio strategies like income investing through their SGD-income portfolio. This is similar to Betterment’s BlackRock Target Income that has different income yields for retirement, but StashAway’s income target is currently fixed at 3.75% annually.

If StashAway’s product approaches the Betterment route, then you’d expect to see portfolio options such as Smart Beta, Socially Responsible Investing (SRI), or even flexible portfolios that allow you to change the aspects of your portfolio in the future.

On the other hand, Endowus acts more like a tech-enabled financial advisor rather than a full-fledged fintech company. They have relatively modest investment options – in fact, they don’t want to spoil you with so many choices that you make bad investment decisions.

Instead, they construct a holistic portfolio strategy for every risk appetite, investment horizon and investment goal, acting as a fiduciary to advise you the best possible portfolio with the highest return to risk ratio to achieve those objectives.

After constructing the strategy, they utilize fund managers that share their investment philosophy and other quantitative screening criteria (e.g. historical performance consistency, track record) to execute those strategies, across your cash, SRS and even your CPF monies.

The funds eventually chosen to be included in their portfolios tend to be screened to be best-in-class for their investment strategy or risk-return characteristics.

The building blocks of their portfolio are funds that provide broad but diversified geographic exposure across multiple markets, because it’s difficult which particular market will outperform in a particular year. They also systematically add proven factors of equity returns – value-based, high profitability and small-sized companies; as well as term, credit and geographic diversification factors in their bonds portfolio.

In their cash equity investment product, you gain exposure to 11,000+ stocks in a single fund with tilts towards the above factors of returns. It’s also denominated in SGD – tax optimised for Singaporeans without the need for unnecessary FX conversion costs.

For their CPF equity investment product, they have partnered with industry players such as Lion Global to wrap a Vanguard-managed product with lower fees so investors who invest through Endowus rather than through retail channels can obtain diversified exposure at even lower costs (see cost section below).

In their own words – “our goal is not to give you access to many products, but to build portfolios using the best products”.

Security and custody

When it comes to money, securing them is often a very conscious and deliberate effort. For example, we are very careful about the bank we choose and as far as possible, we don’t want to lose all our hard earned money.

Furthermore, I always believe that nobody else cares more about your money than you do. The importance of security cannot be understated.

Both StashAway and Endowus are regulated entities by MAS. StashAway holds a Capital Market Services License (CMS) for Retail Fund Management and Collective Investment Schemes.

Endowus holds a licensed financial adviser license from MAS and is able to advise on collective investment schemes.

As a result of the differences in regulatory requirements, StashAway – as a prerequisite of the CMS license and regulation under the Securities and Futures Act – has inherently more stringent internal risk management processes and compliance systems in place. It has to submit its records regularly to the authorities, hold minimum financial requirements and even have a sound business model, among other factors.

On the technology side, both StashAway and Endowus perform authentication checks such as 2FA on new device login, perform withdrawal verification and email notifications on portfolio updates so you are always kept in the loop. Both also run their server infrastructure in the cloud, StashAway uses Amazon Web Services while Endowus uses Google Cloud, and these cloud platforms have very secure network perimeter defence and intrusion detection systems in place to prevent hackers.

On fund custody, StashAway does not have a custodian license, so they forge partnerships with other financial institutions to manage your funds separately from theirs. They partner with DBS Bank as a custodian bank that hold your deposits, while partnering with Saxo Capital Markets and their sub-custodian institutions – HSBC for cash and Singapore securities; Citibank for US securities – to hold your investment assets.

The client management partnership with Saxo Capital Markets is likely to be that of an omnibus one, with one principal (or parent) account between StashAway and Saxo and many client sub-accounts being aggregated to facilitate funding and trading. From the custodian’s point on view, the legal owner of the assets is not the end clients’, which may (or may not) pose an issue when distributing fractional units in a catastrophic event.

Endowus – in the absence of the relevant licenses – custodises your assets (both cash and funds) in a trust account in your name with UOB Kay Hian, which in turn holds a CMS license for securities custody in Singapore. With this partnership, if anything happens to Endowus, the risk is shifted to UOB Kay Hian, with the legal ownership of the assets in your own name for dispute if necessary.

That means your funds that you have invested in still carry with you, in your name, indefinitely until you sell them because of the agreement you have with UOB Kay Hian.

With the above information, strictly speaking, if clear legal ownership of the assets is very important to you, then Endowus has an edge. But honestly and practically speaking, the issue of legal ownership only arises if the robo goes bankrupt. Even if it does occur, despite best efforts to prevent such an event (e.g. regular audits, segregated custody, minimum capital base), MAS would instruct an orderly process with the client’s interest in mind, so it is unlikely that this would be an issue. There’s no such thing as risk-free, just proper risk management.

The last section for discussion is about costs and fees, a key concern for many investors. Costs is the single factor that you can control when you choose to invest, regardless of where you do it through a robo – DIY or otherwise.

I’ve briefly touched upon many of the costs and fees aspects in the above sections but here’s a dedicated section for evaluation.

There are many kinds of fees, implicit and explicit, that arise as you go along the investment value chain, each charged at different stages or layers of the process.

As an investor, when you deposit money, you might incur a deposit fee or account setup fee. If you invest in unit trusts, many places charge you an upfront sales fee. If you have to convert these funds into another currency (e.g. USD), then you need to pay a foreign currency conversion fee.

For ETFs, placing a trade incurs transaction fees, and bid-ask spread (implicit fees if you buy at the ask, sell at the bid, or pay a premium above NAV). The ETF also carries an annual expense ratio, and deducted from the fund’s assets, which is used to pay fund management and operational costs. You don’t explicitly pay these fees, but they reduce the value of your assets.

For Unit Trusts, while you don’t incur transaction fees, you might incur implicit charges such as trailer fees in addition to the upfront sales fees I mentioned above.

Trailer fees are recurring, annual service commissions paid by the fund company to the sales rep or distributor, often the banks staff or insurance agents who are selling you the product – they typically range between 2% to 5% in Singapore.

In addition, they have annual management fees on the fund level, similar to the annual expense ratio of an ETF, charged by the fund manager to manage the fund.

Once again, you do not see these implicit charges – these fees are reduced from the NAV of the fund, meaning they are reflected in the prices of the funds you buy, rather than as an expense line item on your account statement.

On a periodic basis, if you were to re-balance your investment portfolio, there will also be transaction fees incurred to buy/sell assets to bring your portfolio to the right level of risk.

Finally, there’s the fee charged by the robo-advisor to bring you their expertise, access, product or platform.

To summarise the fees above, here’s a fees table for both StashAway and Endowus:

StashAway Cash/SRSStashAway SimpleEndowus CashEndowus CPF
Account setup, Portfolio Creation or Deposit Fees
Upfront/Initial Sales Fees
Foreign Currency Conversion Fees~0.08%
Brokerage and Transaction Fees
Rebalancing Fees
Underlying Fund Management Fees ~0.2%~0.4%~0.43%-0.55%~0.47%-0.64%
Platform/Access FeeFrom 0.8% (stacked)From 0.6% (tiered)~0.4%
Other Fees(Agent bank charges)
Transaction Fees: $2-$2.50 per transaction at portfolio level
Service charges: $2-$2.50 per quarter per portfolio
Rejected trades: $5 per unsuccessful transaction
Withdrawal Fees

Concluding thoughts

I spent quite a bit of time researching and compiling the above information to give clarity to myself and to readers who are considering using these robo platforms to manage your wealth.

The conclusion is that both platforms have their own merits and limitations and might appeal to a different set of audience altogether. Endowus, with their CPF portfolios, higher upfront investment amount, and low-touch approach (no fancy app, straightforward portfolio) might appeal more to the older folks.

StashAway, on the other hand, seems to be trendier and more popular with the younger folks, who like customization, engagement, and well-designed experience.

Personally, I like passive portfolios because are virtually guaranteed to outperform other active investors trying to beat the market, and never underperform the market index. Their low fees and expenses are also certain to create a permanent advantage over actively managed portfolios.

Despite the friendly competition, the good thing is that we now have more choices as consumers, better platforms, and better products than what is available in the market previously. You really can’t go wrong with either to grow your wealth.

The wealth management market is big enough to accommodate strong and innovative players, and hopefully, with the growth and eventual scale of both companies, fees will come down even lower.

Use this exclusive link to get the first S$50,000 managed at 50% off for 6 months on StashAway.

Or read my in-depth review.

Use this exclusive link to get S$10,000 managed free for 6 months ($20 equivalent) with Endowus.

Or read my in-depth review.

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2 comments
    1. Personally prefer Endowus for lower fees (0.4% – which is half the fees) and less frequent portfolio changes for SRS

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