Its been a couple of months since I started investing my CPF funds with Endowus and wrote my initial comprehensive review of Endowus. Regular readers who follow my monthly portfolio reviews would also have noticed a new section covering my Endowus CPF portfolio. While the ride has been bumpy thanks to Covid-19 related volatility, I would say my overall experience with the platform has been pleasant and seemless.
As such, it fills me with great excitement to share with you a game-changing upgrade in the Endowus CPF portfolio – the swapping of the Harris Associates Global Equity Fund for the Lion Global Infinity Global Stock Index Fund.
About the new Fund
Lion Global’s Infinity series of funds are essentially feeder funds into various Vanguard index funds. Existing Endowus CPF investors would be familiar with the Lion Global Infinity US 500 Index Fund which feeds into the Vanguard S&P 500 Fund.The Infinity Global Stock Index Fund (IGS) is different in that it feeds into the Vanguard Global Stock Index Fund, which tracks the MSCI World Index instead of the S&P 500.
As such, by owning this fund, you gain quick passive exposure to the global equities.
Changes to the CPF Portfolio
The new fund effectively performs the similar function as the Harris Associates Fund currently in portfolio as both give the portfolio exposure to Global Equities. As such, IGS will be taking over the Harris Associates Fund component in the same target portfolio proportion depending on your risk appetite.
To illustrate, here is a table:
As above, the fund proportions doesn’t change at all, just a straight swop of funds. It’s interesting to see the annual return deteriorate since my initial review in January thanks to the Covid-19 crash.
Key advantages of the change
There are naturally several reasons for why this change is recommended.
1) Exclusive access
Similar to the Infinity US 500 Index Fund, it is only through Endowus where we can gain access to a low cost global stock index fund like Infinity Global Stock Index Fund using our CPF Ordinary Account funds. It is only available to investors using Cash on other platforms.
This unique differentiation is due to Endowus’ commitment to rebating trailer fees from the funds it recommends, thereby bringing the fund’s all-in cost to an acceptable level for inclusion into the CPFIS scheme.
2) Lower cost, higher diversification
Investors know that diversification is important to reduce single stock risk. As shown in the table above, IGS has over 1,663 holdings, way more than Harris Associates’ 44. By switching to IGS, the portfolio adopts a more passive low cost approach, compared to Harris’ active stock picking approach.
Research shows that cost is one of the key drivers of returns. As such, one should look for good investment options with low cost. There is substantial fund level savings of 54 basis points by swapping as illustrated above.
I’ve also updated my portfolio level total expense ratio table to reflect the new changes. Comparing the new total expense ratio to the previous portfolio, there is a 3 – 18 basis point improvement depending on your risk appetite, with more aggressive portfolios naturally benefiting more from this change.
This brings the portfolio level total expenses to about 1% or less for all model portfolios.
3) Historically higher returns with lower volatility
By straight comparison, annualised return is higher and with a lower standard deviation. Standard deviation is a measure of risk and volatility, with a lower standard deviation indicating lower volatility and risk.
This means that historically the New CPF Portfolio has higher returns at lower risk, which is awesome.
What should existing investors do?
Now that you are familiar with why this change is great, I thought I’ll share what existing investors need to do to take advantage of this change. This recommendation to change portfolio will be implemented in the same way as the portfolio rebalance that occurred last month with a small twist – You will need to indicate acceptance of the portfolio change. (yes you can regret if you really want)
Existing investors will firstly receive a portfolio change recommendation email as above. I received mine yesterday.
There will be a link for you to click through to the Endowus platform. Click on it.
The platform will show you your current allocation and recommended allocation. Accept the changes, input the sms confirmation pin and viola, you’re done.
Once your consent is given, Endowus immediately starts processing a rebalance transaction by first selling Harris Associates and other excess allocated funds and then buying IGS and other under allocated funds. Above is the initial sale transaction you should see in your Endowus platform.
If you’re a fan of passive index investing, this upgrade in the Endowus CPF portfolio should get you excited. Lower cost, higher expected return, greater diversification, there is little complain about this change. If you’ll like to read more about Endowus or the portfolio change, be sure to check out my comprehensive review (updated with the latest changes) or this article by Samuel Rhee, CIO at Endowus, on the portfolio change.
As usual, feel free to use my personal referral link if you’ll like to sign up. We both will get $20 worth of fee rebates, which approximately translates into 6 months of access fees waived on a $10,000 portfolio.