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On surge pricing, institutional share classes, and sales incentives

January 20, 2019

Mutual fund investing is similar yet different to surge pricing. We get the same experience but could pay drastically different fees. 

Institutional shares classes: What investors need to understand about different share classes before investing in mutual funds

I hate surge pricing. It is the most brutal when I most need that ride, or when I’m drenched from head to toe from the sudden downpour.

Surge, or dynamic pricing, has become pretty efficient for all modes of transportation. If you have not yet booked your Chinese New Year getaway, that flight to Phuket is now 4x the normal price, not to mention the surging hotel prices too.

We live in an increasingly efficient world, where we can pay huge premiums for the same experience because of the almost immediate reflection of the laws of supply and demand in price.

It seems rather unfair, but it works in our capitalist world.

Mutual fund (unit trust) investing is similar yet different. We get the same experience but could pay drastically different fees.

Even more annoyingly, this is due to sales incentives rather than the laws of supply and demand.

You could be investing in the same fund as your friend, but paying different fees because you’ve invested in different share classes. The funds’ objectives and underlying investments are the same across all the share classes and managed by the same fund manager, but each share class has a different fee (expense ratio) and perhaps minimum investment requirement.

To make it even more confusing, the bank or broker that you buy the fund from may also only be able to offer you certain share classes, depending on the distribution agreement that they have with the fund house, or their internal rules to maximise on sales commissions (trailer fees).

Read more: A guide to getting ripped off: a dictionary on mutual fund fees

Mutual funds commonly have several share classes, but these can generally be categorized into retail or institutional share classes. For example, let's say there is a mutual fund called Singapore’s Money Making Fund (MMF) with the following share classes:

  • Class A is a retail share class with a minimum investment amount of $1000, and a total expense ratio of 2%.
  • Class B is a retail share class with a minimum investment amount of $5000, and a total expense ratio of 1.7%. 
  • Class I is an institutional share class with a minimum investment amount of $10,000,000, and a total expense ratio of 0.5%.

There is no naming convention for mutual fund share classes in Singapore, so you need to read the Prospectus and Product Highlight Sheet carefully to get a better understanding of which share class you are investing in.

The institutional clean share class carries the lowest fees (total expense ratio) of the different share classes of the same fund. Why is there a significant fee difference between the retail share classes and the institutional share class?

The answer lies in sales incentives. One of the key differences between institutional and retail share classes is the trailer fee, which is embedded in the total expense ratio of a retail share class. This is essentially a sales commission that is paid on a recurring basis by the fund manager to the distributor/banker/broker that sold you the fund. This includes popular online fund distribution platforms.

Because of its lower fees, the institutional clean share class inevitably generates the highest returns of the different share classes. Unfortunately, there is usually a high minimum investment amount required to invest in the institutional share class, which is typically around $10,000,000. The institutional share class is usually targeted towards pension funds, hedge funds or large family offices.

Fees matter, a lot: a reminder that a difference in fees of 1% equates to over 300% of return difference after 30 years (assuming a global stock market return).

At Endowus, we believe that all investors deserve access to the best investment products at the lowest cost possible. This is why we built our portfolios on best-in-class institutional share class funds, which are now available to retail investors with a minimum investment of $10,000.

If you enjoyed reading this article from The Know, you can subscribe to our weekly newsletterFollow us on LinkedIn or connect with us on Facebook as we bring you financial insights from endowus.


Goldman Sachs’s tactic in Malaysian fraud case: Smear an ex-partner (NY Times)

MacKenzie Bezos could become world's richest woman with divorce (Bloomberg)

Why China rents out its pandas (The Economist)


John Bogle made investors richer — and the financial industry poorer (Washington Post)

The U.S. and China are making Davos a mess for everyone else (Bloomberg)

Four Chinese tycoons just transferred US$17 billion of their wealth to trusts as government toughens up tax regime (SCMP)


Insurers tap startup platforms to open new distribution channels (Business Times)

Singapore home sales face a billion-dollar litmus test (Bloomberg)

CapitaLand's S$11b buy is big, but will it be beautiful? (Business Times)


Amazon ruined online shopping (The Atlantic)


TED: Approaching with kindness (PlayerFM // 52 mins)

Good to Know

The biggest technology failures of 2018 (MIT Technology Review)

Triathlons, ultramarathons and ambitious baking: why is modern leisure so competitive? (The Guardian)

How Hong Kong can solve its waste crisis and become the Silicon Valley of recycling (SCMP)

Our pets: the key to the obesity crisis? (BBC) 

Nike's new self-lacing basketball shoe is actually smart (Wired)

The real cost of cheap groceries (Fortune)

US shutdown: Canadian air traffic controllers send pizza to US workers (BBC)

These are the biggest risks facing our world in 2019 (World Economic Forum)


Mutual fund investing: How to read a mutual fund factsheet

January 10, 2019

By understanding the information displayed on a fund factsheet, you will be able to quickly assess how each fund operates. 

 In a previous article, we wrote about what Singapore-based investors need to understand about unit trusts (also known as mutual funds) before they start investing. We highlighted several characteristics, such as investment methodology, asset classes the fund is investing into and who the fund manager is, that investors need to know when they are considering investing in a fund.

The good news is that most of this important information can be easily found in a fund factsheet. Every mutual fund has a factsheet which is updated on a regular basis. By understanding the information displayed on a fund factsheet, you will be able to quickly assess how each fund operates. Factsheet formats tend to vary between different fund managers, but they will contain similar information.

As an example, we will go through a fund factsheet from PIMCO’s Emerging Markets Bond Fund SGD. PIMCO is one of the world's leading fixed income investment managers managing $1.77 trillion in assets. Note that this is a retail E share class fund, and Endowus uses the institutional share class (which has lower fees) to build our portfolios.


Let’s look at each of the individual sections: 
1) Fund Manager and Name
The fund name can generally be broken down into the fund manager (PIMCO), the geographical region (Emerging Markets) and asset class (Bond Fund). You should do your own research or ensure that your investment advisor has done due diligence on the fund manager, as you are entrusting them to make the right investment decisions on your behalf. Look at the fund manager’s investment philosophy and methodology, track record, and assets they have under management.
2) Fund Description
This outlines the fund’s investment objective (what the fund is aiming to achieve) and investment strategy (how the fund is designed to potentially achieve it). Class E refers to the Fund’s share class. Each fund will have various share classes with different fee structures and minimum investment amounts.
3) Key Fund Facts

ISIN: The ISIN (International Securities Identification Number) is an unique identifier and the best way to identify your fund across different platforms. Ticker symbols can sometimes vary.

Inception Date: The date that the fund started trading. Generally you should look at funds with a longer track record, but you can also take into consideration if the Fund Manager has run similar strategies in the past.

Unified Management Fee: An annual fee the funds will charge for fund expenses, including management fees, administrative fees, and operating costs. This is deducted from a fund’s net asset value (NAV), and accrued on a daily basis.This is more commonly referred to as Total Expense Ratio (TER) or Ongoing Charges Figure (OCF).

Fund Type: This is the fund’s country of residence, and is important to note because of potential tax implications. This can sometimes be referred to as Domicile.

Total Net Assets: The total amount of assets in the Fund.

Accumulation / Income: Accumulation share class means that any dividends or interest received will be reinvested back into the fund, with no additional charge or fees in reinvesting. Income share class means that any dividends or interest received will be periodically distributed by the Fund Manager to the investor.

4) Performance

This shows the fund’s performance compared to its benchmark during various time periods. Understanding the benchmark is key when comparing performance data - look at how closely the fund tracks its underlying benchmark in terms of underlying investments. For example, you should expect a low tracking error for ETFs compared to its underlying index.

Returns are typically shown over a 1-year, 3-year, 5-year and/or 10-year time frame, and you will often see fund performance shown by calendar year as well. It’s important to look at returns over longer time periods, and remember that past performance is not a guarantee of future returns.

5) Characteristics

Fund Statistics: This shows some of the key statistics of the Fund, such as effective duration and average credit quality. For equity funds, some of the more common statistics shown would be beta, standard deviation and Sharpe ratio.

Holdings: Most factsheets will show the Fund’s top holdings. Given PIMCO’s diversified bond portfolio, you can see here that the largest holding (Sberbank bond) makes up ~ 1.5% of the total market value of the Fund.

Sector Allocation: This shows a breakdown of how the Fund is allocated in terms of different sectors. For equity funds, it’s more common to see sector exposure by industry of the Fund’s underlying investments.

Top 10 Currency Exposure: This shows a breakdown of the largest currency exposures of the Fund. For equity funds, it’s more common to see geographical exposure of the Fund’s underlying investments.

If you enjoyed reading this article from The Know, you can subscribe to our weekly newsletterFollow us on LinkedIn or connect with us on Facebook as we bring you financial insights from endowus.

A (lack) of forecast for 2019

January 5, 2019

It’s that time of the year, when investment strategists all over the world perform an annual ritual of predicting where the markets will go...

“Those who have knowledge, do not predict. Those who predict, do not have knowledge.”
- Lao Tzu, 6th-century Chinese philosopher

“Forecasts may tell you a great deal about the forecaster; they tell you nothing about the future.”
-Warren Buffett, 20th and 21st-century investor

You have probably received a dozen articles on 2019 predictions. It’s that time of the year when investment strategists all over the world perform their annual ritual of predicting where the markets will go in in the upcoming year. They put on their thinking caps and evaluate everything from the global economy, political instability to interest rates. Full of confidence and bravado, they predict what stocks to buy, year-end targets for market indices, and when the markets will tank.

Memories are short and there is naturally little mention of the nearly universal failure to predict with any precision. Their forecasts and clairvoyance are, for the most part, exercises in futility. Predicting the future does not seem to be a strong suit of the investment world.

We looked back at predictions made a year ago for the S&P 500.

In 2018, the S&P 500 returned -4.38%, including dividends, closing out at 2,506.

Of the Wall Street bigwigs, JP Morgan and Credit Suisse were two of the more bullish banks and forecasted the S&P 500 to end the year at 3,000. They were only off by about 20%. Morgan Stanley was the least far off but had predicted a gain of 2-3%, so they still missed the target by over 6%.

2017 was no different - not a single strategist at the top banks saw the S&P 500 Index rising as much as it did. The average gain predicted was 5.5%, versus the actual gain of over 21%.

Isn’t it strange that we never see anyone refer to their prior forecast at the end of the year? Despite all the effort they put into making and promoting it?

A caveat to this statement: In the rare case that the forecaster is accurate (or even just closest), we will hear it paraded in the news for weeks as he or she goes around town, chest pumped, spitting forecasts of the future.

Most of the time, strategists at investment houses will forecast high single-digit returns for the S&P 500, even though the index has fallen outside of the range of most forecasts almost all years. Historically, the US stock market has indeed averaged high single-digit annual returns over decades, so these forecasts do make sense but are clearly meaningless on shorter time horizons.

Most years, returns are not near to the long-term average. Though the long-term average is a good indicator of what to expect in the long-run, few single years fall anywhere close (Read more in our article here).

Career risk also stops the investment gurus from making outlandish forecasts (this is not the case in the Bitcoin world for example, where it was predicted by some to hit US$100,000 in 2018).

Central banks surprisingly do no better in their forecasts. A Brussels economic think-tank Bruegel has shown that ECB forecasts for inflation and unemployment rates have proven to be systemically incorrect over the past 5 years.  Core inflation has remained broadly stable at 1%, despite their prediction of increases since December 2013, when these forecasts were made publicly available for the first time. Other central banks have made similar erroneous forecasts.

It’s safe to say that short-term predictions are fairly worthless, and paying attention to forecasts is a wasted effort. As economist John Galbraith once put it:

“There are two kinds of forecasters: those who don’t know, and those who don’t know they don’t know.”

With a healthy dose of humility, we need to admit that we all have little clue of where the markets will go over the next year.  

Historical data provides a good understanding of the behaviour of asset classes over the long-term. Global equities, for example, have produced a real return of around 7%. But any near-term price movements of 1, 5, or even 10 years are merely noise for the long-term investor. If you believe in the long-term economic progress of the world, then you should own the market through ups and downs, and ignore the noise, or any ‘gurus’ who claim to offer psychic advice.

Just for fun, here is a summary of predictions for 2019:

If you enjoyed reading this article from The Know, you can subscribe to our weekly newsletterFollow us on LinkedIn or connect with us on Facebook as we bring you financial insights from endowus.


A phoneless vision: Masayoshi Son floats part of SoftBank to help pay for his huge tech bets (The Economist)

Embracing Apple's boring future (The Atlantic)

This is why economists are increasingly studying sports (World Economic Forum);


Ray Dalio: To help put recent economic & market moves in perspective (Linkedin)

The worst-performing endowments have these things in common (Institutional Investor)

For hedge funds this year, $1 billion is the loneliest number (Bloomberg)


Tesla's Musk says Singapore government has been unwelcoming (Bloomberg)

Banks partner fintechs in quest for digital dominance (Business Times)


How much of the Internet Is fake? Turns out, a lot of it, actually. (NY Mag)


How to be happy: Secrets of Denmark's happiness epidemic (Freakonomics // 37 mins)

Good to Know

1 woman, 12 months, 52 places (NY Times) 

Amateur buyers of fine Burgundy fear a speculative bubble (The Economist)

Lab-grown meat is coming, whether you like it or not (Wired)

99 good news stories you probably didn’t hear about in 2018 (Medium)

Japan’s sushi king shells out record US$3 million at Tokyo’s new year fish auction (SCMP)

Where to go in 2019 (Bloomberg)

“Hindsight is 20/20” - we all love to say

December 15, 2018

Trying to asset allocate tactically by market is not easy. Passively’ owning the S&P 500 only this actually an active decision that forgoes...

Let’s rewind to the early 70s:

Nixon was President.
Mao was Chairman.
Elvis was on tour.
The first pocket calculator was released.
Japan’s stock market was the darling of the investment world.

From 1970 to 1979, Japan’s stock market was up 396% versus the US, which was only up 77%.

Then the 80s happened:

Michael Jackson released Thriller.
E.T. was the highest grossing film of the decade.
The War on Drugs began.
Apple Computer introduced Macintosh.
Japan’s stock market remained the darling of the investment world.

From 1980 to 1989, Japan’s stock market was up 1,143% versus the US, which was only up 404%.  

Japan’s stock market grew so big that it accounted for 45% of the global stock market cap. The US followed at 33%. Eight out of ten of the largest corporations in the world were Japanese.

And the 90s were interesting too:

The World Wide Web arrived.
Friends and Seinfeld ruled TV.
We all bought a Discman.
Microsoft hit its stride.
Global warming became a concern.
Japan’s stock market lost itsluster.

From 1990 to 1999, Japan’s stock market was down 7% versus the US, which was up 433%.

The 2000s were globalising:

The iPod showed up, then the iPhone.
9-11 shocked the world.
Euro was adopted.
Google and Facebook connected all of us.
The global financial crisis.

From 2000 to 2009, Japan’s stock market was down 30%, the US was down 9%, and emerging markets led the pack, up 162%.

Decade-by-Decade Returns of Global Markets (USD)

Over the course of 20 years from 1970 to 1989,
Japan market rose over 6,100%,
US market rose 890%,
and the rest of the developed world rose just over 1,100%.

How would you have positioned your investments for the future at that point in time? It would have been easy to say Japan was overheating after the 1970s, but you would have missed another ten years of Japan’s dominance.

In the following 27 years from 1990 to 2017,
Japan returned a pathetic 120%,
The US returned 1,374%,
and the rest of the developed world rose 1089%.

Trying to asset allocate tactically by market is no easy feat. Some investors say they want to ‘passively’ own the S&P 500 only, but this is actually an active decision that forgoes most of the world.

We prefer to own a truly globally diversified portfolio - one that we can stick with through geopolitical, economic, and pop culture shocks.

It will likely not be the best performing portfolio at some points in time, as it will be dragged down by its level of diversification. But that being said, it will avoid the far bigger evil: periods of missing out on stock market growth in other parts of the world.

If you enjoyed reading this article from The Know, you can subscribe to our weekly newsletterFollow us on LinkedIn or connect with us on Facebook as we bring you financial insights from endowus.


How the 0.001% invest (The Economist)

This San Francisco investor wants to revolutionize private equity. Is he crazy? (Institutional Investor)

A surprising push by the invisible hand: Why more companies are doing better by being good (Forbes)

Startups aren't cool anymore (The Atlantic)


2019 forecast: Predictions will be wrong, random or worse (Bloomberg)

Why do so many people fall for financial scams? (The Economist)


Laws of attraction, dating and factor-based investing (Business Times)

Singapore's US$200k starter salaries: Why education pays the price (SCMP)

All together now: The growing co-living scene in Singapore (Business Times)


Jeffrey Sachs: The war on Huawei (Project Syndicate)

Uber is headed for a crash (NY Mag)


TED: What does everyday courage look like? (NPR // 12 mins)

Good to Know

How Tim Cook, CEO of Apple – who buys his underwear in sales – spends his US$625 million fortune (SCMP)

Real crazy rich Asian wedding to cost $100 million (Bloomberg)

Why are we still so fat? (NY Times)

The joy of no-gift Christmas (The Atlantic)

2018 wasn’t a complete horror show. Here are four things that probably got better. (Vox)

Researchers found one way that long-term marriages get happier (Qz)

Your apps know where you were last night, and they’re not keeping it secret (NY Times)

When you can’t see the forest for the trees

November 30, 2018

Sometimes you need to take a step back to see the bigger picture. Money, or rather our investments and life assets are no different. 

A holistic approach to asset allocation

Water Lilies (1914-26)
Source: Joy of

The paintings can look like an abstract blur of colour from up close. But when you take a few steps back, the seemingly random strokes transform into water lilies and the reflection of the clouds above, capturing the constantly changing light and its interplay with the landscape. There are benches placed at MOMA several feet away from the paintings so that visitors can view and appreciate this monumental triptych in its entirety.

Sometimes you need to take a step back to see the bigger picture. Money, or rather our investments and life assets are no different. We tend to put things in buckets. For example, when we think of our asset allocation, we focus on the split between stocks and bonds in our investment portfolio. But anything of value can be considered an asset - from traditional public market securities like stocks and bonds, to cash deposits at the bank, to private investments such as real estate or your wine collection. We should think about our overarching allocation of wealth in a holistic manner across all our assets.

Most of us have cash in one or two bank accounts, some unit trusts with one brokerage, a mix of stocks and bonds with another brokerage, a CPF account with a mixture of cash and CPFIS investments, restricted shares from a former employer, some real estate or private business interests that should all be taken into account. Because in reality, we have one investment portfolio that is just divided into separate buckets. In aggregate, the buckets form one portfolio with its own risk and return characteristics. But it’s difficult to understand what these are when we focus only on the separate buckets.

Let’s say, for example, that your total net worth is $1 million with:

  • $250,000 in deposits at the bank;
  • $100,000 with Broker A, where 50% of your portfolio is in cash;
  • $100,000 with Broker B, where 10% of your portfolio is in cash;
  • $200,000 in CPF, where 30% is sitting in your OA; and
  • your property makes up the bulk of your remaining net worth.

Do you want to have a 37% ($370,000) allocation to cash? Is this overall allocation in-line with your investment goals and risk tolerance? You may not even have realized this.

Being a financially efficient person means allocating your wealth holistically so it works towards your goals. It does not matter if your investment portfolio did great last year if you had a huge over-allocation to cash.

Taking a holistic approach to your portfolio means looking at all your assets as part of a whole, rather than viewing them as separate buckets.  When you only focus on the details of each ‘bucket’, it’s easy to lose sight of the forest for the trees.

If you enjoyed reading this article from The Know, you can subscribe to our weekly newsletterFollow us on LinkedIn or connect with us on Facebook as we bring you financial insights from endowus.
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The $200 trillion gold rush that has reshaped private banking (Bloomberg)

How the geography of startups and innovation is changing (Harvard Business Review)<

How a Chinese robotics company made Segway (almost) cool (The Economist)


The stock market doesn't care about you (A Wealth of Common Sense)

Why you would not have invested with Warren Buffett (Behavioral Value Investor)

A guide to China's $9 trillion shadow-banking maze (Bloomberg)


Singapore's next leader Heng Swee Keat: Media's love affair only tells half the story (SCMP)

Go-Jek president outlines plan to break Grab’s dominance (Channel News Asia) 


Applying artificial intelligence for social good (Mckinsey)


Malcolm Gladwell: What does spaghetti have to do with happiness? (NPR // 18 mins)

Good to Know

The 'Geno-Economists' say DNA can predict our chances of success (NY Times)

The life-changing art of asking instead of telling (Quartz)

China's 'most beautiful criminal' turns herself in (SCMP)

The 100 greatest innovations of 2018 (Popular Science)

Stories behind some of the world's most iconic candies (NY Times)

The miseducation of Sheryl Sandberg (Vanity Fair)

Secret luxury homes: how the ultra-rich hide their properties (FT)


What Singapore-based investors need to know before investing in unit trusts or ETFs

November 25, 2018


 When it comes to investing, Singapore investors have plenty of options to explore since our country is one of the leading financial hubs in Asia. Experienced investors can choose to invest in a diverse range of stocks or bonds, directly on the Singapore Exchange (SGX).

Investors who prefer a more hands-off approach can also invest via their financial advisers, who will normally recommend unit trusts, also known as mutual funds, for them to invest into. Some financial advisers and more recently, “robo-advisors” may also recommend investing in a portfolio of ETFs.

Unit trusts and ETFs are funds that pool together money from different investors for a fund manager to invest, on behalf of the investors, in assets that they believe generate a return for the investors.

Before you decide to park your money in a unit trust or ETF, it’s important that you first understand some of their key characteristics. Doing so can help you identify the right funds to invest in.

Investment methodology
Every fund has an investment methodology. This methodology should communicate the approach that the fund managers will take for their investment decisions. For some funds, this could be something relatively straightforward, such as investing in the equities of the biggest 30 companies in a particular country or region or tracking a certain index.

Other funds may have their own investment philosophies, such as traditional active stock-picking, or systematic strategies.

For example, Dimensional Financial Advisors (DFA) is a global investment manager that believes that the market is already able to do what they do best – reflect all available information into prices. DFA takes a systematic approach to investing and focuses its efforts on creating more value for its clients through its evidence and financial science-based construction of portfolios, delivered in a cost-efficient manner. They systematically tilt their portfolios to buy more stock of companies with certain characteristics, such as smaller size, value, or profitability. They do so because scientific research has shown that they are the only three proven factors of return that improve returns over the long term. They also believe this is an approach they can stick to, even during challenging market environments.

When you invest in a fund, it’s important that you know and understand the investment methodology of the fund and the track record of the fund managers running it. This methodology has to resonate with you. Otherwise, you will be investing in something that does not make sense to you, and when markets become volatile, you may struggle to stay invested

What the fund is investing in
There is a common misconception among new investors that investing into a unit trust or ETF means you are automatically building in broad diversification for your portfolio. This is not always true. You need to have an overview of what your fund is going to invest in. Typically, this can be segmented into a few key areas:

Location: The area or region the fund invests in. For example, the fund could invest globally or in only developed markets, or focus specifically on regions such as the US or Asia, or just single countries like China or India.

Sectors or themes: The industries the fund can invest in (i.e. technology or healthcare) or thematic funds (i.e. ageing or automation). 

Asset classes: Some funds invest strictly in equities only. Some funds invest in bonds or commodities. Others take a balanced portfolio approach, with a mix of both equities and bonds for example.

These are just a few broad areas that you should consider before investing in a fund. You should invest in unit trusts and ETFs which hold assets that you are comfortable owning.

You choose the fund, but the fund manager chooses the underlying investments
This simple statement is one that defines what investing in a fund is all about.

When you invest in funds, what you are essentially doing is choosing the fund managers, instead of the actual individual investments. The fund managers then choose what to invest your (and all the other investors’) money in. Even fund managers managing passive index-tracking ETFs will make active decisions in choosing a sample portfolio of securities to best replicate the underlying benchmark, because it may be too costly to mimic underlying indices entirely.

It’s ironic that many new investors do not pay enough attention to who is managing their money. If people who invest directly are already doing so much research on the assets that they are putting their money into, shouldn’t we be doing as much research on the individuals whom we are entrusting our money to?

When you park your money with fund managers, don’t take it for granted that all funds are equal. You should try to find out as much as you possibly can about the fund and the fund managers. Remember, they are the ones responsible for investing your money and making a return for you.

The fees you are paying
You invest because you want to generate a return and grow your wealth. However, if you invest through a unit trust or ETF, you will also incur an annual management fee (also known as the fund’s total expense ratio). Naturally, these fees eat into your investment returns.

New investors sometimes ignore small differences in management fees, thinking that the difference of 0.5% or 1.0% per annum doesn’t really matter. This is wrong.

Consider the example of an investor who invests $100,000 today and earns a return of 7% per annum for the next 30 years. Here’s how his returns will be impacted by just a small increase in fund management fees:

  • Scenario 1: Fund A charges him a management fee of 1.0%. After 30 years, his portfolio is worth $574,349. He would have paid a total fee of $84,801.
  • Scenario 2: Fund B charges him a management fee of 1.5%. After 30 years, his portfolio is worth $498,395. He would have paid a total fee of $116,129.
  • Scenario 3: Fund C charges him a management fee of 2.0%. After 30 years, his portfolio is worth $432,194. He would have paid a total fee of $141,521.
The management fee is just one type of fee that you pay. For unit trusts, other common fees include initial sales charges, payable when you first invest, wrap fees, as well as redemption charges, which may apply when you redeem units. For ETFs, you will be charged a brokerage fee when you buy or sell. All these additional costs will eat into your investment returns.

In the example above, you can see that a difference of 1.0% per annum in management fee works out to be more than $142,000 difference in returns over a 30-year period. This is based on an initial investment of $100,000 and a return of 7.0% per annum. If the investment is larger and the returns are higher, the fees will be higher as well.

Invest wisely
At endowus, we believe that for long-term, buy-and-hold investors who do not need intra-day trading liquidity, it may be more effective to invest in unit trusts which trade at NAV, rather than trying to time the market when you invest in ETFs and  potentially paying more than what the underlying assets of the ETF are worth.

At the same time, we believe in keeping our costs low, so that our clients keep more of their returns. Our all-in Access Fee is from 0.25% to 0.60%, depending on your assets under advice. This all-in Access Fee includes advice, investment, rebalancing, transfer and brokerage, all at a fraction of the industry average. On top of this, you pay a fund-level fee of between 0.50% to 0.56%, which is charged by the fund managers out of the fund’s daily NAV.

If you enjoyed reading this article from The Know, you can subscribe to our weekly newsletterFollow us on LinkedIn or connect with us on Facebook as we bring you financial insights from endowus.

Durians and diversification

November 17, 2018

Diversification is an investment principle that we all know we should be following. But we also need to understand what diversification is not:

What diversification is not

There are some things we can all agree on. Books are more enjoyable to read in paper form. Durian should be a superfood. Also, that diversification is a good thing. It’s an investment principle that we all know we should be following. Who doesn’t want to take less risk and enhance their portfolio returns at the same time? (a.k.a a free lunch?)

But we also need to understand what diversification is not:

1) You can’t diversify your way out of a financial storm
Having a diversified portfolio will not protect you from market volatility in the short-term - you will still have big down days or even consecutive months of losses. It will not prevent bear markets and it cannot protect you against market reactions to Trump’s latest Tweet. Diversification may or may not help in the short-term, but it’s really a strategy for the long-term investor that will help you smoothen out returns over market cycles.

2) More is not always better
Having a portfolio with more components does not mean that it’s more diversified. This might be true if all the asset returns are uncorrelated (i.e. the prices do not rise and fall together), but this is unlikely to hold true.  Also correlations are constantly changing, even assets that were uncorrelated in the past may be in the future.

Each asset you hold is less important than how they interact together (known as covariance) to reduce your portfolio’s overall risk. The marginal benefit of adding another investment decreases past a certain point . This means adding a 20th fund to your portfolio will probably not meaningfully improve risk-adjusted returns, and your advisor might just be building you a very complex portfolio to justify their own existence and high fees.  

3) Diversification is not exciting
In fact, it’s pretty dull to talk about a portfolio that gives you globally diversified exposure to the world. You’re not going to hit any home runs like Amazon, but you’re also less likely to strike out with all your life savings in Lehman Brothers. You can leave the excitement to other parts of your life - being able to live the life you want after retirement is exciting, but the path to growing your retirement nest egg to get there doesn’t need to be.  

Diversification is a strategy that plays out over a long period of time, and give you a greater chance of achieving your goals without having to predict how the future will turn out.  As Howard Marks said:

“You must be diversified enough to survive bad times or bad luck so that skill and good process can have the chance to pay off over the long term.”

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Morgan Stanley's mutual funds, investment bank and Palantir dispute over Palantir's valuation (Bloomberg)

The inside tale of how Nokia lost a market it dominated (The Economist)

Desperate Chinese middle class take big risks to move money, and themselves, overseas (SCMP)


Cheap is great, but free will cost you (Bloomberg)

Causeway Bay’s Russell Street trumps 5th Avenue in New York as the world’s most expensive retail rental market (SCMP)

The market’s been falling. I’m putting my money in stocks anyway. (NY Times)


Ho Kwon Ping: How Singapore can play a crucial role in the emerging Pax Sinica by bridging East and West (SCMP)

Facebook stands ground after Singapore criticism over 1MDB post (Bloomberg)

Go-Jek partners DBS to offer regional payments services (Straits Times)


Into the Brexit endgame (The Economist)


TED Radio Hour: Why do we undervalue introverts? (NPR // 18 mins)

Good to Know

Dizzying heights: Vertical tourism in China (The Atlantic)

These guys deal with cannabis in Singapore - and don't feel paranoid (SCMP)

Louis Armstrong’s life in letters, music and art (NY Times)

16 popular psychology myths you probably still believe (Nat Eliason)

Stan Lee, the progressive genius: A tribute to Marvel's mythmaker (The Guardian)

Low carb diets are still a metabolic mystery (Popular Science)

UK still top of the class for rich Asians (SCMP)


Why we are not wired to invest

November 11, 2018

Humans are constantly frustrating for economists - we don’t act like rational beings and follow their models. 


The amygdala - frantically processing mortal danger and financial losses.

“A bowl of fishballs and noodles cost $1.10. The fishballs cost $1.00 more than the noodles. How much does the bowl of noodles cost?"

If you thought the bowl of noodles cost $0.10, don’t feel bad. (The correct answer is $0.05 for the noodles and $1.05 for the fishballs). Nobel Laureate Daniel Kahneman discovered that more than 50% of students at Harvard, Princeton and MIT gave the wrong answer.

Kahneman’s research shows that humans are constantly frustrating for economists - we don’t act like rational beings and follow their models. Our immediate reaction to situations is not based on a careful evaluation, but rather mental shortcuts formed by our cognitive biases.

The truth is, we’re just naturally wired to be bad at investing.  According to Jason Zweig, who published a book on how the brain affects financial decisions, financial losses are processed in the same area of the brain (the amygdala) that responds to mortal danger. You get the same primal ‘fight or flight” reactions: your heart races, your breath quickens and you break out in a sweat. Even the expectation of losses can set off bursts of activity in the amygdala, and the more frequently you’re told you’re losing money, the more active the amygdala becomes.  

Watching your investment portfolio fall in value can have a longer-term impact psychologically, and as a result, affect your investment plan. When you have a losing streak, it activates the hippocampus, a part of the brain next to the amygdala that programs our memories of fear and anxiety.

Research from Cambridge also shows that when we have higher levels of the stress hormone cortisol, our risk aversion spikes. Risk takers will exhibit risk averse behaviour during periods of high market volatility, and act in the opposite manner of what a rational investor should be doing. This could explain the ‘irrational pessimism’ during financial crises.  

We feel the pain of a loss twice as much as the joy of an equivalent gain. Our basic instincts, which served us well as hunters and gatherers, don’t necessarily have the same benefits today:

  • During our caveman times, anyone who underestimated a risk would have made a quick snack for a carnivorous predator. However, no harm would have come to you if you reacted quickly and climbed up a tree when you thought you saw a lion in the distance, even if it turned out to be a false alarm.

  • In the world of investing, if you panicked every time your investments dropped and liquidated your portfolio, you would have caused serious harm to your long-term returns.

We are wired to be irrational investors because our ancestors survived on the same mechanisms. Unfortunately, it is hard to kick a 100,000-year-old habit when playing the stock market. We naturally struggle to separate primal emotions from our investment decisions.

Having a long-term, well thought out investment strategy will give us the best chance of overcoming our human impulses, shifting investment decisions from our primal to modern brain (the frontal cortex) responsible for problem-solving, memory, judgement, and reasoning. This will give us the highest probability of success in reaching our financial goals.

If you enjoyed reading this article from The Know, you can subscribe to our weekly newsletterFollow us on LinkedIn or connect with us on Facebook as we bring you financial insights from endowus.
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WeFlat: China’s internet titan has had a bruising 2018 (The Economist)

Millennials dreaming of retiring at 30 have a math problem (Bloomberg)

Alibaba Singles' Day smashes US$25 billion sales record (Channel News Asia)

The 1MDB saga reaches Goldman Sachs (The Economist)


Hedge fund paychecks, revealed (Institutional Investor)

Things you see during every market correction (A Wealth of Common Sense)


 Trump and Kim, Crazy rich Asians, and ASEAN: Singapore's riding high (SCMP)

Govt agencies initiate action over article linking PM Lee to 1MDB (Straits Times)


What if the placebo effect isn't a trick? (NY Times)


How the Silicon Valley elite duped the entire world (Vanity Fair // 85 mins)

Ray Dalio discusses major financial crises (Bloomberg // 55 mins)

Good to Know
Why is art so expensive? (Vox)

The irresistible urge to build cities from scratch (Bloomberg)

Tech C.E.O.s are in love with their principal doomsayer (NY Times)

Inside the booming business of background music (The Guardian)

The world’s art factory is in jeopardy (Artsy)

How yoga pants shaped modern fashion (The Atlantic)


What to expect when you're expecting

November 3, 2018

When you invest, you expect to get the return due for the risk taken.  


We are creatures of habit. When you go to your favourite coffee shop, you expect to get that same coffee, made by that same barista. When you go to that Thursday morning yoga class, you expect to see your favourite yoga instructor. When someone you have never seen before skips into the room and takes the instructor mat, you sigh a little and shake your head before getting on with the class.

When you invest, you expect to get the return due for the risk taken. An example: if you buy an index fund or ETF tracking the MSCI All Country World Index, you will expect it to give you an annual return in-line with its long-term average (minus costs). Though the long-term average is an indicator of what to expect in the long-run, there are very few single years of return that will fall anywhere close.


MSCI All Country World Index annual return minus average annual return (USD)

In the 23 years from 1995 to 2017, only 6 years fell within a 10% range (+/-5% radius) of the long-term average annual return of 9.12%.

Furthermore, the best and worst 12-month return in the period ranged from +59.0% to -47.9%. This is an enormous dispersion of returns.

Each year is made up of 365 days of ups and downs, sweaty palms, hair-raising news, and your beating heart. It is not easy to patiently allow the fluctuations to work themselves out.

Diversification does remove some volatility, but if you expect to achieve anything close to the average annual return every year, you will be sorely disappointed and should probably steer clear of equity markets.

Ignore the desire for gratification in getting what you expect and try to ride out the market fluctuations, knowing that you have positioned yourself for long-term investment success.

If you enjoyed reading this article from The Know, you can subscribe to our weekly newsletterFollow us on LinkedIn or connect with us on Facebook as we bring you financial insights from endowus.
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Start-ups ask, ‘Are we making money for Saudi Arabia?’ (NY Times)

How Pony Ma went from Halley’s Comet to building Tencent (SCMP)

Ubernomics: The social costs of ride-hailing may be larger than previously thought (The Economist)


Banks struggle with global payments that look easy for Venmo (Bloomberg)

Paul Volcker’s guide to the almighty dollar (The Atlantic)


Singapore ousts Hong Kong as No. 1 for luxury home-price gains (Bloomberg)

Raise CPF withdrawal age amid growing lifespans (Business Times)

Singapore's PropertyGuru raises S$200m funding from KKR (Channel News Asia)


‘Superstars’: The dynamics of firms, sectors, and cities leading the global economy (McKinsey)

Inside fortress Maotai: secrets of China hard liquor that’s rocket fuel for its soft power ambitions (SCMP)


Blacklisted in China: China's social credit system (NPR // 20 mins)

Good to Know

The story of how Kit Kats became a booming business from Hokkaido to Tokyo — and changed expectations about what a candy bar could be (NY Times)

Superfoods are a marketing ploy (The Atlantic)

In China, the future of retail is already here (Bloomberg)

WeWork's first school teaches math and science but yoga and farming, too (CNN)

Sea cucumbers lead China’s logistics blockchain charge (Technode)

The big meltdown (National Geographic)


Are you skilful or just lucky?

October 20, 2018

With luck on one end and skill on the other, where does investing fall on this scale?

“I think it may be true that fortune is the ruler of half our actions, but that she allows the other half or a little less to be governed by us.”
- Niccolo Machiavelli in “The Prince”


Credit: Jimmy Chin, National Geographic

On June 3, 2017, Alex Honnold scaled El Capitan “free solo” without a rope: he climbed a 3,000-foot vertical granite wall with his bare hands and some chalk, in what is probably the most impressive feat in sporting history. 3 hours and 56 minutes of sheer concentration, strength and most importantly, skill.

Buying Tencent a year ago at $354, and watching it go up 34% in 3 months to $474, then crash 40% to $282 - that can be attributed to good luck followed by bad luck.

The influence of luck on outcomes has been understood for a long time. Despite having every manipulative trick up his sleeve, political mastermind Niccolo Machiavelli acknowledged the role that luck played in successful outcomes in his handbook for future rulers. Five centuries later, Michael Mauboussin wrote about the difficulty of distinguishing luck from skill in business, sports and investing in “The Success Equation”. He shows how different activities sit on the scale of luck and skill: Chess sits on the far right of the chart (pure skill), and slots machines sit on the far left of the chart (pure luck). Where does investing fall on this scale?

Nobel Laureate Eugene Fama and Ken French published a paper ‘Luck versus skill’, where they analysed the performance of over 3,000 US mutual funds from 1984-2006 through the lens of their Fama-French 3 factor model (i.e. adjusted the performance for the excess risk that the funds took).

They discovered that in aggregate, the entire active fund universe underperformed the market by about the fees they charged their investors.  

Naturally, some funds outperformed and some funds underperformed. How much of that outperformance was due to skill and not luck? Professors Fama and French determined that only the top 3% of mutual funds outperformed consistently net of fees. But “the number that did outperform the market with a high degree of certainty was less than what is expected by random chance.” (Source: IFA)

Mauboussin believed that the reason why luck is so important in investing is not that investors are not skilful - it’s actually the opposite.

Imagine if AlphaGo, Google DeepMind’s champion-beating computer program, played against itself. The winner of each game would be more dependent on luck, as skill would be the same. This is an extreme example, but the same applies to investing.

Investors are smarter, more skilled, and have access to more information today. Collectively they have become more efficient at incorporating information into stock prices.  As a result, the outcome becomes more uniform with less dispersion of good and bad outcomes. Mauboussin calls this the paradox of skill (Source: CNBC):

As skill improves, as the average skill level improves, it actually increases the dependence of luck in determining results. Perhaps recognizing the importance of luck in investing (and life) is a skill in itself.

The more dependent an outcome is on luck, the more important it is to focus on the process. If you rely solely on luck, you may get to a good (or poor) outcome with some random probability.

A good process will give you the highest probability of achieving successful outcomes over the long-term. If markets have taught us anything - it is to be humble and admit that we are not all ‘above average’, and we do not know what the future holds. Instead of gambling our hard-earning savings and relying on luck, we would rather invest with and stay committed to an evidence-based disciplined process.

If you enjoyed reading this article from The Know, you can subscribe to our weekly newsletterFollow us on LinkedIn or connect with us on Facebook as we bring you financial insights from endowus.
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The Chinese phone giant that beat Apple to Africa (CNN)

It’s better to be born rich than gifted (Washington Post)

Four out of top five most successful women entrepreneurs globally are Chinese (SCMP)


Not filthy rich enough: The billionaires too poor for 2018's Forbes 400 (Forbes)

Hedge fund stars crying uncle gives industry hope (Bloomberg)

The next recession: How bad will it be? (The Economist)


Malaysia’s Rosmah Mansor, Singapore’s Ho Ching: BFFs? You must be kidding! (SCMP)

FA managed portfolio services gaining ground (Business Times)

Singapore outclasses Hong Kong when it comes to minimum home size (SCMP)


Charles Schwab has a $3.6 trillion edge on the Fintechs (Bloomberg)


Moneyland: The shadow world of the super rich and how their money moves in shell companies and offshore accounts (NPR // 21mins) 

Good to Know

Banksy auction stunt leaves art world in shreds (The Guardian)

‘Made in China 2025’: How 5G could put China in charge of the wireless backbone and ahead of the pack (SCMP)

Why would anyone ever pay $558,000 for a bottle of wine? (Bloomberg)

The retreat from meat: Why people in rich countries are eating more vegan food (The Economist)

Jamal Khashoggi: What the Arab world needs most is free expression (Washington Post)

We can now customize cancer treatments, tumor by tumor (MIT Technology Review)

Original Microsoftie: Paul Allen (The Economist)