Since robo-advisors first launched in Singapore in 2017, they have changed the way many of us invest. Instead of buying stocks or bonds on our own, or selecting unit trusts and mutual funds through a financial advisor or relationship manager, we can now invest easily and conveniently through a robo-advisor, typically at a lower fee than if we purchased these funds through intermediaries such as banks or insurance companies.
Robo-advisors are particularly suitable for beginners, as they provide a diversified portfolio with an asset allocation tailored to one’s risk tolerance. Unlike self-directed investors who already know what they want to invest in, robo-advisors cater to those who prefer a managed portfolio.
But what if you are already an experienced investor who knows exactly what you want to invest in? Does it still make sense to put your money into products that you could directly access on exchanges like the Singapore Exchange (SGX)?
This is the question that we, and some others, find ourselves asking when it was announced earlier this month that Singapore-based robo-advisor Endowus has partnered with asset manager Amundi to launch the Amundi Singapore Straits Times, a fund that is the first unit-trust-based index fund tracking the Straits Times Index (STI) by a global asset manager in Singapore.
Why The Straits Times Index (STI)?
If you are based in Singapore and reading this article, chances are that you are already familiar with the Straits Times Index (STI). The STI is made up of the 30 largest and most liquid blue-chip companies in Singapore and typically serves as a benchmark index for Singapore’s stock market returns.
As shared by Endowus, Singapore’s stable and predictable political landscape provides a robust foundation, which naturally builds investor confidence and supports long-term economic planning. This stability, combined with the STI’s attractive dividend yields from its constituent companies and a stable Singapore dollar, which helps protect investors’ purchasing power, has made the market appealing.
Globally, the STI’s long-term performance has only been outpaced by markets in India and the US on a five- and 10-year basis.
The view here, from Endowus at least, is that Singapore stocks can act as a stabilising and income-generating element within a broader, globally diversified portfolio.
Of course, many Singapore-based self-directed investors are already familiar with the Straits Times Index (STI) and may have been investing in it for years. This can be easily done through one of the two STI ETFs listed on SGX: the SPDR Straits Times Index ETF (SGX: ES3) and the Nikko AM Singapore STI ETF (SGX: G3B).
So, the question is: why would it make sense to invest in the STI through Endowus when we can already access it directly via these ETFs?
Read Also: Guide To Investing In The Straits Times Index (STI) ETFs In Singapore
Comparing The Cost Of Investing In The STI
The first thing we can look at is the cost of investing. ETFs are generally one of the most affordable ways to gain market exposure. At the same time, Endowus also positions itself as a low-cost investment platform that provides access to best-in-class funds. But how much will you pay to invest in the STI through either option?
For investors purchasing ETFs directly, the annual expense ratios are 0.28% for the SPDR Straits Times Index ETF (SGX: ES3) and 0.26% for the Nikko AM Singapore STI ETF (SGX: G3B). In addition, you will need to pay a one-off brokerage fee whenever you buy or sell ETF units.
If you invest in the Amundi Singapore Straits Times fund via Endowus, the fund-level fee is lower at 0.15%. However, you will also need to pay an Endowus platform fee, which ranges from 0.25% to 0.60%, depending on your assets under advice (AUA), funding source, whether cash, CPF, or SRS, and whether you are investing in a single fund or as part of a multi-fund portfolio.
For instance, if you use Endowus solely to invest in this fund, the Endowus fee will be 0.30%, resulting in a total annual cost of 0.45%. If you include the fund as part of a multi-fund portfolio and have less than $200,000 in AUA, the Endowus fee rises to 0.60%, pushing your total annual cost to 0.75%.
On the surface, buying the STI through Endowus appears more expensive than purchasing the ETF directly, even after accounting for brokerage fees. But cost isn’t the only factor to be concerned about.
The Portfolio That You Intend To Construct
The idea of using Endowus is to construct a globally diversified portfolio. Endowus themselves says that “despite the strong recent performance of the STI, a core principle of sound investment strategy remains the belief that a diversified global portfolio across countries, sectors, and asset classes makes the most sense on a long-term basis” and that “the emphasis should remain on how Singapore equities can play a complementary role, contributing to portfolio resilience and long-term objectives, rather than being treated as a standalone, speculative opportunity.”
In other words, only investing in the STI isn’t the ideal strategy that Endowus advocates for. The company also says “concentrating solely on the STI Index also means foregoing exposure to critical global growth drivers… and the vast consumption stories unfolding in the US, China, and increasingly, India.”
Think of the Endowus fee as paying for expert guidance to build a globally diversified, long-term portfolio. You’re not just paying more for one fund but for access to multiple markets and professionals to help you with portfolio construction.
Who Will Invest In The STI Through Endowus?
In our view, the Amundi Singapore Straits Times fund is likely to appeal to existing Endowus investors who want to add a Singapore-focused component to their globally diversified portfolios, rather than to new investors opening an Endowus account solely to invest in the STI.
That said, some existing investors who are already investing regularly in the STI, for instance, through a regular savings plan, but who also hold an Endowus portfolio, may find it more convenient to consolidate everything within Endowus, even if it means paying a slightly higher fee.
Investing directly in STI ETFs will appeal to self-directed investors who want complete control over their investments, including what they buy and when they buy. It suits those who are confident in managing their own portfolios and prefer a hands-on approach.
On the other hand, Endowus and other similar robo-advisors are for investors who prefer a more hands-off strategy. The slightly higher fees that is incurred isn’t just for convenience, but also for a professionally constructed, globally diversified portfolio designed to help you achieve long-term financial goals.
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