No sign of panic exit from Singapore investors despite volatility: Endowus

Singapore

ROBO-ADVISER Endowus has seen "no mass panic" from Singapore investors despite the recent market volatility prompted by the outbreak of Covid-19, with the rush of liquidity continuing to drive more inflows.

"We saw very little outflow, but a steady inflow of funds throughout the whole period, even when markets were coming down," Endowus' chief investment officer Samuel Rhee told The Business Times.

"The behaviour of investors has been normal and there hasn't been any kind of mass panic or dire financial situations driving investment decisions", he said.

Despite wild market swings as a result of the pandemic, the stock market has rebounded in recent weeks, inching closer towards pre-pandemic levels. The benchmark Straits Times Index (STI), for instance, has rebounded around 18.6 per cent from its March 23 trough.

Equity-and-bond mix across Endowus' clients also barely changed between December 2019 and May 2020 - from 60 per cent stocks and 40 per cent bonds, to 59 per cent stocks and 41 per cent bonds.

Net investments made by Endowus' clients increased 50 per cent in the first quarter of 2020 compared with the previous quarter. The robo-adviser continued to see growth in the second quarter, where net investments rose 52 per cent from Q1.

Investors who had missed out on the market run-up that endured in 2019 - with major indices gaining despite a global economic slowdown in part due to escalating United States-China trade tensions - seemed more inclined to invest during the current downturn, said Mr Rhee.

The S&P 500 was up nearly 30 per cent in 2019 and the STI generated a 9.4 per cent total return for the year.

Endowus has attracted a surge of new customers. For the first quarter of 2020, the number of new accounts was four times that of the previous quarter, partly as more investors become comfortable with investing through digital channels.

To add, while investors are still coming to grips with the scale of the unexpected economic fallout, the impact in Singapore has been relatively softer compared to some other parts of the world, said Mr Rhee.

This comes as the Singapore government dedicated close to S$100 billion - or nearly 20 per cent of GDP - to Covid-19 relief measures.

With people spending less during the circuit-breaker period, it means that household balance sheets have actually improved, said Mr Rhee.

Data from the Monetary Authority of Singapore showed that total deposits in Singapore banks surged, particularly in April, from a month earlier to S$743.6 billion, before easing lower in May. Endowus said these figures could point to an influx of liquidity and flight to cash amid the pandemic.

Nonetheless, investors did not feel the need to liquidate their investments or sell in panic.

Even as investors stay invested globally, they are watchful. The latest BofA fund manager survey showed that fund managers are still holding a high amount of cash, at 4.9 per cent in July from 4.7 per cent in June. Investors remained cautious, with the BofA Bull & Bear Indicator at 2.9 points and far off from "worrying bullish levels" at above eight points.

In line with this, a survey by Endowus on 325 respondents showed that 85 per cent are keen on cash management products with higher yield.

The hunt for yield persists as global central banks stepped in with a slew of measures to boost liquidity, cut interest rates and roll out fiscal stimulus amid the virus outbreak.

Amid the lower-for-longer rates environment, Singapore Savings Bonds rates have been falling. Its July tranche offered a 0.3 per cent interest rate for the first year compared with 1.93 per cent a year earlier. Banks have also cut rates for deposit accounts.

Against this backdrop, Endowus in July introduced a digital cash management product, Cash Smart, aimed at Singapore investors looking to grow their cash without any lock-ups, daily accrual on interest, and withdrawals at any time.

Endowus said investors can earn a projected return of 1.1 per cent to 2.2 per cent per annum - several times that of bank-deposit rates. Cash Smart's portfolios are made of diversified cash, money market, and short duration bond funds. These funds invest in a combination of institutional fixed deposits, Singapore government bonds, and hold-to-maturity short duration bonds.

On whether people can rely on technology to invest better, Mr Rhee pointed out that there has yet to be a single successful case of a machine-driven investment model that solely relies on technology.

"I think we're ways away from that kind of reality where a true robot or robo investment is being made," he said. Instead, most robo advisory platforms rely on a chief investment officer like himself who dictates a certain style of investment and crunch the numbers, he explained.

For Endowus, the focus is on using technology as an enabler rather than a decision maker, he said.

In particular, it aims to offer passive, strategic long-term asset allocation into broad-based market exposures at a low cost.

One reason why investors struggle to keep up with markets is sale charges and other hidden costs that could easily eat into 2 to 5 per cent of initial investment, said Mr Rhee. "Trying to make up for that before you start even making money is really tough," he added.

Endowus charges a wrap fee - a single fee charged for advisory and the costs of maintaining an account - which varies across products.

But it takes no sales charges. Trailer fees, which are fees usually paid to distributors by the fund managers, are also fully returned to investors.