Satellite portfolios for more focused exposures

ROBO adviser Endowus has launched six satellite portfolios in its effort to offer investors diversified, risk-mitigated offerings.

Samuel Rhee, Endowus chairman and chief investment officer, says the firm has taken pains in terms of each portfolio's underlying allocations, taking an institutional approach to the fund selection process. In essence, investors who choose among Endowus's satellite portfolio offerings will invest in a fund of funds for their satellite allocation. Based on a core-satellite approach, the satellite portion may comprise up to 20 or 30 per cent of the total portfolio.

Investors are also free to invest in individual satellite funds.

"Clients wanted Endowus advice in building a portfolio that is more diversified than a single fund. A single fund has strong biases of the fund manager... and may be too focused in certain geographies or subsectors.

"Different funds also have different periods of performance. By making it a multi-manager model, you de-risk yourself and yet have the opportunity to get exposure to key sectors, themes or countries. No institutional investor would put all their eggs in one basket by buying one fund from a single fund manager.

"While we do not advise it, our clients may choose to have a different allocation or only use our satellite portfolios... On our platform some clients have a satellite allocation of 50 or 70 per cent; we cannot change or force people. But what we can do is at least offer the best expression of that allocation, by providing the best solution that diversifies risk and optimises it the best we can."

A number of technical factors go into the satellite portfolio construction. These include quantitative measures to see how each fund correlates to its benchmark and against each other; covariance analyses; qualitative analyses of the underlying funds' investment philosophy and process.

Here are highlights of the six satellite portfolios. Portfolio net total expense ratio (TER) is after Endowus's rebate of funds' trailer fees.

• Technology Portfolio: Targeting high long-term returns from technological progress. Five underlying funds. Net TER 1.14 per cent.
• Global Real Estate Portfolio: Glo-bal sector equities portfolio designed to give dividend income of 4-6 per cent and hedge against inflation. Four underlying funds. Net TER: 1.15 per cent.
• Megatrends Portfolio: Exposure to emerging global themes with strong structural growth. Some examples of themes: Quality of health (medical innovation, sustainable food consumption); quality of environment (clean energy, water supply); quality of life (infrastructure, digitalisation). Six underlying funds. Net TER: 1.17 per cent.
• China Equity Portfolio: Exposure to Greater China equity markets' long- term growth across sectors. Five underlying funds. Net TER 1.01 per cent.
• China Fixed Income Portfolio: Exposure to China's deepening fixed income markets, including onshore and offshore credits, and government bonds. Two underlying funds. Net TER 0.82 per cent.
• Low Volatility Fixed Income Portfolio: Global exposure via optimised mix of unconstrained, total return and short-duration fixed income funds. Six underlying funds. Net TER 0.54 per cent.