Wednesday, 25 December 2019

Investing your CPF-OA. Unit Trust or Singapore shares?

When it comes to CPF you are limited to investing in local share/STI ETF  and the only way to get foreign exposure is through unit trusts

I use my CPF to buy STI ETF and unit trusts. So far, it seems that my unit trusts have outperformed STI ETF even though they have higher management fee. I decided to diversify into unit trusts instead of spending all my CPF on Singapore shares. 

This is of course not a recommendation to only buy unit trusts, the point is that diversification is important. Simply going for the option with the lowest management cost (i.e. STI ETF) would have led to underperformance.

I guess sometimes you have to pay money to make money....

10-year annualised return

  • STI ETF 4.59%
  • First State Bridge unit trust: 6.61% (this is a fund containing 50% bonds and thus less volatile, yet it can beat STI ETF which is 100% equity)
  • First State Regional China: 8.85%

Roboadvisors for CPF?

There is some discussion in the forums of a 'roboadvisor' Endowus that you can invest in using CPFIS. Basically, for CPFIS, it has managed to negotiate with some CPF approve unit trust managers for a rebate of about 0.5% to the management fee. On the other hand, they charge a 0.4% wrap fee. So all-in, I guess you save about 0.1% in expenses by using Endowus. Of course, you have no control over which CPF unit trusts they invest in which may be a good or bad thing, depending on your perspective.

0.1% cheaper expense ratio is not enough to make me want to switch, especially since I pick my unit trusts based on my assessment of the fund manager. But I could see myself recommending Endowus to a friend/relative who is not financially savvy and would prefer 'autopilot' investing. My current recommendation would have been LionGlobal All Seasons fund for autopilot investing, but the small fund size means the fund is at risk of closing. That consideration also applies to any startup Roboadvisor - if they do not grow their AUM, they may not become financially viable, and investors may pull out.

A commitment to lower costs is promising and I hope that it spurs FSMOne/ Poems to negotiate with fund managers for similar rebates.

No comments:

Post a Comment