Endowus Cash Smart- Higher Yields From Net 3.7% to 4.9% Relative To Saving Accounts But Beware That Not Capital Guaranteed.

I was surprised to see that an investor had complained of losing money in the Endowus Cash Smart money funds- you can read more of it here. The unfortunate investor/author commented that: "My Cash Smart Ultra returns are currently down -2.4% on a time-weighted basis, after being invested for 1.5 years (and likely already collecting 3-4% in coupon interests). Not a big issue, considering how weak the equity market performed back in 2022, but this is a product meant to be 'safe'." Personally, I find it strange that some folks think that the Cash Smart portfolios are linked to equity market and also "Capital Guaranteed" in nature. 

1. Endowus Cash Smart Funds has nothing to do with "weak equity market"

First and foremost, cash smart has nothing to do with the equity market. It is a fixed income instrument that invests in fixed deposits, T-Bills, or other short term duration high quality bonds-there is nothing equity in nature with regard to fixed income instrument. In addition, fixed income instrument is not without its risk such as credit default risk or market interest risk that affects its fair market valuation.

2. Nowhere did Endowus put down any reference to being "Capital Guaranteed". 

Not sure what gives some investors the illusion that the Cash Smart funds are "capital guaranteed". It is clearly stated that there are risk associated in investing in the funds. Also, the author of the aforesaid article had invested in the highest risk "Ultra" return portfolio for this product. 

The Ultra portfolio is actually more suspectible to market interest rate as it has a longer term duration fixed income instrument relative to the the "Secured" and "Enhanced" Cash Smart portfolios. If the purpose is to keep excess funds liquid and available for immediate use, one should either place extra funds into Cash Smart Secured portfolio or at most the Cash Smart Enhanced portfolio. The "Ultra" portfolio is just too volatile based on the historical maximum loss of up to -5.07% at one particular point in the past as it involves longer term fixed income instruments.

(Note: Those interested can read more here with regard to the underlying funds making up the 3 different Cash Smart portfolios. Also theoretically speaking, even the most risky Ultra portfolio should be profitable if you hold it long enough unless the fund managers sold most of their bonds at a huge realised loss instead of waiting till maturity).

Parting thoughts

I actually do not like the Endowus Cash Smart portfolios or using Endowus to purchase funds. Neverthless, Robo-advisors such as Endowus does fulfill a very important role of allowing wide diversification of one's investment at a cheaper rate than the traditional trusts products sold by banks. In future posting, I will probably delve into the pros and cons I found in using Endowus relative to direct investing in the stock markets.