Update To The Boglehead Three Fund Portfolio For Singaporeans

Early last year, I shared about a few variations of the The Boglehead three-fund portfolio for Singaporeans.

The philosophy behind the three portfolio fund is simplicity and ease of implementation, lost cost and minimal maintenance. If you stick to the buy-and-hold approach, you may reap great returns.

The template is pretty simple – you should have three funds:

• Domestic Index Fund
• International Index Fund
• Bond Fund

The typical Singapore Three Fund looks like this:

• SPDR STI ETF (E3S.SI) – Domestic
• Vanguard FTSE All World UCITS ETF (VWRD.L) – International
• ABF Singapore Bond Index ETF (A35.SI) – Bond

Personally, I have been trying one variation of it – where my fund allocation is something like this:

• Vanguard Total China ETF (3169.HK) – denominated in HKD
• Vanguard FTSE All World UCITS ETF Acc (VWRA.L) – denominated in USD
• ABF Singapore Bond Index ETF (A35.SI) -denominated in SGD

So, here I am to share about my experience and why I am about to change my portfolio again.

Limitations of Constructing The Three-Fund Portfolio in Singapore

In order to keep the funds at low cost, I looked at a large number of low cost ETFs listed in SGX (Singapore Stock Exchange) first. Unfortunately, there are only a handful of ETFs listed in the SGX, and most of them are focused in SG and not globally diversified.

Diversification is also one key principle of the Boglehead three-fund portfolio, hence I searched on for more diversified options.

Next I looked at HKEX (Hong Kong Stock Exchange) and found more ETFs listed. However, most of them are also concentrated in Asia (mostly China) and hence I looked at the LSE (London Stock Exchange) for the global index ETFs, .e.g. IWDA, SWRD, VWRA.

The goal is to keep it tax-efficient. Although, the US market has the most comprehensive list of ETFs, I avoided it because of tax reasons.

The end result was my blog post and I was satisfied with the portfolio variations – at least in theory.

However, I have failed to notice the complexity I have created and it happily stayed hidden within my portfolio.

Multiple Exchanges and Multiple Currencies

I ended up using two different online brokers to set up my portfolio (Yes, I could have used SAXO or interactive brokers, but I didn’t). And I used three different currencies (SGD, HKD and USD).

That made contribution, buying and selling and rebalancing troublesome, and not to mention, not cost-effective at all.

Economies of Scale

If you have a huge portfolio and every trade you made is >$10,000, you don’t have to worry about minimum commission amounts and currency conversion – if you do everything in bulk, it becomes cheaper than performing small trades or FX conversions.

Because you are not a large trader, you cannot command cheaper FX rates or cheaper trades compared to an institutional investor or a fund manager who can.

So instead of regularly contributing every month, I had to accumulate to a certain amount, convert the currency and buy the ETFs.

Additional Not-So-Obvious Costs – Bid-ask Spreads, Custodian Fee

The advantage of ETFs are that you can buy and sell easily from the market. However, when you chose less liquid ETFs, you often have to pay a spread to buy and sell – known as the bid-ask spread. That is an additional cost. US markets often have very tight spreads but some other markets (like the SGX) have slightly bigger spreads.

There are also like custodial fees for online brokers holding your securities for you.

Because of all the reasons above, implementing the three-fund portfolio is not so ideal, especially if my portfolio is small and if I do know how to trade very well.

Also, some of the more low-cost ETFs have higher tracking error (which maybe good or bad) which eats into your returns.

Less Diversification and Less Options Especially for Bonds

There are less ETFs to choose from if you eliminate the US (That is why some Robos in Singapore still choose US ETFs despite less tax efficiency to implement their portfolios).

Less ETFs may result is less diversification: you may not have all small, mid and large caps; you may not have all countries etc.

Also, there are very limited Bond ETFs available for the global regions that are denominated in your local currency.

A New Three-Fund Portfolio

Hence, I will propose the a three-fund portfolio that focuses on simplicity and diversification with a slight increase in cost.

My proposal is to use unit trusts (mutual funds) instead of ETFs to construct the three-fund portfolio.

The advantages of unit trusts are:

• More efficient for small regular contributions: Platforms like Fundsupermart offer no sales fees and hence you do not have to worry about making too many trades (commissions) or liquidity (bid-ask spreads)
• More efficient for foreign currency – I would like fund managers to handle the FX (they most probably will have better fx rates than us retail investors)
• More options for global bond funds and types with currency hedging
• More tax efficient – choose from the Irish domiciled UCITS funds
• More access to other investment assets (private equity) or regions

As a result of the intense competition from low cost ETFs, there is also a pressure on reducing fund fees. Also, you could use a Roboadvisor like Endowus to access certain institutional class funds or get funds at a cheaper costs (with trailer fee rebate).

Until the day we see more ETFs created outside of the US, I think unit trusts may be the more efficient option for retail investors. Note that I used the word ‘efficient’ not ‘cheap’ – some funds are still pretty expensive.

All these have further convinced me to create a three fund portfolio using unit trusts. And my aim is to at least keep my overall expense ratio of the portfolio below 1%.

The expense ratios of the portfolios calculated below assumes no platform fees. You can buy funds on Poems or dollarDex for zero platform fees.

Note that there is a platform charge of 0.35% for equity funds per year and 0.20% per year for fixed income funds for any funds held in Fundsupermart. So you might need to add the additional 0.35% and 0.20% on top of the total expense ratio.

Three-Fund Portfolio With Unit Trusts

To keep it simple, I will keep all funds denominated in SGD.

Core fund:

Fund	Type	Total Expense Ratio	Weight
Schroder Asian Growth A Dis SGD	Domestic	1.33%	20%
Infinity Global Stock Index SGD	International	0.76%	40%
Eastspring Investments Unit Trusts – Singapore Select Bond AD SGD	Bond	0.62%	40%
Overall Expense Ratio		0.82%

Three Fund Portfolio

The Schroder Asian growth fund is a fund that holds equities in Asia ex Japan and I consider it the “domestic” fund.

The Infinity Global Stock Index is just a wrapper for the Vanguard Global Stock Index Fund – this is the world index fund.

The Eastspring Singapore Select Bond fund is a bond fund that is very low risk and invests primarily in SGD denominated bonds. The main point of adding a bond fund is reducing the volatility of your portfolio. Hence, just add the safer bond options and you don’t need to look for high yield or emerging market bonds.

But if you would like to look for other bond funds, here are some:

You can also switch the bond fund to something to a global more risky bond fund or hold a combination of risky and safe bond funds like below:

Fund	Type	Total Expense Ratio
NEUBERGER BERMAN EMERGING MARKET DEBT HARD CURRENCY A MDIS SGD-H	Global Emerging Market Bonds	1.54%
BLACKROCK FIXED INCOME GLOBAL OPPORTUNITIES A5 SGD-H	Global Bonds	1.22%
EASTSPRING INVESTMENTS – ASIAN HIGH YIELD BOND ASDM SGD-H	Asia High Yield Bonds	1.45%
PIMCO GLOBAL HIGH YIELD BOND FUND CL E INC SGD-H	Global High Yield Bonds	1.45%

I have taken these bonds directly from the Fundsupermart recommended bond funds

Another variant, if you like dividends is to replace the Schroder Asian growth fund with the FSSA Dividend Advantage fund. The fund invests in equities in the Asia Pacific region (includes Australia and New Zealand too).

Fund	Type	Total Expense Ratio	Weight
FSSA Dividend Advantage A QDIS SGD	Domestic	1.71%	20%
Infinity Global Stock Index SGD	International	0.76%	40%
Eastspring Investments Unit Trusts – Singapore Select Bond AD SGD	Bond	0.62%	40%
Overall Expense Ratio		0.89%

Three-fund Portfolio for SRS With Endowus Fund Smart

If you are planning to use your SRS to create your three fund portfolio, you could do so via Endowus Fund Smart.

The reason why you should do it via Endowus is they provide trailer fee rebate for all the funds and they provide access to Dimensional funds and institutional class shares of Pimco funds.

For example, Endowus also offers the Schroder Asian Growth A Dis SGD fund which has a Total Expense Ratio (TER) of 1.33%. They will rebate a trailer fee of 0.56% so the net fees you are paying is 0.77% – pretty neat right? You are paying 1.33% if you had bought the fund via Poems or dollarDex.

However, Endowus also charges an additional access fee. So, if you invest cash amounts less than 200k, the access fee is 0.6%. So, for the same Schroder Asian Growth Fund, you ended up paying 0.77%+0.6% = 1.37% which becomes slightly more expensive than if you bought it on Poems or dollarDex.

Fundsupermart charges an additional 0.875% per quarter (0.35% per year). So the same Schroder fund you will have to pay 1.33% + 0.35% = 1.68%

Endowus access fees for cash investments

Cash amount invested	Access Fees
<S$200,000	0.60%
S$200,001 to S$1,000,000	0.50%
S$1,000,001 to S$5,000,000	0.35%
S$5,000,001 and above	0.25%

Endowus Access Fees

However, Endowus access fee for SRS is 0.4% flat for any amount invested. So for the same Schroder Asian Growth fund, if you had invested via SRS with Endowus, your TER will be 0.77% + 0.4% = 1.17%

Fund	Type	Total Expense Ratio	Trailer Fee Rebate	TER net trailer fee rebate	Endowus Access Fee	Actual TER
Schroder Asian Growth Fund	Domestic	1.33%	-0.56%	0.77%	0.4%	1.17%
Infinity Global Stock Index Fund	International	0.74%	-0.28%	0.46%	0.4%	0.86%
Eastspring Singapore Select Bond FunD	Bond	0.62%	-0.17%	0.46%	0.4%	0.86%
Overall Expense Ratio						0.92%

It turns out our three fund TER becomes more expensive with Endowus despite the trailer fee rebate. This is because of the additional access fee charged by Endowus. So, in order to fully make the access fee worth it, we would need to make changes in our portfolio.

Making full use of the access to Dimensional and PIMCO funds via Endowus, here are some three fund portfolios:

Factor Tilted (Value, Small, Profitability) Three Fund Portfolio:

Fund	Type	Actual TER After Rebate and Access Fee	Weigh
Dimensional Pacific Basin Small Companies Fund	Domestic	1.04%	20%
Dimensional World Equity Fund	International	0.80%	40%
PIMCO GIS Global Bond Fund	Bond	0.89%	40%
Overall Expense Ratio		0.91%

If you believe in growth – three fund portfolio targeting growth

Fund	Type	Actual TER After Rebate and Access Fee	Weigh
Schroder Asian Growth Fund	Domestic	1.17%	20%
United Global Quality Growth Fund	International	1.56%	40%
PIMCO GIS Global Bond Fund	Bond	0.89%	40%
Overall Expense Ratio		1.21%

Or you want to double down on dividends:

Fund	Type	Actual TER After Rebate and Access Fee	Weigh
FSSA Dividend Advantage	Domestic	1.61%	20%
Aberdeen Standard Global Dynamic Dividend Fund	International	1.38%	40%
PIMCO GIS Global Bond Fund	Bond	0.89%	40%
Overall Expense Ratio		1.23%

Endowus offers much more funds and I think if you are investing more than 200k, you could consider using the Endowus Fund Smart to set up your own DIY three-fund portfolio with cash.

Sign up for an Endowus account with my referral link and we both will get $20 in access fee credit.

Sign up for endowus

Use The Roboadvisors

Another alternative is to just go ahead with Roboadvisors and you will not need to make your own three fund portfolio. All roboadvisors offer diversified portfolios and are easy to maintain and set up.

Conclusion

Passive investors should not just limit themselves to ETFs for their portfolios. Unit trusts should be part of their consideration as well. There are more unit trusts options available for the Singapore market compared to ETFs and the costs of unit trusts have been also trending downwards.

Unit trusts also take away complexity of foreign currencies and making trades – the fund manager will manage these for you with a small fee. This makes it ideal for the smaller investors who want to make small regular contributions without worrying about commission fees and fx rates.

Although most of the funds mentioned above are actively managed, the fees are still kept at a reasonable rate. So, you get managers who are seeking alpha and help manage downside risks. The key is keeping investment costs low.

The world is not black and white. Markets are not completely efficient or inefficient. So, likewise, we should be more nuanced in our investment choices and choose the best we feel for our situation – you should not stubbornly stick to one strategy or investing passive or active but embrace a bit of both.

So what about my own portfolio? I am probably going to use a mixture of ETFs and Unit Trusts. I will continue holding on to the A35 (Bond ETF) and the CLR (REIT ETF) and slowly buy into Endowus Fund Smart and buy into Dimensional or other funds listed on their platform.

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