Table of contents:
- Why we calculate representative historical performance
- How we calculate representative historical performance of a fund
- How we calculate representative historical performance of a portfolio of funds
Why we calculate representative historical performance
Calculating representative historical performance helps us understand fund manager and asset class performance over long periods of time, as well as the correlation of asset classes in the creation of an investment portfolio.
For avoidance of doubt, in computing the historical performance data, we make no adjustments in the performance based on market timing, portfolio changes, underlying fund (unit trust) changes, or asset allocation weight changes. We believe computing historical performance with such adjustments are unrealistic and unreasonable.
The goal of this analysis is to help investors understand how a strategic portfolio with a passive asset allocation would have performed in past scenarios, including the 2008 Global Financial Crisis (a statistical anomaly), if data is available.
We believe that understanding the long term risk, volatility, and return of an asset class, to which the fund’s strategy is exposed to and correlated with, is important to an informed and long term investment decision. Financial markets go through cycles and can also experience prolonged periods of bull and bear markets.
This is a critically important input into the risk assessment process for investors to find the most suitable underlying funds to build an asset allocation portfolio that will meet their investment goals. Without the long term view, we are prone to chase after short term performance or not have a complete or accurate picture of the portfolio asset allocation.
We strive to provide full transparency to our clients, and we believe that being able to visualize how the fund’s strategy has performed since its earliest inception and how the corresponding asset class has performed over multiple market cycles in one place is a value-adding service we provide to our clients, as individual investors usually lack the access to multiple sources of data needed to enable this type of analysis.
However, representative historical performance cannot be relied upon on its own for financial decision making. Any investment views and investment products/services should be reviewed against a person’s investment experience, objectives, financial resources and personal circumstances.
This methodology document is for information purposes only and is not and should not be construed as an offer or the solicitation of an offer or a recommendation for the purchase or sale of any investment or subscribe for, or to participate in, any services. The aggregation of information is not intended to be used for comparison purposes. Endowus is not recommending or soliciting any action based on it. Past performance is not an indicator nor a guarantee of future performance. Any prediction, projection or forecast on the economy, stock market, bond market or economic trends of the markets are not necessarily indicative of the future or likely performance. Representative historical performance information may also be out of date.
How we calculate representative historical performance of a fund
When needed, We provide the historical performance of the best proxy to a fund prior to its inception so as to capture a sufficiently long period to illustrate the past market cycles such as the 2008 Global Financial Crisis.
However, the challenge we encounter is that one fund may have several share classes with different inception dates, fees, and denomination currencies. At times, even the earliest share class may not date back to the period that we aim to provide.
Thus, to closely match performance results for longer historical periods, we use the following hierarchy of monthly returns data, moving down the list only when the higher priority data does not exist:
- Subscription share-class (the exact fund you are buying)
- Oldest share-class of the same fund vehicle, adjusted for currency and fund fees
- Oldest share-class of a different fund vehicle with a similar underlying fund strategy, where appropriate, adjusted for currency and fees.
- Prospectus benchmark, adjusted for currency and fund fees. Prospectus benchmark is the benchmark that the fund manager assigns to the fund and is usually aligned with the investment strategy of the fund.
- Alternative benchmark, adjusted for currency and fund fees. If the prospectus benchmark assigned by the fund manager is deemed unsuitable, we will assign an alternative benchmark that is broadly aligned with the investment strategy of the fund if possible. The alternative benchmark may be a single index or a blend of indices.
- Asset class benchmark, adjusted for currency and fund fees. If an alternative benchmark is required but cannot be identified, we will use an asset class benchmark that best illustrates the unit trust’s asset class exposure. The asset class benchmark may be a single index or a blend of indices.
In certain cases, our Investment Office may choose to include multiple sources of monthly returns data according to the hierarchy set out above to illustrate the theoretical representative historical performance of the fund.
Whilst we make every effort to provide clients with full transparency and use accurate and timely information, representative historical performance has its limitations and should not be relied upon on its own for financial decision making.
Any investment views and investment products/services should be reviewed against a person’s investment experience, objectives, financial resources and personal circumstances.
Although the data is taken from sources deemed reliable, we make no guarantee as to its accuracy, completeness or reliability.*
How we calculate representative historical performance of a portfolio of funds
Representative historical performance of a portfolio of funds is calculated in the following steps:
Combines the fund returns in their appropriate weight from their earliest common start date
Runs the returns of the portfolio and includes threshold-breach based rebalancing if and when the portfolio would have materially drifted from the specified target asset allocation (Read more about how this works here)
While we believe this methodology results in a performance data that is most similar to the portfolio prior to its existence, it is not, and cannot be, completely precise.
Portfolio performance includes fund-level fees and does not include the Endowus Fee, which ranges from 0.05% to 0.60% per annum depending on investment objective, source of investment (CPF, SRS or Cash) and client assets under advice (“AUA”).
Endowus licenses the use of data from Intermediaries, including, in part, from Morningstar, a third-party provider of stock market data. Endowus makes no guarantee, representation or warranty and accepts no responsibility for the accuracy and/or completeness of the information. Where data is cited from Morningstar, the following disclosures apply: ©2021 The information, data, analyses and opinions (“Information”) contained herein: (1) include the proprietary information of Morningstar and its content providers; (2) may not be copied or redistributed except as specifically authorised; (3) do not constitute investment advice; (4) are provided solely for informational purposes; (5) are not warranted to be complete, accurate or timely; and (6) may be drawn from fund data published on various dates. Morningstar is not responsible for any trading decisions, damages or other losses related to the Information or its use. Please verify all of the Information before using it and don’t make any investment decision except upon the advice of a professional financial adviser. Past performance is no guarantee of future results. The value and income derived from investments may go down as well as up.
As of 2 November 2021