Growth vs Value? A Look At Factor Based Portfolios Offered By Roboadvisors In Singapore.

Value investing dead? A smarter factor investing strategy? A 100% equity smart beta portfolio built using a multi-factor methodology?

Somehow, an article by Syfe in my email inbox caught my attention.

In my previous article covering Syfe REIT+ portfolio, I had opened a Syfe account to try it out (and mainly to find out the breakdown of the portfolio). Unknowingly, I became a subscriber to their newsletter.

Intrigued, I clicked to find out about this new offering by Syfe.

This was the article explaining the new portfolio

Is Value Investing Dead?

Value was one of the first few factors discovered and published by Fama and French in 1992. It had been shown that value stocks outperform growth stocks in the long run.

S&P500 Growth ETF (SPYG, in dark blue) vs S&P500 Value ETF (SPYV, in light blue)

However, for the past decade, value has been consistently under-performing growth.

I had also recently watched a webinar from Endowus on the exact same topic, hence it caught my attention when it flashed in my inbox.

This was the webinar on value investing by endowus. video is long though. tldr: periods of under performance is normal – we don’t know whether value is dead.

Just earlier this year, Fama and French had also published a paper on the value premium. They wanted to study whether the value premium still exists. Their conclusion was that they cannot prove that the premium is gone. There is no way to tell.

Another reason could be that the high returns from growth stocks in the past decade are the anomaly – they are performed surprisingly well. Value stocks did well but growth stocks did better.

Diversification Of Factors

It is not unusual for different factors to have different periods of under-performance. Hence, that is the reason why people advocate for diversifying across multiple factors.

It is however difficult to time the factors and move from one factor to the other (similar to market timing).

Syfe claims that it does not move in and out of factors. Rather, they will over or under weigh certain factors depending on market conditions. This sounds similar to their ARI system which adjusts the bond to equity weightage to minimize downside risks.

In theory, this sounds great. But implementing the strategy well is the hard part.

Syfe Growth, Large and Low Volatility Tilt

Syfe uses a large, mid and small cap ETFs, developed and emerging market ETFs to create a core global equity portfolio.

It then includes QQQ which tilts the portfolio to large cap and growth.

Finally, it uses a combination of defensive sector ETFs to over-weigh on low volatility.

ETFStyle / SectorExpense Ratio
QQQLarge tech stocks0.20%
CSPXLarge cap (balanced) UCITs0.07%
IJHMid cap (balanced)0.05%
IJRSmall cap (balanced)0.06%
EFALarge cap developed markets0.32%
IEMGLarge cap emerging markets0.13%
XLPConsumer staples0.13%
XLVHealth care0.13%
XLBMaterials0.13%
XLUUtilities0.13%

Unfortunately, the Syfe article does not give me enough clues of percentage of each ETF in the portfolio. However, let us estimate the cost of the ETFs to be around 0.15% (I imagine most of the core holdings comes from CSPX or QQQ)

Update: According to MrMrsBudget, the Syfe Equity100 portfolio expense ratio is 0.17%

The Other Side Of The Spectrum – Value

Dimensional funds are at the other side of the spectrum which tilts towards value, small cap and profitability. One could argue that growth stocks do have elements of profitability.

Article by Investment Moats

Currently, there are two roboadvisors that offer access to Dimensional funds mainly Moneyowl and Endowus.

Investment moats had written a rather comprehensive article covering Dimensional funds, so if you have the time do check it out.

TL;DR: Dimensional funds implements an evidence based investing approach with factor premiums, mainly value, small and profitability.

They are the opposite to Syfe in terms of factors exposure.

Moneyowl

I will start with Moneyowl because their 100% equity portfolios are much simpler: two core dimensional funds.

Dimensional Global Core EquityGlobal, tilted to small, value, profitability0.30%
Dimensional Emerging Markets Large Cap Core EquityEmerging market, value0.44%

I have been using MoneyOwl since 2019. Total expense ratio I have been paying for Moneyowl’s 100% equity portfolio is 1.20%

Endowus

Endowus 100% equity portfolio (for cash) have the following funds:

Dimensional Global Core EquityGlobal, tilted to small, value, profitability0.30%
Infinity US 500 Stock Index FundUS, Large, Balanced0.675% ( Endowus arranged for rebate of trailer fee which brings it down to 0.40%)
Dimensional Emerging Markets Large Cap Core EquityEmerging market, value0.44%
Dimensional Pac Basin Sm CompAPAC Small0.64%

It also includes a S&P 500 fund (Infinity US 500 Stock Index Fund) and a small cap APAC fund. The Infinity US 500 Stock Index Fund is a wrapper fund around the Vanguard S&P 500 Fund which is a large cap balanced fund. The Dimensional Pac Basin Sm Comp fund is a focused fund on APAC small cap companies.

It is still predominantly value focused but it has an extra emphasis on US and APAC compared to moneyowl’s portfolio.

Bottom Up vs Top Down Approach in Constructing a Multifactor Portfolio.

Syfe uses multiple ETFs to construct their factor based portfolio in a top down approach. Whereas for Dimensional, they screen stocks for multiple factors and overweight them in their funds in a bottom up approach.

Top down approach may be easier to construct a multifactor portfolio but if not done properly, you may sometimes cancel the factors out and end up with a neutral portfolio. For example, when I just started tinkering with a multifactor portfolio, I included both MTUM (momentum) and IUSV (value) in the same portfolio. Momentum ETF holds expensive stocks while value ETFs hold cheap stocks – equivalent of having one balanced ETF.

A bottom up approach may be more difficult but it allows you to choose stocks which have exposure to multiple factors at the same time. For example, you could choose a stock that has both value and small – increasing exposure to the factors. This cannot be done by combining a small ETF and a value ETF.

Bottom up = small ∩ value

Top down = small ∪ value

Source from investment moats – small and value return higher than small alone or value.

Similarities and Differences Between all Three portfolio

All three roboadvisors offer a diversified portfolio of global stocks. They also have a higher weight in US (Especially Syfe and Endowus) – All the global funds have around ~60% US.

They have a core portfolio which usually is a global index fund/ETF. The difference is that they will overweight different factors to tilt their portfolio.

As much as possible, all three roboadvisors try to keep costs low. The cost will not be lower than a DIY approach but it is cheaper compared to investing in retail funds directly.

Also, all three advocate keeping your money invested and not to time the market – well it is in their interest (and ours) as well since their business model depends on the Assets under Management.

Syfe, however, attempts to introduce more active management in their portfolios with ARI and dynamic factor strategy

MoneyOwlEndowusSyfe
Costs1.20%0.966%*0.85
DiversificationGlobally diversifiedGlobally diversifiedGlobally diversified
Factor TiltsValue, small, profitabilityValue, small, profitabilityGrowth, large, low volatility
StrategySystematic exposure to multiple factors. Hold factors at all times.Systematic exposure to multiple factors. Hold factors at all times.Dynamic multi factor strategy – overweight factors that are in vogue and underweight the low performers
*Assuming average TER of the ETFs are 0.20% + 0.65% management fee

Cost Matters In the Long Run

The most important ‘factor’ in investing is actually the cost of investing.

Whether it is growth or value, keeping cost as low as possible increases your returns.

It does not mean that Syfe are the lowest in costs – I still do not know the total costs of the Equity100 portfolio until I have owned the portfolio myself. Note that Syfe still uses mainly US-domiciled ETFs which incur dividend withholding taxes – it contributes to overall costs. While Moneyowl and Endowus uses Irish domiciled funds which have lower dividend withholding taxes.

What I am alluding to is that the costs of the roboadvisors are still within reasonable range and not too high ~1%-1.20% compared to holding unit trusts.

MoneyOwl and Endowus tend to be higher because Dimensional Funds (DFA) are not available to retail investors normally – they have to be distributed by DFA trained financial advisors. So, you have to pay for access.

Whereas for Syfe, their portfolios are built using ETFs that are readily available to retail investors.

Conclusion

This is no means a comprehensive review on Syfe, Endowus or Moneyowl. I just wanted to highlight their factor based portfolio offerings and make a quick comparison

Neither is this an article about growth is better than value or vice versa.

The main point is to keep you cost low, create a diversified portfolio and stay invested.

Personally, I am on the value side. Historically, value had returned higher premiums over the long run.

If you want to invest in a value tilted portfolio

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

Or sign up with moneyowl. No referral link.

If you want to invest in a growth tilted portfolio

Sign up for a Syfe account with my referral code: SRPSTTW7Y

We will both get:

  • $10 for $501 or more deposited
  • $50 for $10,001 or more
  • $100 for $20,001 or more deposited.
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Author: Fatty's Finance

Finance is like health. It becomes an issue if it is not well maintained. I want to help you get back in shape!

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