Robo Advisors Singapore Market

My Thoughts on Syfe Core Portfolio Re-Optimisation (Oct 2022)

Calvin Lo

I just received an email from Syfe informing clients about a few re-optimisation actions taken on Core portfolios as part of Syfe’s semi-annual exercise.

Key changes in this re-optimisation exercise:

  1. Added inflation component to bonds allocation by adding to inflation-protected US Treasury bonds ETF (TIP) for Core Growth, Balanced and Defensive portfolios
  2. Enhanced tax efficiency by switching emerging markets ETF from IEMG (US-listed) to EIMI (London-listed equivalent)
  3. Consolidation into S&P 500 by folding allocation to small (IJR) and mid-cap (IJH) US equity into S&P 500 (CSPX) and S&P 500 Equal Weight (RSP)

Adding inflation-protected Treasury bonds

IMO, this is a good move and probably should’ve been done earlier upon inflation no longer being considered “transitory”. Oh well, better late than never I guess.

If you’re not familiar with TIPs, here’s a quick primer from Investopedia:

Source: Investopedia

Basically, the value or price of TIPs increases with inflation as measured by CPI. The interest rate is fixed, so the interest amount paid would also increase correspondingly.

However, Syfe is adding the TIP which is an ETF which is different from investing in individual TIPs bonds. If you bought the individual TIPs bond, you’d be entitled to the principal at maturity even if the price of the bond has dropped because of increasing interest rates (bond prices move inversely to interest rates). Bond ETFs though don’t mature. So if you wanted to liquidate, you’d have to sell at a lower market price should interest rates increase.

That said, although TIP is not immune to the declines caused by rising interest rates, it has outperformed other bond ETFs like TLT and BND over the past 5 years.

Source: Yahoo Finance

Enhanced tax efficiency

IMO, this is a good move which results in savings on dividends paid. The London-based Irish-domiciled ETF is subject to lower withholding tax compared to the US-listed one.

Although the annual net savings of 0.76% might seem small, the additional dividends will be significant over the long term and especially for large invested amounts.

I’ve been contemplating doing a similar move for my global ETF exposure from VT to VWRD to save on withholding tax, since I plan to hold for the long term. I haven’t fully looked into it yet since it requires access to LSE, which I’ve not made any trades at.

Consolidation into S&P 500

IMO, I’m positive on this move as well. Less is more. In this case, 4 positions have been consolidated into just the 2 (CSPX and RSP). Weights on IJH and IJR were insignificant anyway, so they won’t be missed.

Likewise, I’ve been trying to consolidate my positions in my DIY portfolios as well.

Closing thoughts

Since I’m only invested in Syfe Core Equity100 portfolio, I’m only affected by the latter 2 changes. Addition of TIPs doesn’t affect Core Equity100, since there’s no bond exposure.

In my view, the 2 changes aren’t significant and doesn’t affect my original considerations of investing into Syfe Core Equity100. The little extra dividend is nice and I hope Syfe can find more equivalent London-listed Irish-domiciled ETFs to save more on withholding tax. As for consolidation, I don’t see much other opportunities except maybe between QQQ and XLK since both are tech heavy.

Here’s the updated constituent list for Syfe Core Equity100 post-changes:

Source: Syfe

Checking my Syfe account, the re-optimisation was done on 12 Oct. Value transacted was slightly over SGD52 out of portfolio value of SGD838, so around 6% turnover only.

Read also my Syfe Core Equity100 review

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Disclaimer: This is not financial advice. I am not professional financial advisor nor do I work in the finance industry. Anything I write here is purely my personal opinion. Please do your own research and due diligence before investing into anything. All investments come with associated risks. Best to consult a financial advisor if you’re still unsure.

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