StashAway Simple: Is it that simple?

dexter.tiah · November 18, 2019, 6:59am

While cash management products are not directly related to credit cards, we thought that this was an interesting development in the personal finance industry and that our readers would be interested to read our assessment. Let us know in the comments below if you found this article useful and would like us to spend more time on non-credit card related articles such as these! Note: this is not a sponsored post and the review written is purely a reflection of the author’s views.

Edit: This post has been updated to reflect clarifications on projected returns and risk, provided after discussions with StashAway

Today, I read an email about StashAway launching their a new cash management solution, StashAway Simple. Being curious, I took a few minutes to read about it, and wanted to share with readers my thoughts about it. StashAway Simple aims to deliver a projected net return of 1.9% p.a. to you with no minimum amount, no sales charge and can even accept SRS funds. This is done via investing in funds with an average expense ratio of ~0.33% p.a.; however StashAway will rebate 0.125% p.a., so your net expense ratio is 0.2% p.a.

All in all, this projected return is on par with some of the existing high interest rate savings accounts today (such as DBS Multiplier, StanChart e$aver, etc), but it is superior to these as investors would be able to obtain a higher interest rate without actually having to jump through so many hoops, such as crediting your salary or requiring you to make $500 monthly spend on your credit card. However, as with investing in all funds, there is some potential volatility of returns, and **you can actually make a loss **. As a potential customer reading about the launch of this new financial product, here are my quick thoughts:

What I like about StashAway Simple:

#1 No sales charge & no minimum balance

This is a big deal. If you were to invest your money into money market funds on Dollardex or Fundsupermart today, you would either be hit with a one-time sales charge (perhaps 0.5-2% of your investment amount) or an additional platform fee (perhaps 0.3% p.a. on your investment amount). These fees would seriously erode away your returns from investing your cash! I am thankful that StashAway’s solution is, in fact, going the opposite direction; instead of charging you fees, they are rebating management fees back to you Moreover, they allow you to participate without a minimum balance, so it is really a great solution suitable for all savers (the ones with a few hundred dollars in your bank, as well as those who can save a few thousand dollars a month).

#2 No restriction on the duration required to take the money out

Simply put, this option makes StashAway’s cash management solution superior to fixed deposits (as one of the current alternatives to parking your liquid cash for a little bit of extra returns). With SGD 1 year fixed deposit rates ~1.8% p.a. today, this is a good, liquid solution to park your fund, and is in line with my expectations of a money market fund.

My concerns about StashAway Simple:

#1 Riskier than a pure money market funds

In an earlier version of this article, I accused StashAway of providing unrealistic projections. However, they have kindly provided the breakdown of how they projected a 1.9% p.a. return, which is based on:

The amortized yield to maturity of the funds (According to this other article written by KPO and CZM, it is 50% exposure to a money market fund and 50% exposure to an enhanced liquidity fund)
Plus: Rebates from Lion Global and StashAway
Less: Total expense ratios of the funds

I find that this methodology is sensible, so technically it is possible to hit this projected returns today, assuming that the macroeconomic environment remains the same in the future. My apologies for the earlier accusation!

However, I do stand by my statement that the underlying Enhanced Liquidity Fund is not a money market fund. It is a short-term bond fund where you are actually taking duration risk [in an earlier post, I mentioned that you are taking credit risk; based on the “A” rating, it appears that they are ]. The duration of the Enhanced Liquidity Fund is 0.85 years whereas the Lion Global Money Market Fund has a duration of 0.25 years. How should you think about the Enhanced Liquidity Fund? As a reference point, the Enhanced Liquidity Fund will most likely give you a lower than that of Nikko AM Shenton Short Term Bond Fund, given that the Nikko AM Short-Term Bond Fund is riskier in terms of credit risk (credit rating of A- ) and duration (1.29 years).

Summary

This is an interesting new cash management product for Singapore-based savers. In today’s interest rate environment, it is technically possible to achieve ~1.9% p.a. assuming conditions remain in the status quo. However, if you are more risk-averse (as there is a chance that you could lose money even by investing in StashAway Simple), you could consider other relatively liquid products to give you ~1.5% p.a. interest, such as CIMB FastSaver account and Singapore Savings Bond, which have interest returns on your cash deposits guaranteed by the bank/government instead (a minimum $1,000 and $500 in deposits applies here).

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Amanda_Ong · November 18, 2019, 10:11am

Hi Dexter,

Thank you for your review of StashAway Simple! My name is Amanda and I am the Head of Client Engagement & PR at StashAway.

I have attached a link to our FAQ on “How is StashAway Simple Projected Rate Calculated?” that I hope clarifies some of your concerns in this post and in particular the projected returns of 1.9%.

" The math on the projected rate of returns is quite straightforward: StashAway Simple™returns are the sum of the amortised yield from the underlying funds, minus fees charged by the fund managers, plus any rebates.

We’ll review the projected rate weekly, and in the case that there is a variation of the projected rate of 1 decimal point or more, we’ll notify our clients if there is any variation with 1 decimal point precision (i.e., 1.x%)

As of 18 November 2019, the projections are as follows.

The Total Expense Ratio (TER) for each fund includes the Management Fee charged by the Fund Manager, as well as other expenses incurred by the Fund (e.g., custody, marketing, compliance, shareholder services); as the TER includes fixed costs, it may slightly vary depending on the size of the funds."

Happy to jump on a call to discuss this if you have any further questions, Dexter

dexter.tiah · November 18, 2019, 1:23pm

Hi @Amanda_Ong ,

Welcome to the WhatCard forum! We are glad that you choose to sign up on our forum to contribute to the personal finance community.

This pictoral breakdown of how you can obtain the 1.9% projected returns is very useful; let me just double check the figures with Bloomberg, and if it checks out, I will make some amendments to my original post on the 2nd point I raised; specifically, I will mention StashAway’s assumption that there are no losses for either Lion Global funds

Do feel free to continue contributing to this or other forum discussions on personal finance issues for our Singapore-based readers. If you would like to reach out to the WhatCard team, you can drop us an email or reply on the forum; we will be sure to respond promptly.

Amanda_Ong · November 18, 2019, 1:56pm

Hi Dexter,

Just to clarify, we are not assuming that there won’t be losses for either Lion Global Funds. The 1.9% p.a is a long-term average projection. Over the short term, you can expect that it may perform above or below that projected return number.

Also, depending on economic conditions, your StashAway Simple™’s projected rate may change, as its underlying funds are affected by Singapore’s economic health and trajectory. Though, when applicable, our system will re-optimise your Simple portfolio to maintain the highest possible projected rate within a given economic environment. We will always notify you in the case of a change in the projected rate. The risk level to which your money is exposed will never change within StashAway Simple.

This is an investment, so there is a level of risk, but it’s incredibly low. The StashAway Risk Index for StashAway Simple™ is 1.7%. That means you have a 99% chance of not losing more than 1.7% of your AUM in a given year.

tgxworld · November 18, 2019, 2:21pm

Out of curiosity, why should an investor pick StashAway Simple over say Singapore Savings Bonds which at the time of this writing gives a guaranteed return of 1.71% with no risk of any capital loss.

dexter.tiah · November 19, 2019, 12:42am

Hi @tgxworld,

Good question!

I will not go into detail as I am not a StashAway spokesperson, but in my opinion, the essential benefit of StashAway Simple over SSB is that there is no minimum investment amount (SSB is $500 minimum amount) and no admin fee (SSB is $2 transaction fee). Please note that 1.71% is an average of 10 years; 1 year accrued interest is closer to 1.5%.

You are right, SSB is a compelling alternative as well. I will incorporate SSB as another alternative in my next update of this post.

Amanda_Ong · November 19, 2019, 2:43am

Hi @tgxworld,

Thanks Dexter for your points, in general, the point of StashAway Simple, is precisely that, there are no restrictions, no minimums, no limits, no asterisks.

Just to share, for both funds, the Unit Trust manager rebates 50% of the fee they charge to StashAway, and we rebate 100% of it to our customers every quarter. This rebate will be paid to you even if you invest for a day i.e it is pro-rated, just that the payout occurs at the end of every quarter. Typically, institutions and other platforms do not rebate what they get from the fund managers to their clients.

The balance in a Simple portfolio does not get included in the AUM calculation for our management fee for our other investment products. In other words, we don’t earn any revenue from Simple funds. Those fees (transaction or otherwise) that you pay when you DIY do eat into your returns.

Hi Dexter,

You may find this useful i.e the respective factsheets of both funds here on the Amortized yield (Weighted YTM) of the underlying fund -

Money Market Fund MMF: https://lgi.nextview.com/doc/uploads/documents/index.php?type=FS&fid=LGSMMF&lang=EN

Enhanced Liqudity Fund (ELF) : https://lgi.nextview.com/doc/uploads/documents/index.php?type=FS&fid=LSLF&lang=EN

Do note that you can expect the TER of a new fund like ELF to get lower as a higher TER is to be expected initially for 2 reasons 1) initial set up cost 2) small fund size at the start. We expect the TER for the ELF to decline significantly because the setup costs are a one-time costs and more importantly the fund will have a higher asset base over time.

sinkie · November 19, 2019, 10:16am

Heheh, during the most recent rate hike cycle by the Fed, the annualised (or “amortised”) yield of a couple of local money market funds did hit 1.9% for a few months. This was during the 2nd half of 2018 and into Q1 2019.

Since the Fed pause though (plus the easy stance of other central banks), the yields of MMFs have dropped in recent couple of months.

Without the Fed resuming its rate hiking cycle, I strongly doubt any local MMF can give 1.5%-1.6% yields going forward.

Hence the use of ELF — as it is not a MMF and doesn’t need to adhere to MAS rather strict regulations of a money market fund, it can take on a little bit more credit risk to try & get higher yields. But from it’s holdings … still ok lah. Very low risk of loss if your holding period is 2-3 months.

These funds are useful especially for money earmarked for investments (e.g. war chest) or if you’re very KS, as part of the bond allocations of your overall portfolio. Or for those who have already maxed out SSBs. They are also more liquid than SSBs (3-5 biz days) and no interest-forfeit penalties (unlike most FDs) for early withdrawal.

For those who’ve been around long enough, can remember in the last Fed rate hike cycle in the mid-2000s when MMF yields were giving 3% easily. And companies like Fundsupermart & Dollardex were offering “deposits” with 1+% to 2% “interests”. MAS had to step in after a few months (no doubt also prompted by many bank complains LOL!!).

In case you are wondering, bank interests by 2003 became the same as today — 0.5% and 1-year FDs were giving 1.5% to less than 2%. No wonder banks were pissed at upstarts offering higher yields!

invisiblehand · November 23, 2019, 3:22am

Hi,

I also just started putting in 1K into Stashaway simple to just experience if it is as good as what it says. The transparency and its low fees were what I were really going after. There is no real alternatives close to the offering and would really hope to see how investment turnaround can be clearer than a “1-2 days” SLA.

To be honest I was only a user of stashaway for a short while after experiencing some frustration with AML process(which I can vouch was clearly looked into personally by Michelle the founder and I see improvement over my recent interaction with their ops team). When I was shopping for other robos it dawned on me that people could easily replicate the investment strategy on platforms like IBKR or Saxo with some effort. Understand this is not an option for everyone but this product is different through the fact that stashaway team managed to negotiate rebate for users in stashaway simple which can’t be obtained if this was individually traded through IBKR/Saxo brokerage accounts.

Kelly_Trinh · November 29, 2019, 3:01pm

What was the issue? I had some slight issues when exploring around (but not the Simple product) but a whatsapp the the support number and wasn’t too long after they fixed (altho with a hack; it seems lots of little teething issues)