I’ve been doing a lot of thinking about dividend investing recently.
As you would recall, a couple of weeks ago a reader wrote in with the following situation:
- 43 year old male, married with 2 kids (5 and 3 years old)
- Paid off residential mortgage six years ago
- Has $1.27million in cash/stocks between him and his wife
- Minimum household expenses of $36,000 a year – but ideally he wants $50,000 a year for holidays and buffer
His question was whether he could retire based off this portfolio, and live on the dividend income.
He really wanted to retire, but his wife wanted him to continue to work.
I ran the numbers in that article assuming the $1.27 million was invested in a broad portfolio of REITs, T-Bills and dividend stocks.
And as much as I wanted to make it work for him.
I just couldn’t get comfortable with the numbers.
DIY solutions require expertise in asset allocation / stock picking, with careful risk management
The problem was that ideally you wanted to generate about a 6% yield.
But generating 6% yield, reliably, year after year.
For the next 40 years (Singapore’s life expectancy is 83).
I think many investors are underestimating the difficulty of a task like that.
Which got me thinking.
What about actively managed solutions?
What if you could outsource this to someone, to handle both the asset allocation and stock picking?
What is United SG Dynamic Income Fund?
United SG Dynamic Income Fund is a fund that attempts to do just that.
This is a Singapore centric fund, that primarily invests across multiple asset classes including:
- Singapore REITs;
- Singapore equities;
- Singapore bonds;
- Singapore money market instruments (eg. T-Bills); and
- Asia equities (capped at 20%).
The Fund will handle both the asset allocation (how much to put into REITs vs stocks vs bonds vs T-Bills), and the stock picking (whether to buy DBS, UOB, CICT etc) for you.
You just sit back and collect the monthly dividend (target yield of 6% p.a.)*.
Is this a good strategy?
I was actually quite keen to dive into the details to find out.
Disclosure: This post is sponsored by UOB Asset Management. All views and opinions expressed in this post are from Financial Horse.
What I like about United SG Dynamic Income Fund?
Let’s start with what I like about United SG Dynamic Income Fund:
- Singapore centric
- Dynamic asset allocation over 5 asset classes
- Portfolio Management handled by UOB Asset Management’s professionals
Singapore centric fund
I like that the Fund is heavily Singapore focused.
As Singapore based investors, given that our spending needs are in SGD, it makes sense to have a higher allocation to Singapore based assets.
Singapore (in my view) has emerged from the COVID pandemic very strongly.
Unlike other cities like Hong Kong which comparatively haven’t fared so well, Singapore has performed very well the past few years.
Government policy has been prudent, creating a stable and attractive platform for global businesses.
This has attracted a lot of global capital into Singapore in recent years, which has supported the economy and local asset prices.
SGD has the advantage of being a relatively stable currency, that has held its value well despite the Fed’s rapid hike cycle.
Fingers crossed, but I do expect Singapore to weather the coming macro uncertainty better than other countries.
Dynamic asset allocation across 5 asset classes
United SG Dynamic Income Fund invests primarily across 5 asset classes including:
- Singapore REITs;
- Singapore equities;
- Singapore bonds;
- Singapore money market instruments (eg. T-Bills); and
- Asia equities (capped at 20%).
Asset allocation is dynamic.
What this means is that UOB Asset Management (UOBAM) will try to adjust asset allocation and aims to outperform the market and protect downside risk.
So if they think a recession is coming, they may increase allocation to Money Market Instruments like T-Bills, and dial back exposure to Equities / REITs.
And if they think a bull market is coming, they may increase allocation to Equities / REITs.
Why (dynamic) asset allocation is important
A big mistake many investors make is focusing too much on which individual stock to buy.
And they neglect asset allocation.
They focus too much on whether to buy DBS or UOB or OCBC.
And not enough time on the question of how much money goes into stocks, vs REITs vs T-Bills.
Some of this is down to expertise as well.
Investors may be very good at stock picking, and not be so familiar with macro asset allocation (and vice versa).
One advantage of United SG Dynamic Income Fund in my view is that you’re outsourcing both the (a) asset allocation, and the (b) stock picking to investment professionals at UOBAM.
For retail investors who don’t have the expertise to decide on asset allocation and stock picking.
Or who just want to live their busy lives and prefer a hassle-free approach.
This is a great feature.
Portfolio Management handled by UOB Asset Management professionals with long track record
The decision to purchase individual REITs / stocks / bonds is made in consultation with the portfolio managers of the respective UOBAM managed funds.
The REITs selection will be in consultation with the Portfolio Manager of the United Asia Pacific (APAC) REIT Income Fund, and likewise for the Bonds exposure, this will be in consultation with the Portfolio Manager of the United Singapore Bond Fund and so on.
You can see their Morningstar fund rating for the respective fund below, which ranges from 3 – 5 stars.
The portfolio managers also use UOBAM’s proprietary AI-Augmentation capabilities to drive their stock picking.
This is a collaborative approach, that capitalizes on both technology and human expertise.
Target dividend yield of 6%* p.a.
The Fund aims to achieve a target 6% p.a. dividend yield, that is paid out monthly*.
The monthly payouts is a nice touch for investors who rely on the income for living expenses etc.
For the reader at the start of the article investing $1.27 million, assuming the 6% dividend yield is achieved.
That works out to about $76,000 a year, or $6,350 a month.
But of course, as with most other funds in the market, do note that the dividend yield and periodicity of payouts is not guaranteed and subject to change.
Initial Asset Allocation (or back tested returns) of United SG Dynamic Income Fund?
Unfortunately due to MAS regulations, UOBAM is not able to share the initial asset allocation or back tested return of the United SG Dynamic Income Fund.
However, they did share some details on how they would approach asset allocation and stock picking.
I’ve extracted the full explanation from UOB Asset Management below:
“UOBAM’s AI-enhanced investment process, AI-Augmentation@UOBAM, is a hybrid approach involving AI models to assist Portfolio Managers to make the best investment decision. For multi-asset portfolios, alpha is created from making the right asset allocation call and from making the right security selection. For the United Singapore Dynamic Income Fund specifically, we have used our proprietary AI-Machine Learning Model to help managers make the correct asset allocation decisions. Our experienced top ranked managers then engage in security selection under each of the asset class selected.
Unlike traditional quant tools, more advanced Machine Learning algorithms employed by the fund analyses much larger amounts of data. Whereas a typical quant fund takes into account 10s or 100s of variables, our model employs more than 30 thousand variables and analyses more than 300 million combinations before making an investment decision. The process is data driven, objective, systematic and extremely rigorous.
But more importantly, traditional quant funds uses linear models such as regression models, which essentially extracts a pattern based on a fixed number of variables and extrapolates them into the future. These models are rigid and susceptible to model decay as the external investment environment changes. But we know that the external investment environment is never static. Today the oil price might be driving asset prices, tomorrow it could be interest rate and the day after it could be volatility. No single set of fixed variables can explain asset price movements all the time. That is why we have started using AI-Machine Learning models which are non-linear in nature. This means that our model learns from the current investment environment and adjusts itself based on the constant feedback of new data. It then makes investment decisions dynamically rather than based on a static set of variables pre-selected by the Portfolio Manager. This also means that we are able to quickly detect the developments of new trends developing in the market which would in turn result in better investment performance over time.” [emphasis ours]
Subscription Details and Fees of United SG Dynamic Income Fund (can be bought with Cash or SRS)
Class A is being offered to retail investors.
You can subscribe to the Fund with Cash or your SRS Funds.
And you can choose between an accumulating Fund (where dividends are reinvested into the Fund), or a distribution Fund (where dividends are paid out to you).
Given this is an actively managed product that handles both asset allocation and stock picking, 1.0% management fee probably isn’t that high.
Yes, I know that ETFs will have lower expense ratios, but given that most ETFs are passive and just track an index, it’s probably not an apple-to-apple comparison as compared to an actively managed fund.
How to purchase United SG Dynamic Income Fund?
The recently launched Fund is now available for subscription on FSMOne, Phillip Securities, Tiger Brokers and Webull. Corporate customers can subscribe through UOBAM Invest for Corporates.
The initial offering period (IOP) for the Fund will be from 23 October 2023 to 15 November 2023. During this period, receive bonus credit units worth up to $100 when you invest with Tiger Brokers during the IOP period, which ends on 15 November 2023.
After the IOP, you can still invest in the Fund via the platforms mentioned.
Concluding thoughts – who is United SG Dynamic Income Fund right for?
As discussed above, there are 3 strengths of United SG Dynamic Income Fund:
- Singapore centric
- Dynamic asset allocation over 5 asset classes
- Portfolio Management handled by UOB Asset Management’s professionals
For Singapore investors who want a diversified portfolio that is dynamically rebalanced to weather economic storms, this is an option to consider.
You get familiarity and trust from a trusted asset management firm that is bank-backed, with professionals who are dynamically assisting you to achieve optimal asset allocation for long-term stable returns.
If you’re interested, don’t miss the IOP promotion!
Ending on 15 November 2023, receive bonus credit units worth up to $100 when you invest with Tiger Brokers.
Disclosure: This post is sponsored by UOB Asset Management. All views and opinions expressed in this post are from Financial Horse.
*Distributions are not guaranteed. Distributions may be made out of income, capital gains and/or capital. This relates to the disclosed distribution policy as set out in the Fund’s prospectus.
Important notice and disclaimers
This document is for general information only. It does not constitute an offer or solicitation to deal in units in the Fund (“Units”) or investment advice or recommendation and was prepared without regard to the specific objectives, financial situation or needs of any particular person who may receive it. The information is based on certain assumptions, information and conditions available as at the date of this document and may be subject to change at any time without notice. No representation or promise as to the performance of the Fund or the return on your investment is made.
Past performance of the Fund or UOB Asset Management Ltd (“UOBAM”) and any past performance, prediction, projection or forecast of the economic trends or securities market are not necessarily indicative of the future or likely performance of the Fund or UOBAM.
The value of Units and the income from them, if any, may fall as well as rise. Investments in Units involve risks, including the possible loss of the principal amount invested, and are not obligations of, deposits in, or guaranteed or insured by United Overseas Bank Limited (“UOB”), UOBAM, or any of their subsidiary, associate or affiliate (“UOB Group”) or distributors of the Fund. The Fund may use or invest in financial derivative instruments and you should be aware of the risks associated with investments in financial derivative instruments which are described in the Fund’s prospectus. The UOB Group may have interests in the Units and may also perform or seek to perform brokering and other investment or securities-related services for the Fund. Investors should read the Fund’s prospectus, which is available and may be obtained from UOBAM or any of its appointed agents or distributors, before investing.
You may wish to seek advice from a financial adviser before making a commitment to invest in any Units, and in the event that you choose not to do so, you should consider carefully whether the Fund is suitable for you. Applications for Units must be made on the application forms accompanying the Fund’s prospectus.
Distributions will be made in respect of the Distribution Classes of the Fund. Distributions are based on the NAV per unit of the relevant Distribution Class as at the last business day of the calendar month or quarter. The making of distributions is at the absolute discretion of UOBAM and that distributions are not guaranteed. The making of any distribution shall not be taken to imply that further distributions will be made. UOBAM reserves the right to vary the frequency and/or amount of distributions. Distributions from a fund may be made out of income and/or capital gains and (if income and/or capital gains are insufficient) out of capital. Investors should also note that the declaration and/or payment of distributions (whether out of income, capital gains, capital or otherwise) may have the effect of lowering the net asset value (NAV) of the relevant fund. Moreover, distributions out of capital may amount to a reduction of part of your original investment and may result in reduced future returns. Please refer to the Fund’s prospectus for more information.
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Hi FH
What’s the subscription fee of 3% for this fund ?
Thank you
Yau
This a fund under initial offering period. So the usual way it works is that you subscribe for the fund via a third party like FSMOne, Phillip Securities, Tiger, Webull etc, and the subscription fee is paid to that third party (so the exact fee will vary depending on the platform you buy from).
In any case let me confirm this with UOB AM, in case my understanding is not correct.
Hmmm…unlike most of your posts which I enjoy reading this unfortunately really does comes across as a “sponsored” post and not in a good sense despite the initial disclaimer. Is the “sponsorship “ amount really worth the exchange for the hit on integrity?
I actually thought this was quite an interesting product, in that they handle both asset allocation and stock picking for you.
I asked UOB AM to share the initial asset allocation and back tested returns, but unfortunately this could not be disclosed to me due to MAS regulations.
Perhaps that might be why this article comes across as incomplete, as it is not easy to evaluate the fund without the asset allocation / backtested returns.
Once the fund is listed and this data is available, it should be easier to get a fuller picture.
Hi FH,
Regarding your comment,
“I actually thought this was quite an interesting product, in that they handle both asset allocation and stock picking for you.”
How/why is this any different from the hundreds of other unit trusts/ funds where they pick the allocation and stocks for you?
I thought it was different in that the Fund allocates among 5 SG focussed yield assets (S-REITs, SG Equities, Asia Equities, SG Bonds, SG Cash instruments), with a targetted 6% yield. With full flexibility to shift allocation from REITs into T-Bills for eg.
That’s a very specific mandate. To my knowledge I dont know many other funds with a similar mandate, but happy to be corrected on this.
As a paying subscriber I expect to see independent analyses. Mind you this is not a free food / fashion blog, you’re dispensing paid financial commentary here and this kind of post dilutes the quality of the blog.
The occasional “sign up for this bank account for freebies” post seems fine but this is advertising for these funds and not something I want to see.
Thanks, appreciate the feedback.
Is the return after minus the 1% management fee?
The 6% dividend yield is targetted. So actual dividend may be higher or lower depending on the actual fund performance.
I believe the 6% target is after fees, but let me confirm with UOB AM on this.
Because you said, “Let’s start with what I like about United SG Dynamic Income Fund,” I was expecting to read about what you don’t like about the fund. Is there anything you don’t like about the fund?
I get what you mean. Ultimately we don’t have access to the backtested returns, nor the initial asset allocation (or even Top 10 holdings).
Without that information, it’s tough to know exactly what goes into the Fund, hence the long writeup I extracted on their methodology.
So at this point in time, with the information I have, hard to say what I don’t like. Because it will have to depend on their investment methodology.
Perhaps I should have made this point clearer in this article.
@YH. If there is a useful product, that at the same time is being sponsored, I don’t see why it shouldn’t be put up in the free section. They are not mutually exclusive, i.e., useful product and sponsored product. I’m not a paying subscriber and I suppose there are extra things you get as a paying sub that are not adverts. This sort of post can be useful for people to know what is in the market that may be suitable for them.
@YK, not YH. Sorry.
FH stay objective and well researched if intend to attain trust
Will try my best!