Core Growth vs Equity100: What To Know About Syfe’s Newest Portfolio

If you’re invested in Syfe’s Equity100 portfolio, there may be times when you wished for a little more “cushion” for your portfolio. Last week’s market drop is a good example. If the portfolio held some diversification from gold and bonds, the decline might have been less jarring.

It seems the investment team at Syfe recognised this too because they’ve now introduced a brand new series of Core portfolios. Simply put, Core portfolios hold stocks, bonds and gold, and the stock component is built using the same Smart Beta strategy that’s used in Equity100.

The Frugal Fox sees the new portfolio as “Equity100-plus” i.e. Equity100 with bonds and gold added for extra risk management and diversification.

Defensive, Balanced, Growth

Syfe Core has three portfolio options to choose from depending on your risk appetite and investing timeline.

Core Defensive: A low risk portfolio for conservative investors and / or investors with a short-term horizon

Source: Syfe

Core Balanced: A medium risk portfolio for moderate investors with a mid to long-term horizon (e.g. 3 to 5 years)

Source: Syfe

Core Growth: A higher-risk portfolio for growth-focused investors with a longer term horizon (e.g. 5+ years)

Source: Syfe

You can have more than one Core portfolio. For instance, Core Growth for longer-term goals like retirement, Core Defensive for a shorter-term goal like a wedding fund.

Source: Syfe

Is Core Growth better than Equity100?

What interested us most was the Core Growth portfolio.

Unlike Equity100 which offers 100% equity exposure, Core Growth balances your risk with some exposure to bonds and gold. So while your returns may not be high as what Equity100 may potentially provide, the bond and gold component in the Growth portfolio can help cushion your portfolio in a downturn.

In our opinion, Equity100 could be ideal for aggressive investors with very high risk tolerance. If your investing style is more “moderately-aggressive”, you may find Core Growth to be a better fit.

According to Syfe, the equity component of all Core portfolios uses the same Smart Beta strategy as Equity100. In essence, the stocks are selected to fit three factor tilts: Growth, China exposure, and low-volatility. You can read more details in their article here.

More stable asset allocation compared to Global ARI

Another difference between Core and other Syfe portfolios is the use of Asset Class Risk Budgeting. According to their explainer here, Risk Budgeting is a “risk-based method of portfolio allocation whereby the overall risk of the portfolio is distributed among various asset classes.” 

This is why you’ll find that the portfolio allocations are more stable compared to the Syfe Global ARI portfolios. For instance, Core Growth typically holds around 70% equities, regardless of market conditions.

Syfe indicates that Core Growth is most similar in terms of risk level to the Global ARI 19% Downside Risk portfolio. That portfolio also had a 70% equity allocation pre-pandemic, but it dropped to around 20% during the 2020 March crash due to the ARI risk management algorithm.

The China X-factor

What Core has that Equity100 and Global ARI don’t is the enhanced exposure to Chinese stocks. Comparing the stock ETFs found in Core and Equity100, the main difference is that Core includes iShares MSCI China ETF (MCHI) and KraneShares CSI China Internet ETF (KWEB).

Update as April 2021: The Equity100 portfolio now includes China exposure via the iShares MSCI China ETF (MCHI) and KraneShares CSI China Internet ETF (KWEB) too.

Portfolio allocation for Core Growth

MCHI offers exposure to large and mid-sized companies in China while KWEB is known as the only ETF that offers pureplay exposure to Chinese software and information technology stocks.

While US and Europe continue to grapple with the coronavirus, China’s economy has made a near complete recovery. China’s CSI 300 index, which tracks the 300 biggest firms listed on the mainland, even surpassed the S&P 500 last year. It surged 27.2% in 2020 as compared to the 16.3% gain made by the S&P 500.

We think that China will become the biggest economy in the world and there’s huge opportunity in the Chinese market. It could be prudent to start increasing your portfolio allocation to China now.

In one of the webinars The Frugal Fox attended, Syfe also stated that Core Growth has a whopping 14% allocation to China. US, Japan, France, UK and other countries make up the rest of the global allocation.

Compare this to iShares MSCI ACWI ETF, which also provides access to the global stock market. The ACWI only has a 5.35% exposure to China.

Geographical allocation of ACWI

If you, like us, believe that it’s time to invest in China, then Core Growth could be a pretty good portfolio choice.

Historical returns

All Core portfolios have performed well based on past returns, handily beating their S&P benchmarks.

Source: Syfe

While past returns don’t predict future performance, it’s reassuring to see that the Growth portfolio has managed to outperform the S&P Target Risk Growth Index by quite a few percentage points.

Of course, if you’re looking for maximum returns, then you’ll find that Equity100 still offers higher return potential. The 5-year annualised return for Equity100 is 16.2%. However, the portfolio isn’t for everyone.

As life changes, our risk tolerance can change with it. For example, if you have no kids, your risk tolerance level may be very aggressive and you may be comfortable having 100% of your money invested in equities.

If that situation changes, perhaps because a baby is on the way, you may now want a slightly more conservative investment approach. Core Growth could still offer decent returns with some capital preservation.

What does the fox say?

Sometimes, investors may just be looking for a “lazy portfolio” that checks all the boxes – globally diversified, low-cost, multiple asset classes. This explains the enduring popularity of the Bogleheads Three-Fund Portfolio.

The Frugal Fox thinks Syfe’s Core portfolios share the same simplicity, at least from an investor’s perspective. With the Core Growth portfolio, you know you’re essentially investing in a 70% stocks / 25% bonds / 5% gold portfolio. The allocation won’t change much and you can either choose to dollar cost average (DCA) monthly or invest a lump sum right away.

Will we invest in it? Given that we’ve also invested in ARK ETFs as well as a few other US tech stocks, the tech exposure in Equity100 does overlap quite a bit. We’ll probably stop contributing to Equity100 and start a DCA to Core Growth primarily for the increased exposure to Chinese stocks and the diversification to bonds and gold.

Ultimately, we feel that Core Growth is a set-and-forget kind of portfolio that lets you build wealth the lazy way. With so many investment options out there (Bitcoin! Options! Art!), sometimes simplicity is all you need.

If you’re keen to create a Core portfolio, enjoy 6 months of free investing when you use our referral code FRUGALFOX

You will get SGD $30,000 managed FREE for 6 months. This works out to $75 saved in fees if you invest $30,000, so don’t forget to use it if you’re signing up.

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