What is the difference between investing in dimension funds (MoneyOwl) and robo Advisors like stashaway or Autowealth? - Seedly

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Asked by Anonymous

Asked on 12 May 2019

What is the difference between investing in dimension funds (MoneyOwl) and robo Advisors like stashaway or Autowealth?

(In terms of risk, returns, dividends, investment strategy etc) And should I invest in both DFA and roboadvisors for more diversification? (What would be the recommended allocation for each?)

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Chuin Ting Weber
Chuin Ting Weber
Level 5. Genius
Updated on 15 May 2019

Hi Anonymous, thanks for your question! Firstly allow me to clarify the structure of an investor's relationship with MoneyOwl vs Dimensional and the roboadvisors you mentioned. An investor would invest in Dimensional funds through or with MoneyOwl ; and the parallel is that an investor would invest in ETFs through roboadvisors like Stashaway or Autowealth. So the "equivalent" of Dimensional funds are the ETFs (provided by Vanguard, State Street etc.) and they are the underlying funds with fund managers. Whereas MoneyOwl's "equivalent" in terms of the relationship with an investor is the roboadvisor like Stashaway or Autowealth.

The investment philosophy thus has to be considered on different levels as well. On the underlying fund level, Ting So and Yang Teng have described the differences between Dimensional and ETFs (passive indexed funds traded on exchanges). I would say that there is commonality in both Dimensional funds and ETFs used by roboadvisors in being market-based (largely following market, no "active" management in terms of stock picking or tactical asset allocation/ market timing), low-cost and broadly diversified.

To digress slightly - but on an important point: there are structural differences between Dimensional funds, being unit trusts, and ETFs, those used being US ETFs, that affect the accessibility, return and risk of the investor that are not directly to do with markets. Broadly speaking, they are as follows:

(1) Dimensional funds, being unit trusts, can be invested even with small amounts down to your last dollar. MoneyOwl, being a social enterprise seeking to bring great solutions to the ordinary person, has a low threshold in terms of investment quantum of $100 one-off/ $50 monthly. To do the same with ETFs, you would have to either have larger investment amounts, accept some drag from keeping some spillover in cash, or fractional shares with your record kept at the roboadvisor's level and you may or may not be comfortable with this.

(2) ETFs (depending on which ones are used) may have a lower headline Total Expense Ratio (TER) than Dimensional funds, but the situation may be reversed once you consider hidden costs of ETFs especially withholding tax treatment, but also fund bid-ask spread and forex bid-ask spread. Dimensional funds used by MoneyOwl are domiciled in Ireland, are much more tax-efficient than ETFs, and traded on NAV, without bid-ask spread, and are registered in Singapore as SGD funds.

(3) For the bond portion, Dimensional funds are fully hedged back to SGD, your base currency, whereas US bond ETFs are not. It is important to hedge bonds back to base currency because the volatility of currency is higher than that of the volatility of bonds. If you do not hedge out the currency, then actually you are taking more risk that you had meant to by incorporating bonds into your portfolio and you are really investing in a different type of portfolio with a different risk profile.

Please read this article for more important on differences in structure https://advice.moneyowl.com.sg/why-unit-trusts-and-not-etf/

To return to investment philosophy: just as important to consider, besides the investment philosophy of the underlying funds, is the investment philosophy of the one "with" or "through" which you invest -- MoneyOwl or the roboadvisors. While the underlying instruments are market-based, or passive or passive-plus, do understand whether there is an active overlay expressed in terms of dynamic or tactical asset allocation, based on such views as macroeconomic changes, market forecasts etc., and which you are convinced by. MoneyOwl believes that it is very hard to beat the market consistently over the long run by changing tactical asset allocations, as borne out in the active managers' longstanding underperformance as a group and also the lack of persistency of champions who make it in on year. Instead, MoneyOwl believes in staying invested in globally diversified portfolios over your investment horizon to capture market return, without going in and out. Rebalancing for us is about returning to the weights that present your intended risk/return mix or asset allocation, based on your need to take risk, your ability to take risk and your willingness to take risk, not about changing asset allocation mixes. A full description of our investment philosophy is here https://advice.moneyowl.com.sg/the-right-way-to-invest/ You may also wish to join us at our inaugural Investment Symposium on 25 May 2019! https://www.eventbrite.sg/e/moneyowl-investment-symposium-registration-60702740531

In addition, you may wish to understand how each of the companies you are investing "through" or "with", adds value as there are meaningful differences. After all, you pay an advisory/"wrap"/access fee. There are many models, some are more like robo-macro fund managers (as they shift asset allocations), some are more robo-tools for access. For MoneyOwl, allow me to describe who we are and what we do:

  1. Our core is advisory, and bionic (not just robo-) advisory. Bionic advisory means combining tech and human wisdom, and we have a good-sized (human) advisory team of fully-salaried (non-commissioned) advisoers who are available to you not just for client service, but for actual regulated financial advice. Why do we believe that humans are important in investments? This is because money is a very personal thing and can involve not just the head but the heart. There can be complexities in how the need to take risk, ability to take risk and willingness to take risk interact or contradict each other, and human wisdom for risk coaching is needed. Most importantly, risk coaching is important to help investors understand how markets work and to stay invested through turbulent times, to not lose out on return but capture the full market return upon recovery. In fact, Dimensional funds are not available directly to investors worldwide, but they only distribute through advisers, because they believe in the advisor alpha or value-add to a client's investing experience.
  1. We are a comprehensive financial advisor, not just an investment (robo-)advisor, though we have an investment platform, which is our third robo after insurance and will-writing. These are all on our website at www.moneyowl.com.sg In the next few months, we will roll out our fourth robo which is the comprehensive planning module that incorporates CPF LIFE into retirement planning as the starting point or bedrock of retirement planning for Singaporeans and PRs. If you check out our content site at advice.moneyowl.com.sg, you will see that our range of articles is not just about investments, but about insurance, estate planning, wills, CPF etc.
  1. Finally, MoneyOwl is not a pure start-up, but a joint venture between NTUC Enterprise and Providend. NTUC is a household name that has been around for decades, to serve ordinary working families and help everyone stretch the hard-earned dollar. Providend is the first fee-only, conflict-free independent financial adviser in Singapore, one of the first set up almost two decades ago, known for its best-in-class expertise and ethical advisory practice. As part of a larger corporate group, we also take security seriously, with MoneyOwl being an ISO27001 certified company despite being only about 9 months old. We are thus confident to bring our services to the Singapore mass market, with this unique parentage that brings a combination of mission and experitse, to be with you in your investment and holistic financial planning journey.

Hope this helps and thanks for reading!

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Sin Ting So
Sin Ting So, Head Of Client Experience at Endowus
Level 4. Prodigy
Updated on 07 Jun 2019

Hello! Dimensional takes a systematic appraoch to investing, where they structure broadly diversified portfolios that emphasize the dimensions of higher expected returns in both equities and fixed income products. These 'dimensions' have been proven to be persistent over time, pervasive across markets and cost-effective to capture.

For example in equities, they will tilt their portfolios towards smaller cap, value and profitability as Lok Yang mentioned below.

The recommended allocation would depend more on your investment goals, investment horizon and risk tolerance.

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Samuel Rhee
Samuel Rhee

15 May 2019

May I add that Endowus is a cheaper way to access Dimensional funds than Moneyowl. Also, of the offerings available, we love the Dimensional funds for equities but with their current limited offering and using only short fixed income product is not the most efficient in gaining broad global bond market exposure and its full opportunity set across the term, credit, duration spectrum. Endowus uses Dimensional funds for equities and PIMCO funds for Fixed Income. Thanks!
Tai Zhi
Tai Zhi, Chief Investment Officer at Autowealth
Level 4. Prodigy
Updated on 24 May 2019

Here's a summary of how we see Dimensional Funds vs ETFs and what is unique about AutoWealth:

Dimensional Funds vs ETFs AutoWealth uses

(1) Structure - Dimensional Funds are Unit Trusts whereas the ETFs AutoWealth uses are listed and quoted on stock exchange

(2) Expense Ratio incl management fees and custody fees etc - Dimensional Funds expense ratio ranges from 0.36% to 0.50% whereas the expense ratio of the ETFs AutoWealth uses are about 0.15% (based on our most popular AutoWealth Balanced Portfolio of 60% stocks and 40% govt bonds)

(3) Bid-Ask Spread & Transaction Costs - units of Dimensional Funds are created and redeemed inhouse by the unit trust provider Dimensional at whatever price and transaction cost Dimensional dictate whereas AutoWealth execute ETF trades over the exchanges during the pre-market phase with zero bid-ask spread and all transaction costs are absorbed by AutoWealth

(4) Liquidity - Dimensional Funds liquidity are provided by Dimensional through their inhouse creation and redemption process whereas liquidity for the ETFs AutoWealth uses are transparent and shown on the stock exchange with the option of executing large sizes through authorised market makers

(5) Withholding taxes on dividends - Dimensional Funds are domiciled in Ireland for efficient tax whereas the ETFs AutoWealth uses are all listed and quoted in U.S. stock exchanges. Despite the slightly higher taxes, the ETFs listed in the U.S. are still preferred by AutoWealth after taking into consideration factors including liquidity, bid-ask spread, expense ratio, ETF fund size amongst other factors.

AutoWealth's Value Proposition

(1) Superior Returns - Our market-returns investment strategy has proven to outperform all 20 unit trusts available in Singapore with a similar investment mandate (pls see https://www.autowealth.sg/strategy.php for our actual returns vs the 20 global balanced unit trust), not all players publish their returns, pls discern for yourself why they don't publish

(2) Low Fees - 0.5% portfolio fee per annum on the assets under management + USD18 platform fee per annum

(3) Hassle-free - Just go to www.autowealth.sg and you can get started and track the performance real-time 24/7 anywhere

AutoWealth's Other Differentiating Factors

(1) Personal Seggregated Custody - your assets and monies are held in personal seggregated custody account in your legal name for your legal benefit only, its your hard-earned wealth and therefore we safeguard them properly, this is different from unit trusts or other robo-advisors where your assets and monies are held in commingled custody account together with other clients' assets and monies

(2) Dedicated Wealth Managers - our friendly wealth managers are always just one whatsapp away and you may arrange to meet them for portfolio review if necessary, some robo-advisors provide this some others don't

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Lok Yang Teng
Lok Yang Teng
Level 6. Master
Answered on 12 May 2019

DImensional Fund is essentially like STI ETF or Vanguard.

Unlike typical index fund which weighs the basket of stocks based on market capitalisation (leading to over-valueing of overpriced stocks), overweigh stocks with lower relative price, smaller market capitalisations, and higher profitability. Dimensional is comparable to Vanguard which has outperformed many investors over the years.

The roboadvisors in Singapore do invest in Dimensional Fund, but at different operating cost. Hence DFA is a subset of roboadvisors. Your comparison should be compared to DIY stock picking or other ETFs/Mutual funds which will definitely pale out for most. Hope the clarification helps!

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