Not exactly a review of Syfe Income+ because I’m not going to be putting my money into it, just to get this clear from the start.

These are some of my thoughts that is related Syfe Income+ when I first started doing a little homework on it.

I think Singaporeans love the idea of passive income and we can see this from our fascination with dividend producing assets.

The introduction of Syfe Income+ will no doubt pique the interest of income-seeking investors considering the current environment.

Where Are Interest Rate Hikes Headed? (2022-2023)

The Fed interest rate hikes have been relentless in the past months and the market is pretty certain that we will see another hike during the 3rd May meeting.

The current market expectation for Dec 2023 is 450-475 bps.

Of course, there are merely what interest rate traders THINK would happen, but still a good reference point.

What about December 2024? 3.00% to 3.25%.

I have no idea what’s going to happen but the current 4.75%-5.00% target has so far resulted in:

• March 8, 2023
  Silvergate Capital, a cryptocurrency-focused bank, announced it would cease operations and liquidate its assets after a bank run forced it to sell a chunk of its debt securities.
• March 10, 2023
  Silicon Valley Bank (SVB) failed after a bank run on deposits.
• March 12, 2023
  To prevent the spread of banking contagion, regulators seized Signature Bank.
• March 19, 2023
  Switzerland’s largest bank, UBS, agreed to take over its troubled rival Credit Suisse.
  May 1, 2023
  First Republic Bank has been seized and a deal agreed to sell the bank to JPMorgan Chase & Co.

You keep pulling on the rubber band? It’s gonna stretch until its breaking point and snap.

When Credit Suisse went kaput, it affected some fixed income funds around the world because investors who owned Credit Suisse’s Additional Tier 1 (AT1) bonds — a riskier type of debt than traditional bonds — will be wiped out. Endowus has a helpful article addressing the Credit Suisse crisis.

With this at the back of my mind, now let’s take a close look at Syfe Income+.

Is Syfe Income+ Active Management Better?

First thing that I noticed was that, as stated by Syfe, Income+ portfolios use PIMCO’s best-in-class active funds as building blocks.

Who, or rather, what is PIMCO?

PIMCO stands for Pacific Investment Management Company and is one of the largest investment managers, actively managing more than $2 trillion in assets for central banks, sovereign wealth funds, pension funds, corporations, foundations and endowments, and individual investors around the world.

Syfe’s portfolio construction is powered by PIMCO, meaning Syfe will take care of all servicing and advisory needs whereas PIMCO provides insights and asset allocation guidance to Syfe.

Compared to Syfe other portfolios which employ passive strategies, Syfe believe that active funds are better suited to solve the core income needs of clients.

Interesting.

According to Syfe, active funds have the following advantages compared to ETFs when investing for income:

• Active management
• Tax efficient
• SGD-hedged

No surprise, this is usually how things are. If you ask a barber if you need a hair-cut, the answer is gonna be yes.

Why Emphasize Monthly Payouts?

There is a reason why the words “passive income” and “monthly payouts” appear in the title. of the product.

This type of arrangement i.e. monthly payouts seemingly favours a certain class of investors who seek regular payouts for their lifestyle needs. For instance, retirees would typically come to mind.

But it is important to note that having monthly payouts has nothing to do with regards to how safe the underlying investment actually is or how competent the manager is.

The example of Eastspring Monthly Income Plan comes to my mind whenever I have a conversation with anyone about this.

Being an active manager (I’m referring to Eastspring), they sought to provide investors with regular income and long-term capital growth by investing (i) 30% to 70% of its assets in US Bonds and (ii) 30% to 70% of its assets in Asian Bonds. The scheme may in addition, at the Manager’s absolute discretion, invest up to 20% of its assets in any other investments, including but not limited to other fixed income or debt securities, dividend yielding equities, real estate investment trusts and/or collective investment schemes.

Since inception in 2005, they have had an epic run from $1 to $0.59 now. Sure, they’ve had 19 years of monthly payouts but goodbye to capital preservation.

But PIMCO is better than Eastspring, right?

Bond (Fund) Vs Interest Rate History

Curious to learn more, I asked ChatGPT what is the relationship between interest rate and bond?

This was what ChatGPT replied.

• Interest rates and bonds are closely related, as interest rates have a direct impact on the price and yield of bonds. Bonds are debt securities issued by corporations, municipalities, or governments, and they pay interest to the bondholders.
• When interest rates rise, the price of existing bonds falls, and their yields increase. This happens because new bonds being issued with higher interest rates offer investors a better return on their investment than older bonds with lower interest rates. As a result, investors demand a higher yield on older bonds to compensate for the difference in interest rates, causing their price to fall.
• Conversely, when interest rates fall, the price of existing bonds increases, and their yields decrease. This is because new bonds being issued with lower interest rates offer investors a lower return on their investment than older bonds with higher interest rates. As a result, investors are willing to accept a lower yield on older bonds to compensate for the difference in interest rates, causing their price to rise.
• Therefore, the relationship between interest rates and bonds is inverse: when interest rates rise, bond prices fall, and vice versa. This is why bond prices and interest rates are said to have an inverse relationship.

I then asked ChatGPT what is the relationship between interest rate and bond fund.

And ChatGPT replied.

• The relationship between interest rates and bond funds is similar to the relationship between interest rates and individual bonds, but there are some important differences to consider.
• Bond funds are a type of mutual fund that invests in a diversified portfolio of bonds. The value of a bond fund is based on the underlying value of the bonds it holds, and the price of the bond fund shares fluctuates based on changes in the value of those bonds.
• When interest rates rise, the value of the bonds held by the bond fund may decrease, which can cause the value of the bond fund shares to decrease as well. This is because newer bonds with higher interest rates will be more attractive to investors than the older bonds held by the bond fund with lower interest rates. As a result, the bond fund may experience capital losses, and its yield may decrease.
• Conversely, when interest rates fall, the value of the bonds held by the bond fund may increase, which can cause the value of the bond fund shares to increase as well. This is because newer bonds with lower interest rates will be less attractive to investors than the older bonds held by the bond fund with higher interest rates. As a result, the bond fund may experience capital gains, and its yield may increase.
• However, it’s important to note that bond funds are not the same as individual bonds, and they have additional factors that can affect their value, such as management fees, expenses, and the composition of the underlying portfolio. Additionally, bond funds may have different characteristics depending on the type of bonds they hold, such as government bonds, corporate bonds, or high-yield bonds, which can affect their performance in different interest rate environments.
• In summary, the relationship between interest rates and bond funds is similar to the relationship between interest rates and individual bonds, but there are additional factors to consider when evaluating the performance of a bond fund.

With that in mind, I searched for the Fed Rate history for the past twenty years and found this chart.

If we overlay the two charts, it would appear that the 3 major spikes in Fed funds rate roughly corresponded to the 3 major declines in Eastspring Monthly Income Plan in 2009, 2019 and 2022.

At the start of Syfe’s article, it stated the following:

• The current geopolitical and economic uncertainties, unprecedented inflation and high rates environment have created favourable conditions for fixed income investing.
• Bond markets are offering the highest yields and total return potential in years and therefore can offer better value than past decades.

What is interest rate risk? pic.twitter.com/bRqdw1IH9s

— Kevin | Turtle Investor (@turtle_investor) April 27, 2023

What would happen when interest rate start to decline, let’s say around end 2023 or 2024? Could it be …

Syfe Income+ Portfolio PIMCO Funds

Not sure why Syfe made it such that you have to log in before you can see the name of the fund, since everyone would see it after logging in right?

Preserve

• PIMCO GIS Global Bond Fund (49%) <click link>
• PIMCO GIS Income Fund (30%) <click link>
• PIMCO GIS Asia Strategic Bond Fund (15%) <click link>
• PIMCO GIS Global Investment Grade Credit Fund (6%) <click link>

Enhance

• PIMCO GIS Diversified Income Fund (38%)
• PIMCO GIS Asia Strategic Bond Fund (23%)
• PIMCO GIS Income Fund (18%)
• PIMCO GIS Asia High Yield Bond Fund (15%)
• PIMCO GIS Global Investment Grade Credit Fund (6%)

It’s a little unorthodox of me to link the funds to their competitor’s website but that’s what happens when they have a better user experience by presenting all the useful information clearly instead of giving me PDF files to read.

From March 2022 to March 2023, the Fed rate was hiked 4.5% within a year.

Looking at the various 5-year charts, most bond funds were deep in the red during this period.

Quick peek at competing Endowus’ most conservative Income portfolio (Stable Income) which has seen a historic 16% drawdown in the past year. (see chart below)

Funds construction are obviously different but the idea is similar.

Syfe Fees Add Up To Quite A Bit

Fees wise, net fund level fees are 0.65% (Enhance) to 0.68% (Preserve).

Versus Endowus Income (Stable Income) portfolio, it would seem comparable: funds charge about 0.55% to 0.76% after cashback rebate.

Syfe charges 0.65% whereas Endowus charges 0.6% for the lowest tier.

In total, adds up to quite a bit around 1.3% of fees.

More (Ending) Thoughts

This blog post is just some of the things that crossed my mind when I was reading into the new Syfe Income+ product.

To end off, my money won’t be going into Syfe Income+ considering the factors that have crossed my mind.

Kelvin Learns Investing alluded to some of the same points (interest rates and drawdown) that I have thought about, so watch it if you enjoy his style of YouTube videos.

As for me, I remain patiently invested in Syfe REIT+ instead, having added to my position over the past few years.

When the current environment of high interest rate and the inevitable drop that will come in future, there are different ways for me to make the best out of it.

Some like Syfe and PIMCO may feel that bond (funds) have the potential for capital appreciation in the near future.

Circling back to the start of the blog post, the eventual pivot (decline) in interest rate would lower borrowing costs for REITs and present tailwinds, conditions or situations that will help move growth higher.

Below are the twenty REITs (via StocksCafe) included in Syfe REIT+ after the March 2023 semi-annual rebalancing.

When the time comes, yield for cash e.g. MoneyOwl WiseSaver would drop and be no longer as attractive. Money would flow to seek out better yields in other instruments.

Would that be fixed income? Or REITs? Or something else?

Simplistic thoughts but I guess I do have to point out the obvious ones.

Investors who missed the Covid crash in 2020 were granted a second chance in 2022 to have another go at REITs. (iEdge S-REIT Leaders Index below)

I’m not sure how many actually took action, but this is human nature.

The usual applies → Not financial advice and I’m just a nobody writing down my thoughts and sharing what I’m doing. Interpret it however you want!

Meanwhile, keep calm and collect dividends (distributions).

Need a Syfe referral code for waiver of Syfe fees? Here you go 🙂