Investors under Singapore's Central Provident Fund system need rates of return that actively managed funds can provide, but fee structures tend to discourage their use. A business taking a more "systematic" approach to investing says that it is filling a gap.

When Texas-headquartered Dimensional Fund Advisors launched three funds under Singapore’s Central Provident Fund’s investment scheme, the firm said it had filled an important gap in the market. 

The funds are the Global Core Equity III Fund; Emerging Markets Large Cap Core Equity III Fund; and Global Core Fixed Income III Fund. As announced in July, the funds are aimed at CPF ordinary account holders. (The Central Provident Fund (CPF) is the name for Singapore's social security scheme.)

As explained by the firm in an interview last year, Dimensional argues that what it calls “core equity portfolios” – low-cost, broadly diversified equity portfolios with a moderate emphasis on the size, value, and profitability premiums – can bring higher expected returns while controlling the risk of lagging a market. Its approach isn’t the same as just trying to find sources of return, such as momentum and yield, and then tracking them via a “passive” tool such as an exchange-traded fund.

And in Singapore, this approach adds an important element, Joel Kim, chief executive, Asia ex-Japan, and head of international fixed income for Dimensional, told this publication.

There are a lot of firms that offer products to CPF participants, many of which are actively managed funds. An issue is that the Central Provident Fund wants low-fee offerings, and this can deter some fund management firms from wanting to offer anything, Kim said.

For people with more than S$20,000 ($15,535) in what is called an ordinary account (OA), they can deploy that additional money into mutual funds.

“Investment returns [from some funds] are not much better than the 2.5 per cent rate that is guaranteed [by CPF],” he said. 

“There are around 150 funds available to CPF account holders. Combined, they have a large regional (Asian) bias, with many narrowly focused sector funds. Most funds are actively managed with relatively high management fees,” Kim said. 

“This puts the burden on end investors to pick and rotate funds, chasing what they think might do best. In practice, many investors time the markets badly and end up with concentrated portfolios that make it much more difficult to remain disciplined in more volatile market environments,” Kim said.

“As a result of these characteristics, many investors don’t even achieve the 2.5 per cent guaranteed by CPF, let alone achieve the market return they are entitled to. We think Dimensional’s diversified, low cost, systematically active funds make it easier for investors to stay in their seats, remain disciplined, and capture the market’s return,” he said. 

Getting its funds under the CPF umbrella is a feather in the cap for Dimensional, a business that is headquartered in Austin, Texas; it has 15 global offices across North America, Europe and Asia. As of March 31, 2024, Dimensional managed $719 billion. 

Dimensional says an academic culture is in its DNA; it was founded in 1981 and since then, five Nobel laureates have had close ties with Dimensional or the US Dimensional Funds: Merton Miller, Robert Merton, Myron Scholes, Eugene Fama and Douglas Diamond.

Experience
Dimensional’s Kim brings international perspective to the role. He has worked in the Netherlands, Hong Kong, London and Singapore. In his Singapore job, Kim is responsible for fixed income outside the US and is also CEO for the Asia business.

Dimensional adopts a B2B approach to distributing its funds, working with financial advisors and other intermediaries rather than advertising its wares directly to the end client, Kim said. “This is about making sure there are better offerings. We are a systematic, rules-based approach and it takes away guesswork.”

“Advisory firms are coming to us and asking for Dimensional because their clients have heard about us,” he said. 

Dimensional is also seeking to engage more with UHNW wealth managers and family offices, Kim added.