Martin Lee @ Sg
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CIMB Max InvestSave Structured Deposit

Someone asked me about the CIMB Max InvestSave Structured Deposit.

This is a long term (15 or 25 years) structured deposit that can give you equity-like returns via exposure to the CIMB Evergreen II Index.

The CIMB Evergreen II Index tracks a wide range of markets across major economic regions and asset classes which adopts a Risk/Return Optimisation strategy by finding the best possible asset class allocations to maximise returns with controlled volatility (Standard Deviation) of around 10%.

It also adopts a Long/Short strategy which proactively trades when markets are bullish or bearish.

The Max InvestSave brochure gives some projections of the returns.

Do not let yourself be swayed by the higher projections because ultimately, your final returns will be dependent on the performance of the CIMB Evergreen II index (which is not guaranteed). Note that the index has a 2% annual management fee and there is also a 5% performance fee.

The investment is 100% protected if held to maturity so if the index does not perform, you will end up with your original invested sum. If you add in the bonus units (given during the promotion now), the annualized returns works out to be about 0.9% p.a.

If you look at the CIMB Evergreen II Factsheet, you can see that the historical returns seems to be quite impressive. It managed to return 13.15% even in 2008 when the market was down severely. However, the returns for 2009 was more muted at 2.36%.

I would treat the returns of the index with a huge pinch of salt. There was a similar product launched in Malaysia and the performance has been downhill (click to see chart) ever since it was launched in October 2008. There was a big negative return for 2009 even when the equity markets rallied quite heavily. That product was already tracking the CIMB Evergreen Index I so I wonder why CIMB had to use a separate index specially just for this.

Are these backtested numbers or actual historical performance?

Another feature of this product is a performance lock-in feature built in which guarantees the returns based on the highest market price achieved during the product lifespan if held to maturity. While this is a nice feature to have, note that it does not come free as CIMB will have to find some way to guarantee this return.

I’m not too sure how they do it but one way it can be done is to allocation a higher proportion of the assets to fixed income as a higher price is achieved. This might cap reduce future upside of the index.

One fund that has a similar lock-in benefit that was launched in the past was the AXA Secure Ascent 2020. Unfortunately, it was launched at a very bad time in April 2008 before the market collapsed. The fund was designed to be a 12-year investment giving moderate exposure to equities but because of the market collapse, it now has an allocation of almost 90% to fixed income with the remaining 10% in leveraged equities.

The high fixed income allocation is necessary is in order to give the guaranteed maturity return of 1.00455 based on the lock-in price (current price is about 0.96287). I think investors in the Secure Ascent 2020 fund might see limited upside potential from now till the fund matures in 2020.

Overall, the CIMB Max InvestSave structured deposit is a product that I will not invest in.

You also need to mind in mind the worst case scenario which is if CIMB goes bust as a structured deposit does not fall under the protection of the Singapore Deposit Insurance Scheme.

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10 comments
maureen says 9 years ago

In my opinion there are several things about this product that are bad:
1 – The underlying Index appears to only have a simulated track record and therefore has never been tested in the “real world”. The similar product that CIMB launched in Malaysia in 2008 is now only worth as little as 80% of cost price.
2 – The fees on the product are high – the 2% Index fee (which CIMB claim is to “defray costs”) and the 5% performance fee is more akin to a hedge fund type product rather than a structured deposit.
3 – If the Evergreen II Index does badly then CIMB will take money out of the Index and into a risk-free asset (ie a regular deposit account). That means there is a risk that the investor ends up holding a deposit that gives zero exposure to the Index and 100% exposure to a low-yielding deposit account. This often happens with these kinds of products, and leaves the investor with a product which is very different to what he thought he was getting. In my opinion this risk should be disclosed in the marketing material.
4 – CIMB claim to give the investor “free money” by increasing the account size by 25%. However in the event that investors choose to withraw their money before the product matures (in 25 years) then CIMB will take back the 25% but leave the investor with any profit or loss from that extra 25%. What does that mean? That means the investor is being given a leveraged position in the product – if it works then you make more, if it loses then you lose even more. If the product does badly (like the CIMB Malaysia product has done) then investors will end up with even bigger losses than they thought, if they want to get their money back. This is meant to be a safe, capital-guaranteed type product, why are CIMB leveraging the product?
5 – The Evergreen II Index is denominated in Euros. That means that if the Euro declines in value versus the Singapore Dollar (as it has been doing all year) then the invesor loses. Why does an investor want this extra risk? It makes no sense for a Singaporean investor to take this risk.
All in all this seems to me to be a badly thought-out product whose advertising fails to disclose important features and risks of the underling index and product.

Reply
    lioninvestor says 9 years ago

    Hi Maureen,

    Some of the points you raised are exactly what another person told me. Unfortunately, most people in the street will not know this.

    Reply
T.T says 9 years ago

Hi,

I just want to warn investors on this product.

Do note that this product was introduced in Malaysia in 2008 with a few tenors (15,20,25,30 years if I am not wrong) If you track the performance of the Evergreen II index, it is a really good performance from 2008 till now. However, I cannot say the same for the unit share price. It was introduced in Malaysia at $1. As of June 2010, the unit share price is priced at less then $0.90. It goes even lower for those who bought a longer tenor product.

As such, although the underlying index performance is fantastic, I cannot say the same for the unit share price. I have asked about the ratio of returns of the underlying index to the unit share price and was told that it is close to 1-1. However, I am skeptical now.

http://forum.lowyat.net/topic/805771

Price chart in MY: http://1-million-dollar-blog.com/cimb-max-investsave-interactive-riv-trending/

Reply
    lioninvestor says 9 years ago

    Hi TT,

    Thanks for your comments.

    Interesting to note that net of costs, the RIV has largely underperformed the index.

    Reply
    kamal says 9 years ago

    the reason that the product issued by CIMB in Malaysia has underperformed the Evergreen II index is that its performance is linked to a different index – the “Evergreen Index”. The original “Evergreen Index” has a very good “track record” until the product was actually launched in late 2008. However since then, the index has done poorly and lost 9% in 2009 (despite the fact that equity markets did very well during that period):
    http://www.cimbbank.com.my/index.php?ch=ci_per_st&pg=ci_per_st_inv&ac=4&bb=4243&tpt=cimb_bank
    Why did the Evergreen index do so well prior to October 2008 and then so badly? It would appear that prior to October 2008 the “track record” of the Evergreen Index is a SIMULATED track record. ie the strategy of the index has been selected, based on back-testing, in order to create an impressive track record. Of course once the product is actually launched the real ability of the Index is shown and unfortunately that hasnt been good – its easy to create an investment strategy that works after the event but not so easy before!
    But this doesnt seem to worry CIMB bank as now they have come up with a new Evergreen Index – the Evergreen II index – for use on their new product here in Singapore. And guess what? The Evergreen II index “performed” just fine in 2009!:
    http://www.cimbbank.com.sg/index.php?ch=sg_per_wm&pg=sg_per_wm_sd&ac=37&bb=709&tpt=cimb_bank

    Reply
      lioninvestor says 9 years ago

      Hi Kamal,

      I am surprised MAS actually allows CIMB to sell a blackbox kind of product in the form of the Evergreen index to the retail investor. We do not know the components of the index. Have we not learnt the lesson of Minibond?

      Furthermore, it is nowhere mentioned (or buried very deep inside) that the returns are simulated. A backtested return is good for marketing, but useless for all other purposes.

      Reply
Roger says 9 years ago

There is no free lunch. Isn’t this like if someone comes to you and say, lend me 100K for 25 years. If I can pay you more then I will pay you more. If you want back the money before the time is up you will get less. You will get back a guaranteed amount at the end of the quarter century if I can pay you. If I cannot pay you then I am bankrupt or if I am bankrupt then I cannot pay you.

Reply
    lioninvestor says 9 years ago

    Indeed there is no free lunch!

    Reply
tattooedbanker says 9 years ago

I’m always skeptical about these ‘capital protected’ products, esp one as long term as this. Just buy straight into the CIMB Evergreen II Index, allocate part of your portfolio to a zero coupon bond, and presto, you have your own ‘capital protected’ product with no lock in!

Reply
    lioninvestor says 9 years ago

    Hi Tatooedbanker,

    Can’t buy into the index directly as it’s a specially created CIMB index to be used inside this structured note.

    But you are definitely right about zero coupon bond portion. The capital protected is usually there for marketing purposes. Makes it easier to sell the product.

    Reply
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