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.