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.

If you look at the CIMB Evergreen II Factsheet, you can see that the historical returns is quite impressive. It managed to return 13.15% even in 2008 (probably via a number of short positions) when the market was down severely. However, the returns for 2009 was more muted at 2.36% (probably still held on to the shorts).

The Max InvestSave brochure gives some projections of the returns. 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.

You should take the higher projections with a pitch of salt 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.

There is also 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 allows you to gain exposure to higher risk assets with the potential of higher returns but without the downside risk as long as you hold it to maturity. As the product duration is fairly long, you need to make sure these are funds that you won’t be drawing on in the immediate future.

Of course, you will 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.

The Monetary Authority of Singapore (MAS) said it will lift the ban on the sale of structured notes for CIMB Securities, DMG & Partners Securities, Kim Eng Securities, OCBC Securities, UOB Kay Hian and Phillip Securities with immediate effect.

Previously, these institutions had been banned by MAS from selling structured notes for a year.

MAS Lifts Ban (MAS announcement)

MAS Lifts Notes Ban on Six Institutions (Today)

Six financial institutions can resume selling structured notes (CNA)

Hong Kong authorities have come to an agreement with DBS HK on the amount of compensation to customers who bought Lehman-Link notes structured by DBS. $651 million Hong Kong dollars or about S$115 million will be paid out to some clients who bought these products.

The 2160 low risk customers who accept the resolution scheme will receive their full investment back together with interest. The rest who have a higher risk profile will have their cases reviewed on a case by case basis.

In Singapore, some DBS customers were sold a product High Notes 5 that lost all its value when Lehman Brothers went under. According to a July 2009 MAS report, a total of $103.7 million worth of HN5 were sold to 1,083 retail clients between 30 March and 30 April 2007.

These investors were not so lucky as their Hong Kong counterparts when it comes to compensation. Even though all of them had their cases reviewed individually, the amount of compensation DBS paid out to them amounts to only S$7.8 million out of their original investment of S$84.1 million.

DBS HK unit agrees to pay HK$651m to clients who bought Lehman-linked notes (Channel News Asia)

In this second My Money seminar (held in Feb 2009), Frances Chan from The Association of Banks in Singapore (ABS) covered the difference between traditional and structured deposits.

Here’s a summary of her presentation.

There are three types of traditional deposits, namely: Transactional, Special Savings and Fixed/Time Deposits. The financial crisis in 2008 saw many of us asking the same question: How safe is my money?

For both traditional and structured deposits, you are exposed to the default risk of the bank.

For traditional deposits, your money is also protected by deposit insurance (up to $20,000 per individual) and fully covered by the Singapore Government Guarantee (till end of 2010). More information the deposit insurance scheme can be found on the Singapore Deposit Insurance Corporation website.

Structured deposits are issued by the bank and are not to be confused with traditional deposits. They offer protection of principal with potentially higher returns than traditional deposits but are not risk free. Your money is usually invested in 2 components – Bonds or money market instruments and also linked to exposure of different underlying assets/markets in order to have a potential of additional upside.

If the underlying assets do not perform as expected, you may receive just your principal upon maturity which mean you would be worse off compared to just leaving the money in a traditional deposits.

Features of structured deposits include the following:

• Tenors: Structured deposits have maturity periods lasting from a year up to 10 years. When investing, the main consideration you should consider is the length of time you are able to set aside for investing and whether the issuer has the option to redeem the deposit early.
• Principal protection
• Offer period: They are offered in tranches which has either a fixed offer period or are available til the tranche is fully subscribed.
• Investment returns: It is important to note the maximum/minimum returns of the product, how returns are linked to the underlying asset/markets and the worse case scenario.
• Other features: Option for early withdrawal and the various costs involved.

Benefits of Structured deposits include the following:

• Diversify risks and enhance yields
• Offers potentially higher returns
• Exposure to assets/markets not easily accessible by retail investors
• Protection of principal

However, they are accompanied by various risks:

• Liquidity risks: Investing funds in structured deposits usually ties up your funds for a period of time. An early withdrawal may result in the loss of part of your returns and/or principal.
• Issuer risks: Are you comfortable with the credit standing of the bank offering these structured deposits?
• Market risks: Structured deposits are linked to underlying assets/markets, hence their performance are determined by the performance of these underlyings.
• Reinvestment risks: Where the issuer is allowed to exercise the early redemption option, you may be exposed to the risk of having to invest your money at a lower rate compared to when you first invested and the maximum returns received may also be capped.

Whether an individual chooses a structured or traditional deposit depends on his/her risk profile and preferences. Traditional as well as structured deposits both have their roles to play as key parts of a well-diversified portfolio.

The latest indicative price of Pinnacle 6 and 7 is 0.01% ($1 for every $10000) and investors in them are looking at a 99.99% capital loss very soon.

Someone asked me the lawsuit for the Pinnacle Notes and I thought it would be good to post this for everyone:

“I am one of the victims of Morgan Stanley scam. May I know where u read that Kirby Mcinerney is going to take up class action against MS? May I also know who is tkla.km@gmail.com? After being scammed once,can’t help being cautious. Thank you for posting the info.”

I have included a couple of videos below to explain how it works. Remember, Kirby Mcinerney only get paid if they win.

This is another contact person if you want to find out more about this:

Contact Person for Kigby Mcinerney Pinnacle Lawsuit

1) What does your firm do for Asian investors?
2) What rights to Asian investors have in a US court?
3) What results have Asian investors received/could receive in a US court?
4) Are these cases worth it financially given the time involved in reaching a resolution?
5) Do you expect more cases to be brought?
6) Is fraud on the rise? In what sectors? In what ways?
7) What kind of regulation will prevent the fraud that has been committed?