EverBank MarketSafe Diversified Commodities CD
With prices of food (UN Food and Agriculture Organization’s global food price index reached 231 points in January, higher than the previous peak of 213.5 points reached in 2008), precious metals (gold price is around $1,400/ounce and sliver is at 31-year high), and oil (crude oil price is approaching the $100/barrel mark) all on the rise lately, it seems to make sense to have commodities in the investment portfolio, despite that the run of commodities actually started a few years ago.
If adding commodities to your portfolio is on your mind, you have plenty of options to choose from, including stocks, mutual funds, and exchange traded funds (ETFs). However, outside these conventional investment choices, there’s a new vehicle that lets you tap into the potential of earning a decent return from investing in commodities while guaranteeing the safety of your principal. It’s the new EverBank MarketSafe Diversified Commodities CD.
Yesterday, I got an email from EverBank, which also offers high-yield savings and checking accounts, with information about this new product. As you can see from the above chart, the CD consists of 10 common commodities: soybeans, crude oil, nickel, copper, platinum, gold, silver, corn, sugar, and lean hogs, each with a weight of 10% in the overall composition. According to EverBank, the way the Commodities CD, which has a 5-year term, works is that the initial value of the commodity basket is calculated on a predetermined date, then on each of the following five anniversary, the percentage change of the commodity basket is calculated again and the total return of the investment is the sum of all five annual percentage changes. Upon maturity, if a underlying commodity has a passive return, you will get your principal plus a market upside payment. If, on the other hand, a commodity has a loss during the five-year period, you will still get 100% of your investment principal back.
While the CD’s value is determined by the changes of the underlying commodities, not all the fluctuations will be captured. In fact, EverBank will cap the upside swing at 10% while keeping a floor at -20% on the downside. That doesn’t seem to be fair though because if EverBank really wants to protect investors, it should at least allow the swing into the positive territory the same magnitude as that it allows into the negative. Based on EverBank’s hypothetical calculation, the annual calculation of the percentage change in the past five years are: 4.9% (2006), 7.1% (2007), 7.0% (2008), 0.6% (2009), and 7.6% (2010), making the total return of the Commodities CD 27.2% over the 5-year period. As you can see, even though there was no negative return from 2005 to 2010, I would still like to see the same cap/floor implemented for both the upside and downside.
Here’s some basic information regarding the new Commodities CD:
- Minimum deposit: $1,500
- Monthly account fees: $0
- Market risk: No
- FDIC insured: Yes
- Term 5 years
- Deposited principal protection: 100%
- Available as an IRA: Yes
If you are interested in getting the Commodities CD, EverBank currently has a limited time window for you to get it. The funding deadline for new account is March 17, 2011.
In addition to the Commodities CD, EverBank also another product that also lets you benefit from raising commodity prices. It’s called WorldCurrency Global Power Shift Basket CD, which is currently made up by foreign currencies of four resource rich countries, Australian dollar (25%), Brazilian real (25%), Canadian dollar (25%), and Norwegian krone (25%). The CD has two terms, 3-month with an yield of 2.32% and 6-month 2.36%. Some basic information is in the following:
- Minimum deposit: $20,000
- 3- and 6-month terms
- Fee for rollover: $0
- Fixed interest rate: Yes
- Potential for currency appreciation: Yes
- FDIC insured for bank insolvency: Yes
- High yield cash management account: Yes
- Available as an IRA: Yes
Despite the above mentioned imbalance between positive and negative ceiling/flooring, I think from the surface that the Commodities CD does seem to be an better option for those who are interested in having commodities in their portfolio for diversification purpose. Plus, the account only requires $1,500 which is much more affordable than the Currency CD.
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