What if you could gain market exposure, but limit your losses if the market goes down? Or make an investment with the potential to generate higher coupon payments?
Structured investments can be designed for almost any market outlook or financial objective and can be used to:
What is a Structured Investment?
It starts with an asset such as a:
That’s called the underlier. The structured investment is a package that links to the underlier and shapes its performance to meet specific investor needs. There are two most common types:
Market Linked CD
Carries FDIC Insurance
Market Linked Note
Carries Issuer Credit Risk
Depending on the type of structured investment, a level of principal protection can be selected that aligns with an investor’s goals and objectives.
Full Principal Protection
Partial Protection
Contingent Protection
No Protection
The power of structured investments is in the flexibility of their design, offering solutions across the risk-return spectrum.
Choosing an Investment
Investing in structured investments begins with a review of objectives.
Is the investor’s primary objective growth or income? What market exposure is sought?
Opportunity to grow assets, typically with a single payment at maturity and optional protection features
Opportunity to grow assets, typically with a single payment at maturity and optional protection features
With an objective in mind, an investment based on its four basic parameters:
Single payment at maturity or periodic coupons
100% principal protection or principal- at- risk in exchange for higher potential returns
Fixed term, typically 2–5 years, or callable, with the possibility of early redemption
Reference asset to which the investment returns are linked
Structured investments are buy-and-hold products and investors must be willing to hold their investment until maturity. Investors should always read and understand the offering document before investing—in it they will find clearly defined terms, fees, and risks, including issuer credit risk, any limits on upside participation, potential for loss, and limited liquidity.
How They Work
Let’s walk through two hypothetical examples:
INVESTOR A:
- Seeking the growth potential of equities
- Concerned about downside risk
- Willing to make a 5-year investment
OBJECTIVE:
INVESTOR B:
- Seeking periodic income with higher yields
- Comfortable with equity risk
- Willing to make a 2-year investment
OBJECTIVE:
The example above illustrates a market linked growth note with upside participation, which means that at maturity investors would participate in the gains in the underlier. It offers 1x upside participation, up to a max return of 75%. At maturity, investors would receive a return that is one-to-one with the gains of the SPX on a price return basis, but not to exceed 75%. In other words, investor gains will be limited to the 75% max return.
The note also has a hard buffer to protect principal against a downturn in the underlier. The hard buffer would absorb the first 20% of losses in the SPX and after that, losses would be 1% for every 1% that the SPX has declined below 80% of its initial level.
Benefits: Equity upside potential with partial protection
The example above illustrates a market linked income note with a fixed coupon, which means that the coupon payments would be made each period, regardless of the performance of the underlier. It would pay a quarterly fixed coupon of 6% p.a., no matter the performance of the SPX.
This note also has a barrier to protect principal against a downturn in the underlier. At maturity, the barrier would absorb the first 30% of losses in the SPX and after that, the protection would disappear, and losses would be one-to-one from the underlier’s initial level.
Benefits: Higher coupons than two- year bond alternatives, although subject to downside risk
Structured investments can help address specific portfolio needs for a more tailored portfolio approach and are:
Strategic: They can provide strategies to manage today’s investing challenges, such as ongoing market volatility.
Flexible: Some offer full or partial principal protection at maturity, while others offer greater upside, but come with greater risk.
Diverse: They can be a core portfolio component as an alternative or complement to equity or fixed income holdings, for example.
Advancements in innovative technology and analytical tools have increased education and transparency. This has provided a clearer understanding of how these investments can be used within a diversified portfolio and created a stronger structured investment market than ever before.
Securities products and services may be offered through iCapital Markets, LLC a registered broker/dealer, member FINRA and SIPC, and an affiliate of Institutional Capital Network, Inc. (“iCapital”). Please see the disclaimer at the end of this document for more information.
Please contact your financial professional or a fund manager to learn more.
IMPORTANT INFORMATION
The material herein has been provided to you for informational purposes only by Institutional Capital Network, Inc. (“iCapital Network”) or one of its affiliates (iCapital Network together with its affiliates, “iCapital”). This material is the property of iCapital and may not be shared without the written permission of iCapital. No part of this material may be reproduced in any form, or referred to in any other publication, without express written permission of iCapital.
This material is provided for informational purposes only and is not intended as, and may not be relied on in any manner as, legal, tax or investment advice, a recommendation, or as an offer or solicitation to buy or sell any security, financial product or instrument, or otherwise to participate in any particular trading strategy. This material does not intend to address the financial objectives, situation, or specific needs of any individual investor. You should consult y our personal accounting, tax and legal advisors to understand the implications of any investment specific to your personal financial situation.
STRUCTURED INVESTMENTS ARE CONSIDERED COMPLEX PRODUCTS AND MAY NOT BE SUITABLE FOR ALL INVESTORS. Please note that there is no public secondary market for structured investments. Although the issuer may from time to time make a market in certain structured investments, the issuer does not have any obligation to do so and market making may be discontinued at any time. Accordingly, an investor must be prepared to hold such investments until maturity. Any or all payments are subject to the creditworthiness of the issuer. Before investing in any product, an investor should review the prospectus or other offering documents, which contain important information, including the product’s investment objectives or goals, its strategies for achieving those goals, the principal risks of investing in the product, the product’s fees and expenses, and its past performance.
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