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.
Structured investment products and services may be offered through SIMON Markets LLC (“SIMON”). SIMON is a registered broker/dealer, member FINRA and SIPC, and is affiliated with iCapital, Inc. and its subsidiaries. Please see the disclaimer at the end of this document for more information about these entities.
Please contact your financial professional or a fund manager to learn more.
IMPORTANT INFORMATION — DISCLAIMER
STRUCTURED INVESTMENTS ARE CONSIDERED COMPLEX PRODUCTS AND MAY NOT BE SUITABLE FOR ALL INVESTORS.
This material is intended as general background information, for educational purposes only, and this material should not be used as a primary basis to make an investment decision. The material provides a general overview of the products described, and actual financial instruments may differ materially from those described. No person should consider investing in an instrument on the basis of these materials. Any investment decision should be made only after carefully reviewing the applicable prospectus. Please remember that all instruments described in this material involve a risk of loss. This does not constitute legal, accounting or tax advice, and the recipient should consult with his or her legal, accounting or tax adviser regarding the instruments described in this material.
This material is for informational purposes only and is not to be construed as a recommendation or an offer or solicitation to buy or sell any security, financial product or instrument, or otherwise to participate in any particular trading strategy. In providing information on hypothetical, generic structured investments, neither SIMON Markets LLC nor Axio Financial LLC is recommending a specific security, or recommending investing a certain percentage of a portfolio to one structured investment. 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.
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. SIMON Markets LLC operates a platform that makes available offerings of structured investments and annuities to financial professionals. In operating this technology platform, SIMON Markets LLC earns revenue based on the volume of transactions that take place in these products and would benefit by an increase in sales for these products. Issuers of structured investments pay Axio Financial LLC fees based on the size of transactions.
This material may not, without the prior written consent of SIMON Markets LLC or Axio Financial LLC, be (i) copied, photocopied, or duplicated in any form, by any means, or (ii) distributed to any person that is not an employee, officer, director, or authorized agent of the recipient. Neither SIMON Markets nor Axio Financial shall have any liability, contingent or otherwise, to the user or to third parties, for the quality, accuracy, timeliness, continued availability, or completeness or to update any data contained in this material nor for any special, indirect, incidental or consequential damages which may be incurred or experienced because of the use of the data made available herein, even if SIMON Markets or Axio Financial has been advised of the possibility of such damages. This material was not prepared with a view to public disclosure or to conform with any disclosure standards under any state, federal or international securities laws or other laws, rules or regulations, and neither SIMON Markets LLC nor Axio Financial LLC take any responsibility for the use of the information in this material.
Structured investment products and services may be offered through SIMON Markets LLC and/or Axio Financial LLC, each a registered broker/dealer, member FINRA and SIPC, and subsidiary of iCapital, Inc. (“iCapital). iCapital affiliates include Institutional Capital Network, Inc., iCapital Securities, LLC, and iCapital Advisors, LLC. iCapital Securities, LLC, a registered broker/dealer, member FINRA and SIPC, offers alternative investment products and services. iCapital Advisors, LLC is an investment adviser registered with the SEC. The referenced registrations and memberships in no way imply that the SEC, FINRA or SIPC have endorsed the entities, products or services discussed herein. iCapital and iCapital Network are registered trademarks of Institutional Capital Network, Inc. Additional information is available upon request.
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© 2023 Institutional Capital Network, Inc. All Rights Reserved.
