DEFINING STRUCTURED INVESTMENTS
Structured investments are financial instruments that enable investors to pursue a specific objective or express a market view. They combine a debt security, such as a bond or a certificate of deposit, with one or more derivative instruments linked to an underlier, or reference asset, such as an index, ETF, or stock. Structured investments are primarily used to manage risk or increase income or return potential in a portfolio.
CHOOSING AN INVESTMENT
The power of structured investments is in the flexibility of their design, offering solutions across the risk- return spectrum. With an objective in mind, an investment can be shaped to meet specific investor needs.
PAYMENT TYPE
Structured investments enable investors to participate in the potential growth of an underlying index or asset. Market-linked growth products typically offer a single payment at maturity, while market-linked income products offer potential periodic coupons.
PROTECTION
Structured investments may offer full protection of principal, or partial protection in exchange for higher potential returns.
TERM
Structured investments have investment terms starting at six months, but generally range from one to five years. Terms can be fixed or callable, with the possibility of early redemption.
UNDERLIER
Structured investment returns are linked to the performance of a reference asset, allowing investors to gain exposure to a specific index, sector, or asset class, while mitigating downside risk.
HYPOTHETICAL STRUCTURED INVESTMENT TRADE
Objective: An investor seeks the potential growth and diversification that may come with international equity exposure. She is optimistic about emerging markets specifically and comfortable with equity risk. However, she would appreciate some downside protection should those markets experience a slight to moderate decline.
Potential Solution: A four-year market-linked growth note with 20% barrier protection and 1.5x upside participation tied to the MSCI EM Index.
The visuals included are hypothetical examples. They do not reflect any specific structured investment and are solely intended to help illustrate how different payment and protection methods work.
BENEFITS
Structured investments allow investors to gain leveraged upside participation and/or yield enhancement potential, while maintaining a degree of downside principal protection.
With varying levels and types of downside protection, structured investments can be customized to an investor’s risk tolerance and mitigate risk in a portfolio.
Structured investments provide exposure to the returns of a sector, asset class, or strategy that may be difficult for investors to gain access to directly, or too volatile to include in the portfolio as a direct investment.
The power of structured investments is in the flexibility of their design, offering solutions across the risk-return spectrum. There’s one for almost any market outlook or investment objective.
KEY RISK CONSIDERATIONS
Key risk considerations may include, but are not limited to, the following:
Contingent Upside: Return and/or income payments are dependent on the performance of the underlier and not guaranteed, and may be either levered or limited depending on the terms of the structured investment.
Downside Exposure: Structured investments can offer full, partial, or no protection of principal. Depending on the terms of the structured investment, an investor may have downside exposure.
Fees: Fees and costs are usually embedded in the price of the structured investment. The price an investor may receive if sold before maturity may be negatively impacted by the embedded fees and costs.
Liquidity Risk: Structured investments are buy-and-hold investments, which means that investors must hold the note until maturity in order to receive the specified investment return and protection. While issuing firms or dealers may be willing to buy back a structured investment before maturity, they may do so at a discount to statement value and are under no legal obligation to provide liquidity.
Credit Risk: Similar to corporate bonds, structured investment holders are exposed to the credit risk of the issuer and must be comfortable with the issuer’s creditworthiness throughout the life of the trade.
Underlier Risk: Investors should understand the unique set of risks of the structured investment underlier.
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 wealth management platform 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 your 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.
iCapital Markets LLC operates a platform that makes available financial products to financial professionals. In operating this platform, iCapital Markets LLC generally 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.
The information contained herein is an opinion only, as of the date indicated, and should not be relied upon as the only important information available. Any prediction, projection or forecast on the economy, stock market, bond market or the economic trends of the markets is not necessarily indicative of the future or likely performance. The information contained herein is subject to change, incomplete, and may include information and/or data obtained from third party sources that iCapital believes, but does not guarantee, to be accurate. iCapital considers this third-party data reliable, but does not represent that it is accurate, complete and/or up to date, and it should not be relied on as such. iCapital makes no representation as to the accuracy or completeness of this material and accepts no liability for losses arising from the use of the material presented. No representation or warranty is made by iCapital as to the reasonableness or completeness of such forward-looking statements or to any other financial information contained herein.
Securities products and services are offered by iCapital Markets, an SEC- registered broker-dealer, member FINRA and SIPC, and an affiliate of iCapital, Inc. and Institutional Capital Network, Inc. These registrations and memberships in no way imply that the SEC, FINRA, or SIPC have endorsed any of the entities, products, or services discussed herein. Annuities and insurance services are provided by iCapital Annuities and Insurance Services LLC, an affiliate of iCapital, Inc. “iCapital” and “iCapital Network” are registered trademarks of Institutional Capital Network, Inc. Additional information is available upon request.
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