• LOGIN

For Brokerage Account Access, please click here.

• HOME
• ABOUT US
• RESOURCES
• PRODUCTS
• ADVISOR SERVICES
• DEALER SERVICES
• INSTITUTIONAL SERVICES
• ORIGINATION SERVICES
• CONTACT US

• CERTIFICATES OF DEPOSIT
• INVESTMENT GRADE CORPORATES
• HIGH-YIELD CORPORATES
• GOVERNMENT AGENCIES
• U.S. TREASURIES
• MUNICIPAL BONDS
• MORTGAGE-BACKED SECURITIES
• ASSET-BACKED SECURITIES
• STRUCTURED PRODUCTS
• FOREIGN/SOVEREIGN DEBT

FOUR TYPES

 

 

Four Types of Structured Notes

While there are numerous types of structured products that can be created to fit an investor's specific needs, here are four of the more common types of Structured Notes. Together, they have been designed to cover a full range of investor risk-return profiles.

1. The Basic Principal Protected Notes
As the name implies, these notes offer 100% principal protection. Performance can either be derived from the performance of a selected index or multiple underlying indices (U.S., foreign or both).  The underlying assets also could be commodities, currency, or single stocks.  These notes are for "buy and hold" investors and have terms ranging from two to seven years. 

Principal Protected Notes offer a conservative investor the ability to participate in  the upside potential of the underlying asset without the risk of losing any principal. The principal protection is guaranteed by the issuer.

The Participation Rate for Principal Protected Notes, while usually between 75% and 100%, can be more or less, depending on the structure.

Principal Protected Notes can be created to suit the needs of investors, regardless of their expectations for market performance - bull, bear or in-between.

The Market Linked CD (MLCD), an alternative means for creating a principal protected structured product: As noted previously, a Structured Note is comprised of two components - a principal protection component and an option.  While most issuers use the investor proceeds to purchase of zero-coupon bond to provide principal protection, an alternative to this is for the issuer to purchase, instead of a security, an FDIC-insured zero-coupon certificate of deposit (CD).  The investor's principal is thus protected (insured), for current FDIC Insurance information please visit www.FDIC.gov.

Principal Protected Notes and/or Market Linked CD's offer conservative investors the ability to participate in the upside potential of the underlying asset without the risk of losing any principal.  The principal protection is guaranteed by the issuer.

 

2. Booster-Plus Notes
Booster-Plus Notes are Principal Protected Notes that may be appropriate for investors caught in very uncertain markets.  The Booster-Plus Note works well in a bull market, and may also perform well in a flat to bearish market.

Booster-Plus Notes typically offer an above average return up to a certain barrier on the upside, while also providing a limited return based upon the downside performance.  

If performance is between 0 - 25%
At the onset of the investment, the investor receives, in effect, a credit (in this case 25%).  This "Booster" will be earned if the performance level of the underlying investment (indicated here as "index") at maturity (typically 5 - 7 years) is anywhere from 0 - 25%.  If the performance exceeds 25%, then the investor receives the 25% Booster plus an amount equal to any percentage above 25%.  If the index rose from 1500 to 2250 (50%), the investor receives the full 50% in interest.

In this example, if the performance were as high as 25% (index at 1875)or even as low as 1%, the investor would receive the full 25% total return at maturity (in addition to the initial investment).

3.  Absolute Return Principal Protected Structured Notes
With Abolute Return Principal Protected Structured Notes, the investor may gain a return whether the price goes up or down (within certain parameters, as explained below).

These are short-term notes (usually 1 - 2 years).  They are built with a combination of put and call options and thus may perform well in very uncertain markets.  They may be a good investment for someone with an interest in a particular market who is not willing to risk any of his or her principal.

As long as the dollar value of the underlying investment does not exceed or dip below predetermined barrier levels (for example plus-or-minus 15% on the underlying asset of the index), the investor receives a return equal to the dollar value movement, whether it is up or down.

Essentially, the investor has a view that the price evel of the underlying asset will remain relatively flat during the short term of the investment, but that there will be some movement in either direction.  The greater the movement, the greater the return, so long as either barrier is never breached.  Yet unlike other ways to gain exposure to a particular market, this is one where there is no downside risk, regardless of the performance of the underlying asset, 100% of principal will always be returned at maturity.

If the market price of the underlying asset ever rises above the upper barrier level by the determination date, all of the investor's principal is returned in cash bu no interest is paid; if the market price of the underlying asset ever drops below the lower barrier level, all of the investor's principal is returned in cash but no interest is paid.

4. Buffered Notes
Unlike Principal Protected Notes, Buffered Notes offer a limited amount of downside protection. For example, a Buffered Note may protect the investor for the first 25% of erosion of the underlying asset and any decline in value beyond that is not protected (see chart below).

A Buffered Note typically offers increased upside potential versus the more traditional Principal Protected Note as determined by the closing prices of the associated index, commodity, currency or basket of stocks.  The Participation Rate for a Buffered Note is typically between 100% - 150% on the upside and one-for-one exposure after the first 25% decline on the downside (in the example illustrated in the chart).

Buffered Notes are appropriate for those with slightly bullish expectations.