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Investment Case Study: Structured Income Notes Thumbnail

Investment Case Study: Structured Income Notes

Structured notes are a mystery to a lot of people. But they can be a great way to help support your portfolio construction. I did another post back in February on growth notes, but I wanted to share a recent structured income note that I used with clients. To give you an idea on background, all of the clients in this note were using it as part of their income producing part of their portfolio. For most people this would be a fixed income replacement. All structured notes trade as a fixed income investments and show as such on statements. All notes have a trade date, an underlier investment which it is based, a term(length of note), protection, and a payment amount. Let's dive in on this particular note.

This note traded on 11/30/22. It's underlier was NDX/RTY/SPX. It was 1 year note, that had a 6 month no call feature. This note had 30% barrier in protection. And then finally, a 15% payment, broken up monthly, so 1.25% per month.

These note's payments are based on the volatility in the underlying asset. In this note it's based on the indexes. But they can be based on any security. When this note was traded, markets were very volatile, hence the very high yield. This note also had a call feature. Which means after 6 months, this note could be called and in this case, did get called.

This note also a protection feature, a barrier of 30%. If you look at the graph below, you can see the note never got close to it's 30% barrier. Which means that if we made an investment of $1,000, when this note was called, we were above the 30% barrier, so receive our full investment of $1,000 back in full.

And in this case of this note we receive our 1.25% per month for a total of 7.5% for the life of the note. In case of the clients in this note, we took our gains and rolled into another note. And by using several of these types of investments, along side traditional fixed income, clients are able to give a boost to their income retirement.

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This content is developed from sources believed to be providing accurate information. It may not be used for the purpose of avoiding any federal tax penalties. Please consult legal or tax professionals for specific information regarding your individual situation. The opinions expressed and material provided are for general information, and should not be considered a solicitation for the purchase or sale of any security.