Matthew Simpson, CFA, Managing Partner at Wealthspring Capital, joined Keith Black, Managing Director of RIA Channel, to discuss the benefits of holding portfolios of structured notes in separately managed accounts (SMAs).
Wealthspring Capital is an investment adviser specializing in offering SMAs to independent RIAs and family offices seeking principal-protected products and fixed-income arbitrage strategies.
Structured products allow investors to reduce the drawdown of equity market investments. This can be important, as a 50% drawdown in the equity market requires stock prices to double for investors to break even. An investment that offers a 30% buffer during a 50% market decline experiences only a 20% drawdown, which requires a 25% increase to break even. The recovery time after a market decline is shortened when investments are designed to experience lower drawdowns.
Defined-outcome investments reduce the range of returns. For example, a defined-outcome investment may buffer the downside returns while limiting upside returns. Large banks offer this type of payoff profile in structured notes. Simpson notes that portfolios of structured notes can diversify credit risks across issuing banks and varying the start date and maturity date can reduce the risks of a single day’s price level having a strong influence on the portfolio’s return.
Pricing on structured notes is more favorable when interest rates are high, and the market is experiencing lower volatility levels, leading to lower options prices. In early July 2024, high interest rates allowed investors to purchase a package of options at low prices as measured by the VIX, a measure of implied volatility. Investors may wish to reduce the downside of equity market investing at a time when the market is near all-time highs.
Register For The Webcast: Understanding How Structured Notes Can Be Implemented in SMAs
High interest rates, low equity market volatility, and record-high stock prices create opportunities for structured product investors. Well-constructed structured note portfolios can provide risk/return benefits. Our experts will discuss how structured products are created, their benefits and risks, and how they may impact client portfolios.
Join us as we discuss:
- The benefits of reducing drawdowns in an equity investment portfolio
- The mechanics of structured note investments
- The factors contributing to today’s pricing on structured notes
Accepted for 1 CFP® / IWI / CFA CE Credit
Resources:
For Financial Advisers only. Information presented will be for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any specific securities, investments, or investment strategies. All investments bear a risk of loss and there is no guarantee that any investments presented or any investment we recommend in the future will make a profit.
Vision 4 Fund Distributors, LLC (“V4FD”), a member of FINRA, has been contracted by Wealthspring Capital, LLC (“WSC”) to act as a solicitor for WSC’s Structured Note separately managed account products. V4FD’s registered representatives may also be employed by RIA Channel, LLC.” Material presented is for educational purposes only and is not investment advice. Third party presenters or speakers may represent an assessment of the market environment at a specific point in time. None of the presented information is intended to be a forecast of future events or a guarantee of future results. Investment objectives, client objectives, risks, fees and expenses should all be considered before considering any investment or Fund for any client. Investing involves risk and loss of principal is possible. Past performance does not guarantee future results. This is not a solicitation.