Are you Feeling Anxious about the Stock Market? Stay Invested and Protect.
Nov 24, 2023
Patrick McNamara
Are you Feeling Anxious about the Stock Market?
Learn how we helped investors fully participate in the upside of the S&P500 up to 24% over two years. Profit during S&P500 declines up to 20%. Receive a 20% buffer against declines beyond 20%.
The U.S stock market is off to its worst start to a year since 1970 with the S&P500 down 21% through the second quarter. Yet, rising interest rates, high inflation, the war in Ukraine, and fear of recession remain as headwinds against future returns.
If this market approaches the average bear market returns since 1929 of negative 37%, investors must be prepared for further declines. The good news is there are options to mitigate losses while still being invested in the S&P500 Index. Here is an example of an investment strategy that we added to client portfolios to protect from further losses. This strategy is a credit instrument called a Dual Directional Structured Note.
What is a Structured Note?
Structured notes are debt securities (bonds) offered by banks and financial institutions. They are an effective tool to enhance portfolio metrics through risk management, yield/return enhancement or both. Structured notes offer higher yields/returns by using options strategies and introducing equity exposure, not additional credit risk.
Who Should Consider a Dual Directional Structured Note
Investors who want to maintain stock market exposure in their portfolios while providing a high degree of principal protection in the event of a market decline over the next two years.
How can this investment help investors profit during market gains?
Investors who bought and are willing to hold this investment until its two year maturity date will participate fully in S&P500 Index positive price returns up to a maximum return of 24%.
Fox example, if the S&P 500 is up 26%, investors will be up 24%. If the S&P500 is up 15%, investors are up 15%, etc.
How can this investment provide protection from market declines?
Investors who bought and are willing to hold this investment until it’s 2 year maturity date will receive the following benefits:
Absolute Positive Returns up to 20% during S&P 500 declines
If the S&P 500 declines 10%, investors will earn a positive 10% return. Down -15%, investors earn 15%. All the way to -20%, where investors would earn a positive 20% return.
“Buffered” Protection from market declines beyond 20%
If the S&P 500 declines 25%, investors will only be down 5% a maturity. If the S&P 500 declines 35%, investors will be down 15%, etc.
Possible Risks and Downside of Dual Directional Structured Notes
Cap on Investment Return: An investors return is capped at 24% over 2 years.
No Dividends: Investors do not receive the dividend yield of S&P 500.
Credit Risk: Structured notes are unsecured obligations of the issuer and therefore are subject to the risk of default.
Liquidity Risk: Sales of the notes after purchase are subject to current market pricing. This risk is eliminated by holding on to the two year maturity date.
Additional risks and disclaimers can be viewed here.
Can I still buy this Specific Investment?
This investment was issued and priced by BNP Paribas on July 22nd, 2022. While this security is no longer available for purchase to new investors, Claro Advisors can work with you to purchase a similar security customized to your specific goals.
Why haven’t I heard about these strategies before?
Investing in structured notes was previously reserved for institutions and very wealthy individuals. With improved distribution through leading fintech platforms, many Registered Investment Advisors can access these instruments with low minimums and improved transparency. At Claro Advisors, we are trying to improve investor awareness and have recently launched www.structurednotes.com to help educate investors. See our Press Release here.
Want More Information? Watch our Case Studio Video or Schedule a Call with an Expert
Phone: 617-769-2226
Email: structurednotes@claroadvisors.com
Patrick McNamara
CFP®, Financial Advisor at Claro Advisors
About the Author
Patrick McNamara, CFP® is a Financial Advisor at Claro Advisors
with nearly 30 years of experiencein the financial services industry.
He has held senior roles at Fidelity Investments, Goldman Sachs, and
Morgan Stanley. He founded StructuredNotes.com to educate investors
on institutional-style investment strategies and structured notes.
Disclosure: Claro Advisors Inc. (“Claro”) is a Registered Investment Advisor with the U.S. Securities and Exchange Commision (“SEC”) based in the Commonwealth of Massachusetts. Registration of an Investment Advisor does not imply a specific level of skill or training. Information contained herein is for educational purposes only and is not considered to be investment advice. Claro provides individualized advice only after obtaining all necessary background information from a client.
The investment products discussed herein are considered complex investment products. Such products contain unique features, risks, terms, conditions, fees, charges, and expenses specific to each product. The overall performance of the product is dependent on the performance of an underlying or linked derivative financial instrument, formula, or strategy. Return of principal is not guaranteed and is subject to the credit risk of the issuer. Investments in complex products are subject to the risks of the underlying reference asset classes to which the product may be linked, which include, but are not limited to, market risk, liquidity risk, call risk, income risk, reinvestment risk, as well as other risks associated with foreign, developing, or emerging markets, such as currency, political, and economic risks. Depending upon the particular complex product, participation in any underlying asset (“underlier”) is subject to certain caps and restrictions. Any investment product with leverage associated may work for or against the investor. Market-Linked Products are subject to the credit risk of the issuer. Investors who sell complex products or Market-Linked Products prior to maturity are subject to the risk of loss of principal, as there may not be an active secondary market. You should not purchase a complex investment product until you have read the specific offering documentation and understand the specific investment terms, features, risks, fees, charges, and expenses of such investment.
The information contained herein does not constitute an offer to sell or a solicitation of an offer to buy securities. Investment products described herein may not be offered for sale in any state or jurisdiction in which such offer, solicitation, or sale would be unlawful or prohibited by the specific offering documentation.
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For all Market-Linked Products, excluding Market-Linked CDs, the following applies: Not FDIC insured // Not bank guaranteed // May lose value // Not a bank deposit // Not insured by any government agency