Evaluating Structured Notes: A Guide for Savvy Investors

Gill Kabe, Head of Investor Relations

In the dynamic world of investment, Structured Notes have emerged as a compelling option for investors seeking to diversify their portfolios and potentially enhance returns. However, navigating the complexities of structured notes, particularly those incorporating individual stocks, requires a considered approach. For the discerning investor evaluating these types of notes, understanding key factors is paramount. From stock selection criteria to risk management strategies, we delve into the critical aspects that investors should consider.

Stock Selection Criteria:

Before diving into a Structured Note, investors must grasp the criteria guiding the selection of individual stocks within its reference basket. Fundamental and quantitative factors play a pivotal role in this process. Analyzing the historical performance and the methodology behind stock selection provides invaluable insights into potential returns and risk mitigation strategies. Every stock in a Cashbox Global Structured Note undergoes this rigorous process of interrogation and is summarized in the Rationale document which we make available on our website.  In addition, we host online information sessions where we share this insight and answer any questions. 

Diversification:

A cornerstone of prudent investing; diversification within the basket, is essential. Assessing the level of diversification helps gauge the note’s resilience against individual stock risk. Moreover, understanding how the note’s structure manages concentration risk provides clarity on overall portfolio performance dynamics. Investors can further improve their diversification by building a portfolio of notes.  With a portfolio of notes you diversify across issuers, sectors and reference stocks, as well as various protection features.

Risk and Volatility:

Understanding the historical volatility of individual stocks is crucial for risk management. Unlike direct equity investing, Cashbox Global Structured Notes do not require the reference stocks to grow beyond their start price to trigger the coupon payments*. They are designed with safety features where even if the reference basket drops by up to 50% investors still receive their returns and capital back at maturity*.  

Investors must scrutinize how the note’s structure addresses and manages volatility. All protection features are detailed in the investment contract, underwritten by the issuing bank.  Cashbox Global Structured Notes are specifically designed to mitigate as much potential risk as possible.  

Comparing the risk profile and added risk mitigating protection features with that of the typical index-tracking note aids in determining the balance between potential benefits and risks.

The issuing bank is also a major consideration when it comes to risk assessment as the contract is underwritten by the issuing bank.  This is the reason that Cashbox Global only uses A-Rated Global investment banks as issuers. 

*Each Structured Note has its own T&Cs regarding trigger levels and protection features and are detailed in every investment contract.

Corporate Events:

Corporate events such as mergers or bankruptcies may significantly impact note performance. Evaluating how these events are handled within the note’s structure is imperative. Additionally, assessing the note’s sensitivity to individual stock-related events offers insights into risk exposure.  This is where our deep research and consideration in relation to the sector, size of company balance sheets and management are interrogated.

Liquidity:

Liquidity considerations play a pivotal role in trade execution and marketability. Examining the liquidity of individual stocks within the basket provides clarity on potential challenges. 

Costs and Fees:

Understanding the costs associated is essential. Comparing fees and expenses with index-tracking notes aids in cost-benefit analysis. With Cashbox Global notes, we bridge the gap between institutional and retail investing.  Because you deal directly via your custodial platform, there are no middlemen and additional fees.  The rate of return quoted, is the rate of return you receive.  

Custodial Platform:

To access structured note investments, a custodial platform (trading platform) is required. The platform holds custody of your Structured Notes and offers additional services, including other direct equity investing and reporting.  Custody platforms charge service fees and investors are encouraged to interrogate these fees. 

The custodial platform fee sits outside of the Structured Note and Cashbox Global is platform agnostic. 

Market Conditions:

Naturally market conditions and economic factors can influence note performance. Evaluating the note’s responsiveness to market fluctuations aids in risk assessment. Understanding its sensitivity to changes in individual stock prices is essential for informed decision-making. Cashbox Global notes include features to mitigate the risk of market volatility enabling them to deliver in most flat or declining markets. 

Transparency:

A Structured Note is a bank underwritten contract that is held on the issuing bank’s balance sheet. Transparency regarding the terms and conditions of the investment contract including the underlying reference stocks, triggers relating to income and growth returns, as well as the built-in capital protection is vital for investor confidence.  A comprehensive prospectus/fact sheet detailing all information relating to the investment is available for every Cashbox Global structured note.  

Tax Implications:

Understanding the tax implications of holding a Structured Note is essential and the tax management tools available, invaluable.  Thorough evaluation of tax implications and management ensures investors are well-prepared for tax obligations.

In Conclusion:

Structured Notes present an enticing opportunity for investors, and thorough due diligence is paramount. By meticulously analysing key factors such as stock selection criteria, diversification, risk management strategies, and tax implications, investors can make informed decisions aligning with their financial goals and risk tolerance. It’s imperative for investors to understand the terms, conduct due diligence, and carefully weigh the potential benefits and risks before diving into structured notes.

For more information on Cashbox Global Structured Notes, the Cashbox Global Investor Community, and how this alternative investment can bring stability and enhance your portfolio, contact gill@cashbox.global

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