Structured Notes

Potential Growth, Protection And Planning In One Investment

For conservative investors, managing the risk/reward trade-off usually means investing in bonds, GICs or other fixed income products. While these types of investments provide security, they often offer limited flexibility and, over the long term, tend to underperform growth-oriented investments, such as equities. A preferable alternative for investors seeking to achieve more balanced risk/reward profiles in their portfolios, without sacrificing principal protection is structured notes.

A structured note is a type of bond in which an issuer borrows money from investors with the promise to repay all of the principal at maturity. The typical term for a structured note is five to seven years, with the interest payment usually made once at maturity. Additionally, this interest payment is based on an underlying asset's performance over the term of the note and is variable. If the underlying asset's performance is negative it is possible that no variable interest payment will be made.

Take Advantage Of The Opportunity For Growth

Although their basic structure is essentially the same, structured notes vary by their underlying asset – they may be linked to a group of mutual funds, hedge funds, an equity index or group of indices, or a basket of selected stocks – and pay interest based on an increase in the underlying asset. In some cases, the interest payment may exceed the return that could be achieved from direct investment in the underlying asset. In others, an underperforming asset may produce no return at maturity, despite the potential for a positive return if the investor had invested directly in the equity-linked portion of the investment.

Incorporating Structured Notes Into Your Plan

Structured notes offer investors many potential benefits. They provide principal protection at maturity – a vital investor concern in declining markets – and still offer investors the opportunity to participate in the growth potential of rising equity markets. Consider the benefits offered by structured notes:

  • Complement both higher risk direct equity investment and cash portfolios
  • Allow investors to add equity exposure with no risk to principal
  • Provide investors with access to investments in markets they would not normally be able to obtain

Access Our Expertise

If your financial plan requires growth to meet your goals and objectives, but your investment profile tends towards risk reduction, structured notes may be an attractive alternative to both direct equity investing and traditional fixed income products. To help you determine whether structured notes fit into your financial plan, contact your CIBC Wood Gundy Investment Advisor. To find out how we can help you, use our Find An AdvisorOpens a new window in your browser. tool to contact a CIBC Wood Gundy Investment Advisor near you.