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Since the outbreak of COVID-19 and the subsequent collapse of global financial markets, deVere Investment has experienced exceptionally high demand for Structured Notes.
Around the world, people have been understandably spooked as equity markets have tumbled. Three of the world’s most developed markets, the S&P 500, FTSE 100 and DAX are down 32%, 37% and 43% respectively since the crisis began.
Many people who have been introduced to structured notes see the current market conditions as an excellent opportunity.
If the concept of a structured note is something you’ve not come across before, this blog will bring you up to speed with how they operate and how you can acquire one.
A structured note is a debt instrument with pre-defined market-dependent returns. Essentially they operate like an IOU from a bank.
Structured notes commonly track 3 or 4 stock market indices from developed economies like the US (S&P 500) or the UK (FTSE 100).
Depending on preference, there are different types of notes available to suit varying risk appetites. Structured products are designed for adventurous clients seeking high yields in the region of 6-10%+ per annum.
Structured notes generally run for a 6-year term, however, many notes mature before the end of their term, returning clients their initial capital plus all coupons generated.
At the start of a structured note’s 6-year term – the value of the underlying indices is taken as shown in the diagram. Each quarter, the indices are compared to the original value. Assuming all four markets are above 80% of their original value the quarterly coupon of 1.75% is paid into the client’s cash account.
If a coupon is missed – it will be paid on the next observation if all four markets go back above 80%. This continues each quarter for 6 years – providing clients with a potential return of 42% + their capital. The full capital return requires all indices to finish above 70% of their original value.
In this example, the note has already paid clients 15.75%. Coupon #10 may not payout as the green, blue and red indices are below 80%. On the next observation date – when all indices are above 80% – all the missed coupons will be paid. This note has 15 more observation dates.
History tells us the best time to purchase a structured note is when markets are low as the likelihood of receiving future coupons increases. Looking back at every previous equity market crash, we see a subsequent recovery.
The diagram below shows the MSCI World Price Index over the past 30 years. We have circled the most opportune purchasing moments during that period.
The green arrow shows where markets currently have fallen to. Now is an excellent time to speak with a financial advisor about structured notes. As history shows us, these opportunities do not come around often.
deVere Investment work in collaboration with a collection of the world’s largest and most reputable banks to provide our clients with a range of exclusive structured notes.
deVere Investment’s structured notes are available exclusively to deVere clients. If you are already a client and would like to learn more, please contact your advisor. If you are not a client, please follow this link to be put in contact with a structured notes specialist.