What is a structured note?
A structured note is a financial instrument created to provide exposure to one or more underlying assets. Whilst most structured finance products are aimed at large corporations and institutions, structured notes are designed for individual investors seeking to invest in asset classes not normally available to them.
Where have you heard about a structured note?
You’ll probably have heard about the wide variety of structured note products from your investment advisor. They may have marketed instruments linked to the performance of assets such as commodities, foreign currencies, baskets of stocks and foreign bonds, or a combination of all of these products and more.
What you need to know about a structured note.
As a private investor it’s crucial to understand the risks involved with a complex product such as a structured note. Some notes protect your principal investment as long as you hold the note to maturity. However, other notes do not protect your principal and you may lose your entire investment. There is also a credit risk involved – if the issuer becomes insolvent you will be regarded as an unsecured creditor. If you’re interested in gaining exposure to a particular asset, it’s worth asking your advisor about exchange-traded notes (ETNs) which often have better liquidity and less credit risk.