Our New and Improved Structured Notes Portfolios

August 3, 20213 min read
Our New and Improved Structured Notes Portfolios
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Yieldstreet was founded on the premise of narrowing the income and opportunity gap. Every day we work to expand the types of investment products available on Yieldstreet so all investors, not just the ultra wealthy, can edge closer to achieving their financial goals and freedom. 

Chances are you haven’t heard of structured notes before but they have been used by institutional and ultra high net worth investors for decades as a wealth creation tool. The global market for the product is approximately $3T and most major banks participate in their issuance. And now you can invest in them too.

Low Minimums

Traditionally, to invest in income structured notes you have needed over $250K to buy just one note. If you’re anything like us, you feel that allocating that amount of capital to just one investment is unachievable and unreasonable. Again just proving how wide the income and opportunity gap really is. Yieldstreet Income Notes Portfolios are designed to solve this problem and allow investors to gain access to the product at a fraction of the cost. 

Many notes, one investment request

On Yieldstreet, with one investment request you will gain exposure to at least three Income Notes, each tied to the performance of a different underlying stock. The ability to spread capital over a number of underlying notes helps reduce the concentration risk of the investment, and this product feature is offered at no extra cost. In contrast, if investors were to purchase structured notes directly from the issuer, not only would they need over $250K but the issuing bank would also reduce the coupon rate by 2-3% per annum on a diversified portfolio given the lower risk. 

Note selection criteria

Each structured note purchased for a portfolio will follow a transparent process that requires each underlying stock and note to meet certain criteria. The goal of this process is to ensure that the underlying stocks have fundamental and technical characteristics at the time of selection that are expected to minimize the likelihood of any significant price decline. In addition, each income note will be chosen to provide a certain minimum amount of downside protection and will be sourced from a select list of major banks.

Shortlisting stocks

  • Fundamental Characteristics: Member of S&P 500, market cap >$10B, positive net income for current year, Forward P/E ratio less than the sector’s average or PEG (price to earnings growth) <1, and a Bloomberg analyst median target share price +10%.
  • Technical Characteristics: Short interest <5%, moderate recent volatility, relative strength index <70

Selecting the notes

  • At least 25% downside protection, quarterly coupons, 2-year term, and coupon >5%
  • Historical breach of downside protection value <15%
  • Each stock will have at least a 90% confidence interval of not breaching the downside protection value

Post-screening parameters

  • Note issuer diversification
  • No more than 50% in any sub-industry group

Reduced reinvestment risk

In addition to high investment minimums, an income note’s ability to be called by its issuer at any point in time can make them very hard and time intensive to manage. If capital is being returned frequently, then another decision needs to be made to determine where to reinvest the capital next. The more time spent out of the market, the higher reinvestment risk. 

An investment in a Yieldstreet Income Notes Portfolio helps reduce your reinvestment risk at no cost to you. Typically, reinvestment features will reduce the overall yield of a structured note by 1-2%, however, we reduce the risk while maintaining the same yield profile. This means that your money is always working hard for you. Should an income note within a Yieldstreet portfolio get called within the first year, returned capital will be re-invested immediately into a new, similar note using our transparent note selection criteria. 

Themed portfolios

Income Notes Portfolios on Yieldstreet have been designed in a customized way so that the underlying notes of each portfolio are varied and linked to the performance of multiple investment thematics commonly featured in portfolios. Through Income Notes Portfolios on Yieldstreet, investors can gain exposure to the Technology and Financials sectors of the market, to name a few. The underlying notes that are included in each portfolio will be chosen using our transparent selection criteria so that investors understand why particular notes are selected.