Yieldstreet’s Structured Notes help investors navigate choppy markets

Key Takeaways:

  • An increase in inflation, rising rates and geopolitical risk triggered volatility in public markets. 

  • Structured notes, which often have eligibility requirements, are a hybrid of fixed income and equity securities, can help provide investors with attractive cash flow, while adding a layer of downside protection. 

  • Yieldstreet’s structured note offerings include both income and growth notes, with a focus on “defensive” sectors and large caps that are less likely to fluctuate than the broader market. 

For the past few months, soaring inflation, tighter monetary policy, and unprecedented geopolitical risk triggered an increase in volatility in the equity and fixed income markets. Meanwhile, rapidly increasing rates are also causing a slowdown in economic growth, and may eventually spur a recession. 

Amidst a challenging environment for public markets, alternative assets can be a potentially attractive opportunity for investors to increase portfolio diversification and potentially make positive returns. 

Among other private market products, Yieldstreet is offering structured notes, an opportunity for investors to potentially earn more stable, positive returns while equity markets struggle to find a direction. 

Structured notes are a hybrid vehicle, with returns tied to an underlying asset’s performance. They can be pegged to single stock performance, index performance, commodity, or to an underlying asset. The return is contingent on the stock price staying above the strike price, and can be a fixed yield (income notes) or upside (growth notes), the investor receives. For more details on structured notes’ payoff structure, please refer to the document.

Historical Performance of Structured Notes on Yieldstreet

We started offering structured notes on our platform in April 2021. Since then, we have provided maturities ranging from 9 months to 24 months, with both income and growth strategies, in different sectors and across different themes – “diversified,” ESG, and financials, to name a few.

Going forward, against the current market backdrop, our goal is to select opportunities that can allow our investors to weather different market conditions. 

Our latest offerings

In June, for the first time on our platform we launched “Growth Notes,” which allow investors to potentially capture equity upside as the market potentially recovers from the downturn over the coming year, while also helping to protect principal up to a 30% drop in the stock price. Additional growth notes offerings may be launched going forward. 

Better potential downside protection

Current market conditions can be challenging, but they can also offer a conducive environment for structured notes. Equity is down 8.4% year-to-date, so strike prices are currently low for any new structured note. On top of that, amidst elevated volatility, we are now able to negotiate a higher protection threshold for the same coupons compared to six months ago. We have already increased the minimum barriers to 30% for all structured notes, and our goal is to continue to increase them. 

Defensive characteristics

Although predicting which stocks are going to be “downturn-proof” is a fool’s errand, we are keeping tabs on specific sectors and companies that we believe will remain resilient despite the economic uncertainty, namely: 

  • Defensive industries: We are focussed on industries and sectors that have defensive characteristics, such as consumer staples (Walmart, Target, Tyson Foods, etc), healthcare (CVS, Walgreens, etc)
  • Large Caps: We are only selecting companies with more than $30 billion in market cap, as they tend to be less volatile on a relative basis.
  • Pricing Power: We are selecting companies with the ability to pass on rising costs to their customers in this inflationary environment, such as Amazon, Alphabet, Starbucks, etc. 

Learn more about the ways Yieldstreet can help diversify and grow your portfolio

Published:

08/01/2022

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