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Income Notes Energy Portfolio III

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Closed

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Accepting $15,000 - $500,000 investments

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Accepting $15,000 - $500,000 investments

Overview

What we like about the offering:

• Quarterly coupon payments, downside protection

• Improved risk/return profile relative to equities

• Transparent selection criteria

• Click here to download the education presentation

Invest in an energy-themed portfolio of structured notes, featuring underlying stocks Conoco Phillips (COP), Energy Transfer (ET) and Hess Corp (HES). The portfolio is expected to provide regular coupon payments and downside protection. Globally, the structured notes market is approximately $3T in size, with most major banks participating in their issuance. Until now, accessing structured notes has required investment minimums of approximately $250K per note. True to our mission, Yieldstreet makes it accessible at a fraction of this minimum.

Structured notes are hybrid securities that are issued as debt, but whose outcomes are tied to the performance of an underlying stock. Each individual structured note is expected to pay a quarterly coupon, while providing downside protection from stock declines.

Energy Portfolio III will initially invest in 3 individual structured notes each referencing a different underlying stock that meets the selection criteria, diversified by multiple sectors. Each structured note’s issuer is expected to be from a pool of major banks including Goldman Sachs, Morgan Stanley, JP Morgan, Citi, Bank of America, Barclays, Societe Generale, Credit Suisse, HSBC, Royal Bank of Canada (RBC), and TD Bank.

The portfolio will seek to mitigate some of the downside risks associated with owning a stock. The portfolio will seek to generate a target net yield to investors of 11-12%, but may be above or below the range given the performance of each structured note. The portfolio has a target initial maturity of 2 years with one 12-month extension option.

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Highlights

Investment period

Reducing volatility trend

Diversify risks from public market

If a note gets called within the first year, the proceeds may be reinvested into another structured note so an investor's time spent out of the market is reduced.
The pandemic significantly increased the volatility of the stock market in 2020, with the average closing price volatility at 29.25%. But, as the health of the underlying economy recovers, volatility is reducing in 2021, with the average closing price volatility at 17.74% (YTD). A period featuring a reducing volatility trend may be an ideal time to invest in structured notes as the notes’ performance is linked to the value of the underlying stock. If the structured notes are purchased during a time of higher volatility, then the coupon rate will be higher to reward investors for the risk that they are taking. Given the reducing volatility trend present in the market at the moment, should volatility fall after the purchase of the structured notes, then the price of the underlying stocks are expected to remain above the downside protection value, increasing the chance of regular coupon payment and principal being repaid at maturity.
Structured notes can act as an investment opportunity to diversify the risks of investing in public market equities. For example, an investor invests in a stock of company A and a structured note tied to the performance of the underlying stock A which pays a 10% coupon with a 30% downside protection value, and a 12 month maturity. If the price of the underlying stock A decreases by 5% at maturity, the returns of a structured note (assuming the value of the underlying stock remained above the downside protection value for the whole period) tied to the performance of stock A would be 10% (coupon), while the returns of the actual stock would be -5%. In this scenario, if the portfolio consisted of 50% stock and 50% structured notes, the investor would make a 5% profit overall.
See the addendum to the Private Placement Memorandum which illustrates the outcome if the underlying stock of the structured note falls below the downside protection value at maturity.

Essentials

Please refer to the Private Placement Memorandum in the Resources section for more details about this offering.

How it works

How do structured notes work?

A structured note is a debt security issued by major financial institutions. Its returns are linked to the performance of an underlying stock. For structured notes, on each observation date , performance of the underlying stock is measured (as of the closing price on each observation date) relative to its strike price. If the performance of the underlying stock on an observation date is equal to or above its downside protection value, then the investor will earn their coupon for that period. If the performance on the observation date is below its downside protection value, then the investor will not earn their coupon for that period.

At maturity (final observation date), if the underlying stock is at or above its downside protection value, then the investors will earn their coupon for that period and receive their full principal back. If the performance on the final observation date is below its downside protection value, then the investor will not earn their coupon for that period and will receive less than their full principal back. In this scenario, the amount of original principal will be reduced by the percentage decrease the underlying stock value fell relative to its strike price.

Additionally, the issuing bank reserves the right to call the structured note early on any observation date after the call protection period.

Strike Price: The price of the stock at the close of business on the Strike Date
Strike Date: The date on which the Strike Price of the underlying stock in determined
Observation Dates: The dates at which the stock price is compared to the strike price and downside protection value of the structured note. If the stock price is above the downside protection value then investors will receive their coupon for that quarter
Downside Protection Value: If the stock price is equal to or higher than the Downside Protection Value at the observation date, coupon is paid, if the stock price is lower than the Downside Protection Value coupon is not paid
Coupons: Annual coupon paid quarterly
Maturity: Maturity: Each note has a term of two years. At the maturity date, the stock price is compared with the downside protection value, if the stock price is higher, then the full principal is paid, if stock price is lower, then the principal is reduced in proportion to the decrease in the stock price as compared to the strike price.
Call: The notes can be called by the bank after the first quarter at their discretion.

Please refer to the Private Placement Memorandum for additional definitions and components of structured notes.

Cash Flow

How do I get paid?

Energy Portfolio III will initially invest in 3 individual structured notes, each referencing a different underlying stock. The portfolio will target structured notes expected to help generate a target net annualized yield of 11-12% to investors. Each structured note will have varying characteristics, including yield (coupon), downside protection value and strike price. As such, performance for the portfolio will be calculated on a weighted basis of the performance of each structured note.

Each structured note is expected to have a term of 2 years and in the event that any note gets called by the issuer during the investment period, which will last up to 12 months, it is expected to be reinvested in a new structured note.

Note Selection

How are the notes chosen?

Each structured note purchased in the 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 structured note will be chosen to provide a certain minimum amount of downside protection and from a select list of major banks.

Below is an overview of some of the criteria that must be met in order to be eligible for consideration. Please see the Private Placement Memorandum for complete details.

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 or annual revenue growth >20%, and a Bloomberg analyst median target > the current share price.
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

Returns & fees

Management fee

1.25%

Target net yield

11-12%

Schedule

Payment schedule

Quarterly

Term

Date

Initial term

2 years

Extension options

One 12-month

Structure

Tax document

K-1

Offering structure

SPV

Expenses

First year expense

$150

Annual flat expense

$100

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Returns & fees
Management fee
1.25%
Target net yield
11-12%
Schedule
Payment schedule
Quarterly
Term
Date
Initial term
2 years
Extension options
One 12-month
Structure
Tax document
K-1
Offering structure
SPV
Expenses
First year expense
$150
Annual flat expense
$100

Docs

Content

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