Overview
Invest in a diversified portfolio of income structured notes. With public market volatility at high levels, the portfolio will seek to mitigate some of the downside risks associated with owning stocks with the goal of generating investors regular income payments over the life of the investment. ST Income Notes Diversified Portfolio VI will initially invest in 3 individual income structured notes, each referencing different underlying stocks; Alphabet Inc Class A (GOOGL), United Parcel Service, Inc. (UPS), and CVS Health Corp (CVS). Each income structured note has varying characteristics, including yield (coupon), downside protection barrier and strike price.
Premise
Potential benefits of investing in income notes
- In a yield-starved world, income structured notes are a great source of income that is paid quarterly and at a rate that is outpacing inflation.
- Helps to shield investors from public market downturns and volatility given their built-in downside protections.
- When owned in conjunction with public equities, the risk adjusted return of portfolios is improved.
High-yielding investment typically favored by institutional and ultra-wealthy investors
- Globally, the structured notes market is approximately $3T in size.
- Used by institutional and ultra-wealthy investors for decades to help boost the level of income generated by their portfolios.
- Major banks participate in their issuance, helping to reduce the risk of default. Yieldstreet typically purchases structured notes issued by Goldman Sachs, Morgan Stanley, JP Morgan, Citi, Bank of America, Barclays, Societe Generale, Credit Suisse, HSBC, Royal Bank of Canada (RBC), and TD Bank.
Generally used to mitigate some of the downside risks associated with owning stocks
- For example, consider an investor invests in a stock of company A and an income structured note tied to the performance of the underlying stock A.
- The income structured note pays a 10% coupon with a 30% downside protection barrier, and a 12 month maturity.
- If the price of the stock A decreases by 5% at maturity, the returns of the income structured note (assuming the value of the underlying stock remained above the downside protection barrier 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% income structured notes, the investor would make a 5% profit overall (hypothetical example used for illustrative purposes only).
See the Series Note Supplement which illustrates the outcome if the underlying stock of the structured note falls below the downside protection barrier at maturity.
Tied to the performance of stocks that have been diligently selected
Income structured notes are purchased based on a transparent process that requires each underlying stock to meet certain criteria, which is expected to minimize the likelihood of any significant price decline.
- Underlying stocks must be 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%
- Bloomberg analyst median target share price > current stock price
- Short interest <5%
- Moderate recent volatility
- Relative strength index <70
Parameters in place to ensure income structured notes meet certain standards at a minimum
- At least 25% downside protection
- Quarterly coupons 9-month term
- Annualized coupon >5%
- Historical breach of downside protection barrier <15%
- Each stock will have at least a 90% confidence interval of not breaching the downside protection barrier
- Notes chosen will be diversified by an issuer and sub-industry group
Essentials
Please refer the Series Note Supplement in the Resources section for more details about this offering
Please refer the Series Note Supplement in the Resources section for more details about this offering
What are income structured notes?
What are income structured notes?
- A structured note is a debt security issued by major financial institutions. Its returns are linked to the performance of an underlying stock. Structured notes can be income and/or growth focused. To date, Yieldstreet has only offered portfolios of income structured notes.
- For income structured notes, on each observation date, the current price of the underlying stock is measured relative to its strike price.
- If the current price of the underlying stock on an observation date is equal to or above its downside protection barrier, then the investor will earn their coupon for that period.
How do income structured notes work?
How do income structured notes work?
- If the performance on the observation date is below its downside protection barrier, 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 barrier, 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 barrier, 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 also reserves the right to call the structured note early on any observation date after the call protection period.
Please refer to the Private Placement Memorandum and the Series Note Supplement for additional definitions and components of structured notes.
Cash flow
Cash flow
How do I get paid?
Short Term Income Notes Diversified Portfolio VI will initially invest in 3 individual income notes, each referencing a different underlying stock. The portfolio is expected to generate a target net annualized yield of 9.88%. Each income note will have varying characteristics, including yield (coupon), downside protection barrier 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 250 days.
Schedule
Payment schedule
Quarterly
Term
9 months
Structure
Tax document
1099-INT
Offering structure
Short term note
Ann'l flat expense
0.25%
Docs
Content
This offering page describes only certain aspects of the offering ("Offering") of the securities issued by YS ST Structured Notes LLC ("Issuer"). The Offering is made only by means of the Private Placement Memorandum dated January 14, 2022 and the Series Note Supplement relating to the Offering (collectively, the "Offering Documents"). The information on this offering page is a summary of the Offering, does not purport to be complete and should not be considered a part of the Offering Documents, or as incorporated in the Offering Documents by reference or as forming the basis of the Offering. No person has been authorized to give any information or to make any representations other than those contained in the Offering Documents or in any marketing or sales literature issued by the Issuer or Yieldstreet Management, LLC, as adviser thereto, and referred to in the Offering Documents, and, if given or made, such information or representations must not be relied upon. All investors must read the Offering Documents in their entirety prior to investing in the securities.
This offering page describes only certain aspects of the offering ("Offering") of the securities issued by YS ST STRUCTURED NOTES LLC ("Issuer"). The Offering is made only by means of the Private Placement Memorandum and the Series Note Supplement relating to the Offering (the "Offering Documents"). The information on this offering page is a summary of the Offering, does not purport to be complete and should not be considered a part of the Offering Documents, or as incorporated in the Offering Documents by reference or as forming the basis of the Offering. No person has been authorized to give any information or to make any representations other than those contained in the Offering Documents or in any marketing or sales literature issued by the Issuer or Yieldstreet Management, LLC, as adviser thereto, and referred to in the Offering Documents, and, if given or made, such information or representations must not be relied upon. All investors must read the Offering Documents in their entirety prior to investing in the securities.
Investing in private markets and alternatives, such as this offering, is speculative and involves a risk of loss, and those investors who cannot afford to lose their entire investment should not invest. Returns are not guaranteed.
2 Represents an average net realized internal rate of return (IRR) with respect to all matured investments in your portfolio, utilizing the effective dates and amounts to and from the investments and net of management fees and all other expenses charged to the investments. Past performance is not a reliable indicator of future results and should not be relied upon as the basis for making an investment decision. All securities involve risk and may result in significant losses, including the loss of principal invested.[read more]