Generate income from stocks with potential downside protection

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. Please review the Private Placement Memorandum on each Structured Notes Portfolio offering page to learn more.

Usually funded by reallocating capital from the equity portion of a portfolio, the inclusion of structured notes can improve a portfolio’s overall risk/return profile as the notes can help to protect against losses while simultaneously providing a regular source of income for investors.

An investment in a structured note portfolio is illiquid. The portfolios have a target initial maturity of 2 years with one 12-month extension option (to account for any reinvested capital during the investment period, which lasts for the first 12 months).

Investing in Income Notes can be a great way to earn interest and diversify your portfolio. However, it is important to understand the payment expectations, portfolio and investment value, called notes, performance, quarterly coupon payments, and final observation and maturity of Income Notes before making any investment decisions.

Payment Expectations

Quarterly interest payments and final maturity payments can be expected to be received 30-45 days after the conclusion of the relevant quarter. This means that investors can expect to receive their payments in a timely manner, but should also be aware of the timeframe for processing.

Portfolio and Investment Value

At present, the investment balance for Income Note investments will remain at the original investment amount even if principal is distributed due to a called note. Additionally, interest will only be earned on the active notes and principal balance that remains in the portfolio, not on any note that has been called and returned principal. When the investment matures, investors will notice a decrease in portfolio value proportionate to the amount of their original investment amount. This means that investors should be prepared for the potential decrease in portfolio value at maturity. Yieldstreet is looking to change this in the future.

Called Notes

Should a note be called on the first observation date following the conclusion of the call protection period, called proceeds may be reinvested in a new note but only to the extent that the maturity of the portfolio does not exceed 9 months. If a note is called following the first observation period, called proceeds will be distributed back to investors as they are received. Investors will receive a brief note with a distribution if it includes a return of capital from a called note. Issuers of the Notes (Goldman Sachs, Morgan Stanley, etc) typically have the right to call the notes on any observation dates. They may call a note when they think that note is unlikely to breach the downside barrier, which typically happens if the stock goes above the strike price by 5-15%. When a note is called, the issuer pays the full principal and the accrued interest on those notes.

Performance

At present, all Income Notes are designated as ‘Performing’ as this product generally follows the performance of underlying positions. An update for all Income Notes will be posted to the investor’s Activity Feed on a monthly cadence, mid-month for all investments launched through the prior month. Investors will be able to view how each note within each portfolio performed on each relevant observation period. They will also receive a summary at maturity with additional information and market commentary on how each note performed relative to the macro stock market environment.

Quarterly Coupon Payments

Each note is tracked independently within the portfolio, and as long as the price of the note on each observation date is above the downside protection barrier, investors can expect to receive the stated coupon for that particular note. Each observation period is independent from the previous observation date period. For example, if a note at the previous observation date was below the downside protection barrier and therefore did not pay its coupon, at the next observation date, it's possible that the note will return to above the barrier, paying out its coupon.

Final Observation and Maturity

If all notes are above the downside protection barrier on the final observation, investors will receive principal and final interest payments once the funds are processed. This process can take 30-45 days to post to investor accounts after the conclusion of the relevant quarter. However, if any note(s) are below the downside protection barrier on the final observation date, principal, or a portion of principal may not be returned. Final metrics and IRR will be posted to portfolios following the conclusion, or maturity of each Income Note for review.

In conclusion, investing in Income Notes can be a great way to earn interest and diversify your portfolio. However, it is important to understand how this investment product works and what to expect as an active investor.

Issued as a debt instrument, with coupons that are tied to the performance of an underlying security, typically a single stock or basket of stocks.

Structured notes pay a set yield on a predetermined schedule, while providing a level of downside protection, subject to certain performance criteria being met.

It is expected that each portfolio will contain between 3-10 underlying notes.

Diversified, tech, ESG and consumer focused structured note portfolios are offered on Yieldstreet.

Should the value of an underlying stock that dictates the performance of its respective underlying structured note fall below its downside protection value then investors will experience principal loss. The amount of principal lost will be determined by how far the value of the stock has fallen from the day that the structured note was purchased.

Yieldstreet structured notes portfolio returns vary depending on the investment thematic of each portfolio. You can see all of the details of our current Structured Notes investments here.

A 1.25% annual management fee is charged. Initial coupon payments will be applied to the $150 annual fund expense.