Looking for returns in a volatile market
Since the outbreak of COVID-19 and the subsequent changes to the Thai deposit protection limits, Abbey International has experienced exceptionally high demand for Structured Notes.
Throughout Asia, people have been understandably spooked as Thailand’s Deposit Protection Agency (DPA) confirmed back in August that they will only provide protection for 1 million baht per account holder instead of 5 million baht!
Many people who have been introduced to structured notes see the current market conditions as an excellent opportunity to provide growth and also protection on capital.
If the concept of a structured note is something you’ve not come across before, this article will bring you up to speed with how they operate and how you can acquire one.
What is a structured note?
A structured note is a debt instrument with pre-defined market-dependent returns. Essentially they operate like an IOU from a bank.
Structured notes commonly track 3 or 4 stock market indices from developed economies like the US (S&P 500) or the UK (FTSE 100).
Depending on preference, there are different types of notes available to suit varying risk appetites. Structured products are designed for clients seeking high yields in the region of 6-10%+ per annum whilst maintaining good levels of capital protection.
Structured notes generally run for a 5-6 year term, however, many notes mature before the end of their term, returning clients their initial capital plus all coupons generated.
Case Study – Quarterly 1.75% Coupon – Structured Note – With Memory Feature
At the start of a structured note’s 6-year term – the value of the underlying indices is taken as shown in the diagram. Each quarter, the indices are compared to the original value. Assuming all four markets are above 80% of their original value the quarterly coupon of 1.75% is paid into the client’s cash account.
If a coupon is missed – it will be paid on the next observation if all four markets go back above 80%. This continues each quarter for 6 years – providing clients with a potential return of 42% + their capital. The full capital return requires all indices to finish above 70% of their original value.
In this example, the note has already paid clients 15.75%. Coupon #10 may did not payout as the green, blue and red indices are below 80%. On the next observation date – when all the indices returned above 80% – all the missed coupons had been paid. This note has 15 more observation dates.
Why now is an opportune time?
History tells us the best time to purchase a structured note is when markets are low as the likelihood of receiving future coupons increases. Looking back at every previous equity market crash, we see a subsequent recovery.
The diagram below shows the MSCI World Price Index over the past 30 years. We have circled the most opportune purchasing moments during that period.
The green arrow shows where markets currently have fallen to. Now is an excellent time to speak with a financial advisor about structured notes.
Who provides Abbeys Investment’s structured notes?
Abbey work in collaboration with a collection of the world’s largest and most reputable banks to provide our clients with a range of exclusive structured notes. Typically our structured notes come from the likes of BBVA, Goldman Sachs and Morgan Stanley.
Abbeys structured notes are available exclusively to Abbey clients. If you are already a client and would like to learn more, please get in touch. If you are not a client, please feel free to get In touch via our website or simply give us a call.
Abbey International – https://www.aiasia.net/wealth-management
Established in 2004, Abbey International Solutions prides itself on providing impartial, independent, ethical and bespoke solutions for expatriates in South East Asia. Abbey has grown rapidly over the past 17 years through our commitment to clients, with over 70% of our new clients coming by referrals from our existing satisfied client based.
Independent financial consulting with a proven, professional global presence.
As an independent financial brokerage, our focus is solely on serving our clients in the best way possible and acting in their best interests. We are not tied to any particular financial products or institutions. This leaves us open to give impartial advice and thus the best service possible to our clients. We personally take our clients as our priority; our principles are that of the highest esteem and best kept that way. These ethics are always prevalent in our commitment to my clients.
phone: +66 61 569 4452
MD: David Mills
Email: [email protected]