Structured Notes - Yay or Nay?

[MrSinkie95]

Got friend try to recommend me some structured notes. Is this good?

 

[DevilPlate]

No head no tail

At least paste the product link here and let our panel of experts vet thru mah hahaha

 

[zeroX26]

Got friend try to recommend me some structured notes. Is this good?

That's the type of product that destroyed Lehman, isn't it?

 

[di_andrei]

Is your friend a RM? I have seen some awful examples of mis-selling structured notes in the last couple of years, RMs of a large local bank recommending absolutely unsuitable products to elderly customers who totally do not understand the product.

I would say that they are generally a bad idea for individuals. They could be a good idea in narrow circumstances, obviously it's impossible to advise without knowing more about the specific product. As an investor I would ask myself 2 questions before investing.

1. What is the view of the markets that this product is helping me express? (i.e. if I have a view that an asset or asset class will move in a certain direction, I might want to invest in a product that helps me profit if I am correct)
2. Is this structured note the best way to express my view? (i.e. can I profit from my belief by using a different instrument, perhaps with lower fees).

"yes" is very rarely the answer to both of these questions.

 

[sohguanh]

For elderly and not so financially savvy I would think bank FD, T-bill, SSB is best and easy to understand. T-bill due to bidding has some risk so maybe can cross that out if really that is the case. All other kinds of investment instruments have risk and that should be brought up before hand to any elderly intending to invest with their life savings perhaps hmmm....

Btw long long time ago endowment insurance also can as they provide higher guaranteed but in recent years no more so can cross this out too.

 

[reddevil0728]

Got friend try to recommend me some structured notes. Is this good?

FCN/ELN?

 

[MrSinkie95]

here

 

[reddevil0728]

here

Ah FCN/ELN.

I mean technically there’s “downside” protection vis-a-vis straight shares la.

but there’s also a cap to the upside.

 

[di_andrei]

So basically if you buy this product you are selling insurance to an institutional investor who pays you a 6% coupon to insure that certain underlyings (in this case 3 different ETFs do not fall below a certain value).

Very loosely speaking you should buy this if you believe the value of all 3 ETFs will be relatively stable over the next few months (move within a narrow band). If the value drops a lot you would lose some of your principal. If the value increases a lot, then well, you should just buy the ETFs directly.

99%+ of investors in Singapore either do not understand this product at all, or fail to grasp the finer points around the importance of price correlation between the underlyings. Also, pretty sure it's illegal to sell these products to individuals in the European Union (not relevant to Singaporeans, but food for thought).

 

[tofuguy]

I personally don’t like SN or Acc/Deccum. Most of the time upside is capped but downside is more.

 

[reddevil0728]

Don't buy. Just a way for your friend to earn commission.

They are basically derivative strategy that will trigger on conditions.

Worst part is it's not flexible. You can't go in and out. Your money is basically insurance for someone buying it from you.

Which means llst

So basically if you buy this product you are selling insurance to an institutional investor who pays you a 6% coupon to insure that certain underlyings (in this case 3 different ETFs do not fall below a certain value).

Very loosely speaking you should buy this if you believe the value of all 3 ETFs will be relatively stable over the next few months (move within a narrow band). If the value drops a lot you would lose some of your principal. If the value increases a lot, then well, you should just buy the ETFs directly.

99%+ of investors in Singapore either do not understand this product at all, or fail to grasp the finer points around the importance of price correlation between the underlyings. Also, pretty sure it's illegal to sell these products to individuals in the European Union (not relevant to Singaporeans, but food for thought).

I personally don’t like SN or Acc/Deccum. Most of the time upside is capped but downside is more.

The alternative way of looking at it is...

1. You aren't really averse to investing in equities
2. But you don't really have a sense of when is the right price to go in
3. And maybe you are waiting for the price to drop before going in
4. While waiting for the price to drop, you want to earn high yield for your money
5. Hence, ELN/FCN might be a good stop gap measure.
6. Because...
   1. You get high yield while waiting
   2. If KO early, then ok you don't gain any upside (the trade-off is because you get downside protection)
   3. If kena KI, you buy at the strike price, which is lower than the spot price (at the time of entering into this contract)
7. So if you think of it this way, if say today you got a choice, buy shares now or enter into the contract, at the time if the FCN/ELN ever KI, the paper loss had you bought shares directly would be higher than had you let it KI.

So cannot say is just simply for someone to earn commission.

but really is you need to assess for yourself the pros and cons

 

[postcereals]

structured notes like this are like a super complicated bunch of options.
options with a single underlying asset (normally a single stock, currency or commodity etc) are already hard to analyse and this has 3 underlying sector index!
those KI and KO events behave like barrier options.
and you are basically "selling options" and getting that small coupon payment for taking on this risk.

at the very least, get your friend to explain the main "events" and associated profit and loss of the following:
KO event
KI event
Put strike
Redemption at Maturity
(like a option profit and loss diagram of sort)
"May suffer partial or complete loss of original amount invested."

 

[Mephist0pheLes]

Got friend try to recommend me some structured notes. Is this good?

No. Like almost all bank products, they r terribly priced. In other words they make u take more risk than u sld for wat u r compensated with

 

[reddevil0728]

No. Like almost all bank products, they r terribly priced. In other words they make u take more risk than u sld for wat u r compensated with

There’s also a cost for convenience

 

[duhduhduh]

Structured notes are good if you know what you are doing

Strike 90%
Early KI - 75%

Can someone guide to me what is the KO levels? I cannot find it?

 

[Mephist0pheLes]

There’s also a cost for convenience

sure, there is convenice in it, but is the cost resaonable? ben felix has a recent video on it. basically he summarised that structure notes are:

overpriced by 4.5 to 8% based on various studies
poorer return than buyin the underlying asset + listed option
alot of these products are made unnecessary complex so that the buyers dunno what they are buying, and banks tend to target the least sophisticated buyers.

he concluded by saying "retail investors (buying these products) are being eaten alive"

 

[reddevil0728]

sure, there is convenice in it, but is the cost resaonable?

Tbh, there is no right or wrong answer to this. Different people value convenience differently.

ben felix has a recent video on it. basically he summarised that structure notes are:

overpriced by 4.5 to 8% based on various studies
poorer return than buyin the underlying asset + listed option
alot of these products are made unnecessary complex so that the buyers dunno what they are buying, and banks tend to target the least sophisticated buyers.

he concluded by saying "retail investors (buying these products) are being eaten alive"

there are many sophisticated investors who also do ELN/FCN