YieldStreet, an investment crowdfunding platform for alternative assets, which recently reported topping $2 billion in deals funded while returning more than $1 billion to investors, notes that the company was founded on the “premise of narrowing the income and opportunity gap.”
The YieldStreet team writes in a blog post that every day, they work hard to further expand the types of investment products that are provided via their platform so that all investors, “not just the ultra wealthy, can edge closer to achieving their financial goals and freedom.”
YieldStreet’s blog post points out that chances are you might not have heard of structured notes before, however, they’ve been used by institutional and “ultra high net worth” (or UHNWIs with at least $30 million in assets) investors for decades as “a wealth creation tool.”
The international market for the product is valued at around $3 trillion and most large banking institutions take part in their issuance, the YieldStreet team explains while noting that “now you can invest in them too.”
Low Minimums
Traditionally, to make investments in structured notes you have “needed over $250K to buy just one note,” YieldStreet noted while adding that if you are anything like us, “you feel that allocating that amount of capital to just one investment is unachievable and unreasonable.”
As mentioned in a blog post by the company, these requirements clearly prove just how wide “the income and opportunity gap really is.” Yieldstreet Structured Notes Portfolios are designed “to solve this problem and allow investors to gain access to the product at a fraction of the cost.”
On Yieldstreet, with one investment request you will “gain exposure to at least three Structured Notes, each tied to the performance of a different underlying stock,” the company explained.
They also noted:
“The ability to spread capital over a number of underlying notes helps reduce the concentration risk of the investment, and this product feature is offered at no extra cost. In contrast, if investors were to purchase structured notes directly from the issuer, not only would they need over $250K but the issuing bank would also reduce the coupon rate by 2-3% per annum on a diversified portfolio given the lower risk.”
They added that each structured note purchased for a portfolio will “follow a transparent process that requires each underlying stock and note to meet certain criteria.”
They also noted that 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.”
Additionally, each structured note will be selected “to provide a certain minimum amount of downside protection and will be sourced from a select list of major banks.”
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, and a Bloomberg analyst median target share price +10%.”
- Technical Characteristics: Short interest <5%, moderate recent volatility, “relative strength index <70”
Selecting the notes
As noted by YieldStreet:
- 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, Reduced reinvestment risk
As mentioned in the blog post:
“In addition to high investment minimums, a structured note’s ability to be called by its issuer at any point in time can make them very hard and time intensive to manage. If capital is being returned frequently, then another decision needs to be made to determine where to reinvest the capital next. The more time spent out of the market, the higher reinvestment risk.”
An investment in a Yieldstreet Structured Notes Portfolio helps lower your reinvestment risk “at no cost to you,” the company revealed. Typically, reinvestment features will lower the yield of a structured note by 1-2%, but YieldStreet reduces the risk “while maintaining the same yield profile. This means that your money is always working hard for you,” the company noted.
If a structured note within a Yieldstreet portfolio get called within the first year, “returned capital will be re-invested immediately into a new, similar note using our transparent note selection criteria,” the company clarified.
Themed portfolios
The YieldStreet team further noted that Structured Notes Portfolios on Yieldstreet have been “designed in a customized way so that the underlying notes of each portfolio are varied and linked to the performance of multiple investment thematics commonly featured in portfolios.”
Through Structured Notes Portfolios on Yieldstreet, investors are able to gain exposure to the Technology and Financials sectors of the market, among other areas.
The underlying notes that are included in each portfolio “will be chosen using our transparent selection criteria so that investors understand why particular notes are selected,” the company noted.
To learn more about YieldStreet products, check here.