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7 Rules For Implementing A Growth Mindset At Your Nonprofit

“Possessing a growth mindset, or encouraging improvement through hard work and dedication, is an important component of success for most companies—including nonprofits. Both personal and professional growth should be supported and developed by managers in order to ensure all-around success for their employees and their business.”

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Source: Forbes

Why is Philanthropy Important to Business?

“Charitable giving is something that many large corporations and high net worth individuals contribute their time and earnings to, often for tax relief purposes. But donating to an important cause is not just about reducing your tax burden for the financial year. There are many hidden (and surprising) advantages of giving to others.”

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Source: Thrive Global

There’s No Such Thing as a Free Lunch–Looking Under the Hood of Structured Products

Written by: Christian O’Dwyer, CFA | Vice President

Investors should always be wary of promises of risk-free returns from their advisors and the products they recommend or sell. All investments carry a degree of risk, except for those rare cases of pure arbitrage. Successful long-term investors find opportunities where risk is garnered only when it is accompanied by a commensurate return. Structured products, which are typically designed and issued by financial institutions and sold by broker-dealers to individual investors, are a good example of strategies that frequently promise upside market participation alongside capital preservation. This article reviews the definition of structured products, how they work, how to analyze them, and their role in a diversified portfolio.

What Are Structured Products?

Typically, structured products are debt securities with a fixed maturity and include two components: a bond component and a derivative component. The bond portion of the note is the majority of the investment and provides principal protection. The embedded derivative may be linked to the performance of an asset, index, a single equity security, a basket of equity securities, interest rates, commodities, and/or foreign currencies. The notes are used to modify market exposure, or otherwise manage market risk, credit risk, or both. The type of derivative embedded in the note will affect the performance characteristics of the note and the complexity of performance calculations. The products typically employ a degree of leverage.

 
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How do Structured Products Work?

The below image provides an example of a theoretical structured note. Consider a simple, three-year, S&P 500 index-linked structured note with 100% principal protection promising preservation of capital, 80% participation with the index and a capped return of 20%. The various return scenarios are depicted:

How to Analyze Them?

While our example was (hopefully) useful from a conceptual standpoint, it was very basic as compared to most structured products in the market. As features are added to the products, complexities mount making appropriate levels of due diligence more difficult. In response, the U.S. Securities and Exchange Commission issued a 2015 bulletin that plainly stated, “While structured notes may enable individual retail investors to participate in investment strategies that are not typically offered to them, these products can be very complex and have significant investment risks. Before investing in structured notes, you should understand how the notes work and carefully consider their risks.” Additional considerations are listed below.

  • Know the fees and other costs associated with the investment.

    • Structured notes are highly complex and carry low fee transparency; it is important to fully understand both the stated and embedded costs associated with the product.

  • Know whether the product is appropriate for the intended investment objective.

    • Are the risks associated with a particular structured note within your tolerance for risk, or are your investment needs better served by investing in another product?

  • What other investment choices are available to me? Are other products available that provide investment exposure to similar assets, indices or strategies? If so, how do the costs of these other products compare to those associated with the structured note?

    • Carefully consider what might be a suitable investment for you, and whether there are better alternatives to the structured note you are considering. For example, can I purchase some or all of the components of the structured note separately for a better price?

  • How long will my money be tied up?

    • Many structured notes are meant to be held to maturity. If you need your money back prior to maturity, you could lose a significant portion of your investment.

  • Are potential returns limited?

    • Some structured notes have caps on the returns that can be earned based on the performance of the reference asset or index. This is an example of a potentially significant embedded cost.

  • What is the credit risk of the issuer of the structured note?

    • Remember that any payoff on a structured note is subject to the creditworthiness of the issuer. Be sure to understand the financial condition of the issuer and read its disclosures as carefully as you would for any other investment.

For more information, please visit: https://www.sec.gov/oiea/investor-alerts-bulletins/ib_structurednotes.html

What is the Role of Structured Products in a Diversified Portfolio?

While the capital preservation feature and the customization of structured products can make them attractive for potential investors, the complicated payoff profile, opaque expense structure, lack of liquidity, and associated credit risk decrease their usefulness within a broad portfolio context. Investors should also consider opportunity costs associated with forgone investments in their overall strategy. In sum, the time-tested qualities of remaining patient, keeping costs low and being well diversified are most likely to drive long-term investment success.


About Innovest

For more than 20 years, Innovest has provided excellent client service as well as forward-looking, innovative investment solutions for endowments and foundations, retirement plans, and families. We are an independent provider of investment-related consulting services and work on a fee-only basis.

Inspiring a Cheerful Question Mark

“Graham Smith is still in his twenties. He majored in business at Wheaton, an evangelical Christian liberal arts college in Illinois, where he was influenced by a professor who repeatedly warned of embracing “golden handcuffs” that can trap workers in well-paying yet unfulfilling jobs. When British theologian N. T. Wright came to campus, Smith walked away from the talk with a haunting question: How can you do things in the world that cause others to “write a cheerful question mark” over your life? “ To keep reading click here.

Source: Philanthropy Roundtable

The Importance of Mentoring for Career Development

“Did you know that 75 percent of executives say mentoring has been critical to their career development? According to a recent survey from the American Society for Training and Development, these relationships are invaluable in helping to make important professional decisions.”

We absolutely believe in mentors for all of our employees at Innovest, and we are excited to share this article from ColoradoBiz with you. Click here to read more.

Source: ColoradoBiz

Practical Steps To Building A Powerful Nonprofit Board

“Whether it’s a high school booster club with a $500 budget or United Way Worldwide with its $3.9 billion budget, most nonprofits must have investments from individuals and businesses to achieve its mission. Nonprofits who intentionally and strategically recruit board members that can raise money have an advantage over nonprofits that recruit only for industry expertise, policy or community/industry representation.” Click here to learn more.

Source: NonProfitPRO

Benefit Plan Cybersecurity Considerations: A Recordkeeper and Plan Perspective

“The U.S. has no comprehensive national law governing cybersecurity and no uniform framework for measuring the effectiveness of protections, though retirement plan recordkeepers maintain the personally identifiable information on millions of workers, collecting names, birth dates, social security numbers, and beneficiaries”. Click here to learn more.

Source: The Wharton School, University of Pennsylvania

How This All Happened

If you fell asleep in 1945 and woke up in 2018 you would not recognize the world around you. The amount of growth that took place during that period is virtually unprecedented. If you learned that there have been no nuclear attacks since 1945, you’d be shocked. If you saw the level of wealth in New York and San Francisco, you’d be shocked. If you compared it to the poverty of Detroit, you’d be shocked. If you saw the price of homes, college tuition, and health care, you’d be shocked. Our politics would blow your mind. And if you tried to think of a reasonable narrative of how it all happened, my guess is you’d be totally wrong. Because it isn’t intuitive, and it wasn’t foreseeable 73 years ago. Here’s how this all happened.

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Source: The Collaborative Fund

Articles, FYIScott Middleton