Structured Products
Structured Products including Principal Protected Notes, Split Shares, Exchange Traded Funds and Closed-end Funds are solutions designed to provide risk, return, tax and diversification characteristics not necessarily available from traditional securities. These investment alternatives generally derive their returns from baskets of underlying securities...
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Principal Protected Notes
Principal Protected Notes have become popular in recent years and are sometimes compared to stock or index-linked GICs. Generally PPNs are comprised of a discount bond (to secure the return of one’s original investment upon maturity) and a variable return component tied to an underlying asset (a portfolio of common stocks, market indices or managed futures notes.) PPNs are often issued by a bank, however are not protected by Canadian Deposit Insurance Corporation. -
Split-Shares
Split-shares allow for the separation of the income and capital growth components of dividend stock. A split-share corporation is formed with the purpose of purchasing an underlying common share or portfolio of common stock. Dividend income payable by the underlying portfolio is generally reserved for the split-preferred shareholder while the potential for capital gains/losses is attributed to the split-capital shareholder. Split-shares generally have maturity date and both preferred and capital shares trade on the stock exchange. -
Exchange-Traded Funds
Exchange Traded Funds (ETFs) represent a basket of securities designed to mirror a target index. Generally ETFs are passively invested; however more recently fundamental indexing has come into vogue; where only favored securities are the focus. ETFs may cost significantly less than comparable mutual funds though ETFs are not actively managed. -
Closed-end Funds
Closed-end funds are similar to managed mutual funds however offer a fixed number of units for sale. Unlike traditional mutual funds, closed-end funds do not continuously offer and redeem mutual fund units and are thus not subject to unpredictable cash flows, nor related tax consequences. Closed-end funds trade on an exchange and may apply leverage and/or invest in less liquid assets. Often management costs of closed-end funds are lower than traditional mutual funds.
