Structured Investments
A structured product is a contract with an issuing bank that pays according to rules agreed before you invest. The term, the income, the level of protection and the conditions that trigger each are all set at the start, so you know what you are buying and what has to happen for it to work.
What they are
A wrapper, not an asset class
An issuer assembles the exposure, usually a reputable investment bank, and defines how it pays. The underlying can be shares, an index, fixed income, currencies or commodities. What makes a structured investment different is not what it holds but the contract wrapped around it, which is why the same underlying can be built for income at one end or geared growth at the other.
Defined downside
Each structure states the level the underlying has to breach before capital is at risk, and what happens if it does.
Income in flat markets
Coupons are paid on conditions being met rather than on the market rising, so income can continue when prices go sideways.
Institutional access
Payoffs that were built for institutional balance sheets, available in wholesale minimum parcels.
Built to the brief
Term, underlying, coupon and protection are negotiated for the portfolio rather than taken off a shelf.
The four we use
Four structures, ordered by what you are risking
The first two are built to pay income. The second two give up income in exchange for growth, and the last of them adds gearing.
Fixed coupon notes
A coupon paid monthly while none of the reference shares breaches the barrier. Capital is returned in full unless it does.
- Target yield9 to 12% p.a.
- UnderlyingTop 50 ASX, top 20 US
- Term24 to 36 months
Smart entry notes
A coupon paid regardless of performance. If a share falls through the entry level you buy it at that discounted price instead.
- Target yield10 to 17% p.a.
- UnderlyingASX 200, S&P 500
- Term6 to 18 months
Discounted entry
Exposure bought well below the current price. No income, and below the entry level you take delivery of the shares at that cost base.
- Target return20 to 30% p.a.
- UnderlyingBlue chip and quality
- Term24 to 36 months
Enhanced growth
A limited recourse loan gears the exposure several times over. The interest is pre-paid, and the loss is capped at the cash outlay.
- Target return50 to 200%+
- UnderlyingIndices, commodities, funds
- Term2 to 5 years
Returns shown are targets set at issue, not guarantees.
Income
Fixed coupon notes, paid while the barrier holds
Income from blue chip shares without owning them, paid while the market behaves within a wide band. The typical use is replacing part of an equity income allocation when you expect a flat or choppy market rather than a rising one.
What to watch. The barrier is measured on the worst of the basket, so a single name is enough to change the outcome. A wider barrier buys safety and costs yield.
- Target yield9 to 12% p.a.
- PaidMonthly
- Reference assetsThree or four blue chips
- Typical barrier40% below entry
- Maximum term24 to 36 months
The coupon runs
You receive the coupon each month for as long as none of the reference shares has fallen through the barrier, whether the market is up, flat or moderately down.
It can finish early
On quarterly observation dates from month six, if every share sits at or above its starting price the note ends and your capital is returned. Most good outcomes end this way.
Capital returns in full
At maturity you get the full amount back provided no share has breached the barrier. If one has, your capital falls in line with that worst performer.
High income
Smart entry notes, paid whatever the market does
A higher coupon that is paid whatever the market does, in exchange for agreeing to buy the shares at a discount if one falls far enough. Suits an investor who wants the income and would be content owning the underlying at a lower price.
What to watch. Only worth doing on names you would genuinely want to own. The discount is real, but so is the ownership that comes with it.
- Target yield10 to 17% p.a.
- PaidQuarterly
- Reference assetsQuality ASX and US names
- Typical entry level25% below entry
- Maximum term6 to 18 months
The income is unconditional
The coupon is paid every quarter regardless of how the reference shares perform. Unlike a fixed coupon note there is no condition attached to the income itself.
It can finish early
From month three, if every share is at or above its starting price on an observation date, capital comes back and the note ends.
Or you buy in at a discount
If a share closes below the smart entry level, you take that exposure at the discounted price rather than the market price. More shares for the same money, and the coupons already received soften the position further.
Growth
Discounted entry, bought below today's price
Growth exposure bought well below today's price. There is no income, and the trade is that a modest outlay controls a much larger notional position over a fixed term.
What to watch. Dividends and franking are forgone for the whole term. On Australian shares over three years that is a real cost to set against the discount.
- Target return20 to 30% p.a.
- IncomeNone
- Reference assetsBlue chip and quality names
- Typical entry level28% below entry
- Term24 to 36 months
You enter at a discount
A cash outlay of roughly seventy cents buys a dollar of exposure to the worst performer in the basket, fixed at the start of the term.
Above the start price, cash
If the worst performer finishes above where it began, the return is paid in cash and amplified by the discounted entry.
Below it, shares
Below the entry level you receive the shares at that discounted cost base, which still leaves you better placed than having bought them outright on day one.
High growth
Enhanced growth, geared and limited recourse
A limited recourse loan gears exposure to an index several times over. The interest is paid upfront and is deductible, the loss is capped at the cash you put in, and the upside above breakeven is yours in full.
What to watch. This is the sharpest structure in the range. The index has to clear the breakeven hurdle before you make anything, and below the starting level the whole outlay goes.
- Target return50 to 200%+
- GearingAround five times
- UnderlyingIndices, commodities, funds
- InterestPre-paid, deductible
- Term2 to 5 years
The loan does the work
You contribute the cash outlay and the lender funds the rest of the notional exposure. The interest for the full term is pre-paid at the start.
Upside is amplified
The index has to rise past the pre-paid interest to break even. Every point above that accrues to you on the full geared notional, not on the cash you put in.
Downside is capped
The loan is limited recourse. If the index finishes below its starting level the outlay is lost, but the lender cannot pursue you for anything beyond it.
The mechanics
Six terms that decide everything
Every structure in the range is described by the same handful of variables. Once you can read these, you can read any term sheet we put in front of you.
The issuer
The bank on the other side of the contract. Your capital depends on it meeting its obligations, so the issuer's credit rating is part of the investment decision, not a footnote. We use rated global institutions and tell you the rating on every note.
The reference assets
The shares or index the payoff is measured against, usually three or four names. Most structures pay on the worst performer, so the whole basket matters, not the average.
The barrier or entry level
How far the worst performer can fall before the outcome changes. Above it, capital comes back in full. Below it, you either wear the fall or take delivery of shares at the discounted level, depending on the structure.
The autocall
Most income notes end early. If every reference asset is at or above its starting price on an observation date, capital is returned and the coupon stops. Good outcomes finish sooner than the maximum term.
The term and liquidity
A maximum term is set at issue, commonly one to three years. Notes can be sold back to the issuer at market value between observation dates, but they are designed to be held.
The coupon condition
Whether income is guaranteed or contingent. A fixed coupon note pays while the barrier holds. A smart entry note pays whatever the market does. The difference is priced into the headline yield.
Worth knowing
Pre-paid interest on geared structures is tax deductible
Enhanced growth notes are funded by a limited recourse loan. Rather than paying interest over the life of the note, the full amount is paid upfront at the start, and that pre-paid interest is deductible under ATO Product Ruling PR 2022/2.
For an investor on the top marginal rate, that changes the arithmetic materially. The cash outlay is the whole cost, the loan cannot be pursued beyond it, and a meaningful portion of the outlay comes back as a deduction in the year it is paid. It is the reason this structure is often used late in a financial year rather than at any other point.
Before you rely on this
Barker Wealth is not a registered tax agent and this is not tax advice. Deductibility depends on your own circumstances, including whether you are carrying on an investment activity and how the prepayment rules apply to you.
Confirm the treatment with your accountant before investing. Product rulings apply to the specific arrangement described in them and can be withdrawn.
Where they can go wrong
The risks worth understanding first
A defined outcome cuts both ways. These are the ways a structured investment disappoints, stated plainly, and they are the same things we work through with you before any allocation is made.
Issuer credit
If the issuing bank fails, the contract fails with it, whatever the underlying has done. This risk sits above every other consideration.
Worst performer
One name breaching the barrier is enough to change the outcome, even where the rest of the basket has performed well.
Capped upside
Income structures return a coupon and your capital, no more. A strong market is an opportunity cost you accept in exchange for the buffer.
Liquidity
These are designed to be held to maturity or autocall. Exiting early is at the issuer's market value, which can be below the amount invested.
Gearing
On enhanced growth notes the full cash outlay can be lost if the index finishes below its starting level. Gains and losses are both magnified.
Forgone income
Growth structures do not pass on dividends or franking. Over a multi year term on Australian shares that is a real cost to weigh.
Work through a live term sheet with us
Thirty minutes on a current note: the issuer, the basket, the barrier and what has to happen for it to pay.
Read more about Corporate Bonds and Fixed Income, Private Credit and Commercial Property, or see how the whole portfolio fits together on our Investments page.
Structured investments are available to wholesale and sophisticated investors only, as defined in sections 708 and 761G of the Corporations Act. Target returns, yields, barriers and terms shown on this page are indicative of the structures we have arranged and are not guarantees or forecasts. Actual terms are set at issue and vary with market conditions. Capital is at risk and, on geared structures, the full amount invested can be lost. Past performance is not a reliable indicator of future performance. This page is general information only and does not take account of your objectives, financial situation or needs. Barker Wealth Management Pty Ltd ABN 46 695 875 962, AFSL 700297. Suite 913/185 Elizabeth Street, Sydney NSW 2000. (02) 8018 8998.