About Principal Protected Notes
A Compelling Value Proposition
First and foremost, PPNs provide a combination of growth potential and security that is understandably attractive to many investors. By offering exposure to underlying securities (such as equities) in the context of an investment product that is completely guaranteed, PPNs have attracted a significant following.
- complete principal protection
- exposure to growth-oriented or high-yielding income investment categories with principal protection
- access to a broader range of investments
- the potential for enhanced returns
- cashable in a "secondary" market
Environmental Factors Contributing to Popularity
Conditions within the overall investment environment for the early part of the 21st century have been perfect for the emergence of Principal Protected Notes.
For many investors, the bear market that began in 2001 reduced the appeal of perceived "risky" investments and created a growing demand for products that offered principal protection. Principal Protected Notes rushed into this space and were readily accepted – offering greater security than mutual funds and higher potential returns than GICs and bonds.
Low Interest Rates
For conservative investors, bonds, GICs and other fixed income products have traditionally represented a significant portion of their investment portfolio. While these types of investments provide security, the low interest rate environment of recent times has translated into low returns for these investments. Structured notes offer an alternative for investors seeking the potential for higher interest income without sacrificing principal protection.
The aging of Canada's population is pushing investors toward more conservative, lower-risk investments as the baby-boomer generation approaches retirement age. PPNs have been identified as particularly attractive to this demographic because of the potential for principal protected growth. Individuals 5 to 15 years from retirement typically require continued growth from their investments, but may be reluctant to expose their retirement "nest egg" to risk. PPNs offer the potential for continued growth while ensuring preservation of principal.