Lesson 1: Growth Halo Notes

Growth Halo Notes provide investors with the possibility of a higher multiple of Growth than that of a standard debt security or the dividend yield from an equity portfolio. Investors who purchase a Growth Halo Note receive a multiple of the underlying’s return while getting substantial downside protection.

Growth Halo Notes are senior, unsecured debt securities issued by a major financial institution. They are generally linked to an underlying asset — which is often a Stock, Index, or ETF.

With Growth Halo Notes, as long as the Underlying is not down on a price appreciation basis by more than the protection amount at the end of the Term, the investor will receive their principal back in full and a payoff equal to the price appreciation of the Underlying multiplied by the Participation Rate.

If the Underlying is down by more than the Protection Level on the final valuation date (the last day of the Term), the investor will be exposed to a loss on their principal. The amount of the loss is determined by what type of protection an investor selects: Soft or Hard Protection.

Growth Halo Notes

To recap Growth Halo Notes allow the investor to participate in a given percentage of the upside price appreciation of the Underlying. As such, investors should bucket these products just as they would the Underlying if they owned it outright. If you look at the example to the right, if the Underlying on a given Growth Halo Note was the S&P 500, the note should be classified as US Large Cap Core Equity within the portfolio allocation. This is because the investor is taking equity risk on the downside.

The most common way to incorporate Growth Halo Notes into a portfolio is by using them as the “passive with protection” exposure. Since the Financial Crisis of 2008/2009, active management has been very challenged, especially in more efficient asset classes such as US Large Cap Equities. Given this, investors will buy a Growth Halo Note on Indices such as the S&P 500 with a deep level of protection so as long as the market doesn’t fall by more than the protection amount at the end of the Term, the investor will be protected by receiving their principal back. As a result, Growth Halo Notes can offset losses incurred elsewhere in the portfolio, which is a primary benefit of the products.