What’s Ahead:
- Investors continue to demand attractive, risk-managed income solutions.
- While private credit has boomed in the past decade, its appeal may be waning as fees increase and return potential diminishes.
- The NewEdge Structured Note Income Portfolio (SNIP) offers financial advisors key differentiators versus private credit, including lower costs, greater transparency, and streamlined portfolio implementation.
The search for yield has never been hotter or more challenging. As wealth builds among the baby boom generation and interest rates normalize, albeit slowly, investors are reaching for that extra percentage point or two of income. There are even so-called “boomer candy” ETFs that span covered-call strategies, buffered funds, and hedged equity products, all aiming to either stretch yield or protect against market volatility.
Private credit is another area that’s busting at the seams. Following the Global Financial Crisis, when regulators targeted the banking sector, small companies turned to private investors for capital. Fast-forward 15 years, and some of those small firms aren’t so small anymore. All the while, investors who moved into nontraditional assets were initially rewarded with high yields and supposedly low volatility. However, private credit is no longer all that private. The space has been democratized with big banks forging their way into niche lending, and fund issuers have even found ways to throw private credit into an ETF wrapper.
There is a new and readily accessible solution that has the potential to more effectively balance yield, risk, and the client’s desired investment outcomes. NewEdge Investment Solution’s Structured Note Income Portfolio (SNIP) is a professionally managed strategy offering a compelling alternative to both income ETFs and private credit.
SNIP focuses on building and actively managing a carefully curated portfolio of Structured Notes, along with tactical execution and robust downside protection. SNIP provides financial advisors with a unique, differentiated tool that delivers risk-adjusted returns, transparency, and operational simplicity compared to other income strategies. Let’s explore why.
What Is SNIP? What Makes It Special in Today’s Yield-Hungry World?
Managed by an experienced team of investment professionals at NewEdge Investment Solutions, SNIP seeks to generate an attractive level of consistent and uncorrelated income while preserving capital, even during volatile equity markets. The strategy targets regular periodic coupon payments, typically ranging from 10% to 12% per annum, along with a target average downside buffer of 30% to mitigate against equity volatility.
This combination of periodic yield and downside equity protection makes SNIP an appealing option for advisors seeking nontraditional income sources for their clients.
SNIP and Private Credit: Costs and Consequences
At first blush, fees may appear comparable between SNIP and most of what’s out there in the private credit world. Peel back the layers, however, and you’ll find that there are fees at many turns with the latter. Specifically, private credit strategies typically include multiple layers of fees, including management fees, administrative fees, and carried interest. Stack them together, and the collective cost may exceed 4% of NAV annually.
SNIP’s final price tag? Fixed at 80 basis points per year. There’s an immediate cost advantage with SNIP. So, though private credit may appear to deliver comparable returns, its combined fees imply that it must generate significantly higher gross returns to achieve the same net return to the investor.
Consequently, private credit portfolio managers are forced to step further out on the risk curve. That might mean including leveraged loans or distressed debt with limited liquidity and transparency. When equity markets turn volatile or if there is a protected macroeconomic downturn, those lofty income yields and stated annualized returns could take a major hit.
SNIP, by contrast, invests in a carefully crafted portfolio of Income Structured Notes usually tied to broad market indices, such as the S&P 500 or Nasdaq 100, in a way that’s easy for advisors to explain to clients.
Risk Management: Downside Protection and Diversification
SNIP’s Income Structured Notes are designed with built-in downside protection, typically ranging from 25% to 40%. This feature provides a meaningful buffer against equity market downturns. During steep corrections and most bear markets, SNIP can preserve capital, while still delivering an attractive level of income to investors.
For example, during periods of market stress, SNIP’s holdings of Income Structured Notes may continue to generate a healthy yield while its NAV holds steady. As part of a broader client portfolio, stock market declines may be partially or even completely mitigated.
Private credit, on the other hand, is fully exposed to volatility and sharp declines—prospective investors just might not always see the gyrations due to fuzzy valuation techniques. Private credit assets may appear to offer attractive yields, but their illiquid nature and exposure to borrower defaults or economic shocks entail substantial risks.
The protracted 2008 recession and brief COVID panic in 2020 highlighted private credit’s potential vulnerability, with some funds freezing redemptions or suffering severe losses. SNIP has a leg up here, as its transparency and liquidity (via secondary market sales) further differentiate it from private credit’s opaque, lockup-laden structures.
Transparency and Tax Efficiency
But let’s take a deeper look at how SNIP’s portfolio is constructed. Since the strategy is offered in an SMA, financial advisors and investors have daily visibility into holdings, underlying assets, and performance. Conversely, the compositions of many private credit pools are hidden behind a proverbial veil, offering limited disclosure with full reporting provided only once per quarter. With SNIP, financial advisors can directly monitor issuer exposure, maturity schedules, and coupon payments.
The strategy seeks to diversify credit risk by investing in Income Structured Notes issued by a range of top-tier banks, including JPMorgan, Goldman Sachs, and Barclays. Depending on market conditions, SNIP may reinvest quickly into new Income Structured Notes or be patient and wait for tactical opportunities to reinvest.
SNIP also boasts a tax advantage. The SMA’s portfolio managers target long-term gains, whereas private credit distributions often constitute ordinary income, subject to potentially higher tax rates. For high-net-worth clients, this difference can have a significant impact on after-tax returns. Moreover, from a reporting perspective, private credit investments often generate complex K-1 forms that only add to adjacent costs and direct headaches come tax time. SNIP, however, is more streamlined, with simplified reporting.
The Advisor Edge
SNIP’s portfolio managers and analysts do the heavy lifting. The strategy’s rigorous research, incorporating bond ratings, credit default swap data, and macro analysis, ensures that credit risk is actively managed. As with most investments, credit quality is a consideration, but SNIP’s focus on active management, diversified exposure, and strong issuer balance sheets seeks to reduce this risk.
Operationally, advisors also save time with SNIP. They don’t have to jump through hoops to own, hold, or sell the SMA. It’s available through platforms like Schwab’s Managed Account Marketplace, with plans for expanded custodian availability. Unfortunately, the reality is that investing in private credit can be quite complex, often requiring attorneys, long contracts, and protracted onboarding processes—just on the buy side. If you wish to sell, there may be further frustration and lost hours.
Jamie Dimon’s Warning Message on Private Credit
In July, JPMorgan Chase CEO Jamie Dimon reminded investors that private credit isn’t a pure bastion of return opportunity. America’s banker cautioned that, if left unchecked, this burgeoning area of fixed income could trigger a financial crisis. During JPMorgan’s second-quarter earnings call, the CEO suggested that growth in the private credit space could be slowing, with its peak expansion in the rearview mirror.
Dimon argued that low credit spreads today do not adequately compensate for the risks investors are taking. At the same time, aggressive leverage and loose covenants could come back to haunt them during the next prolonged period of volatility. He even signaled that there is “unknown leverage” permeating the sector. For advisors, it takes extensive due diligence and expertise to navigate private credit amid these potential landmines.
| Feature | SNIP (Structured Notes SMA) | Private Credit |
|---|---|---|
| Cost Structure | 80 bps management fee | Typically 2% management + 20% performance; may exceed 4% total |
| Downside Protection | 25%–40% principal buffer | No explicit buffer; depends on borrower performance |
| Liquidity | Secondary market sales possible | Limited; lock-up periods of 1–5 years common |
| Transparency | Daily visibility (SMA structure) | Quarterly reporting; less frequent position data |
| Tax Efficiency | Long-term capital gains | Distributions taxed as ordinary income; K-1 reporting common |
| Risk-Adjusted Returns | Equity-like returns with lower risk | Historical mid- to high-single-digit annual returns; higher upside in niche strategies |
| Operational Ease | Available via Schwab/Fidelity | Requires subscription docs and due diligence |
| Credit Risk | Diversified top-tier issuers ( JPMorgan, Goldman Sachs) | Concentrated borrower or sector exposure |
| Market Adaptability | Tactical execution during volatility | Long-term lending; less flexibility during volatility |
The Bottom Line
For advisors seeking to diversify client portfolios with alternative income, SNIP presents a compelling case over private credit:
- Cost Advantage: 80 bps per annum versus 4%+ per annum for private credit.
- Risk Mitigation: Built-in downside protection and greater liquidity than private credit
- Transparency: Real-time holdings reporting versus complex, opaque private fund structures.
- Tax Optimization: Long-term capital gains treatment with 1099s versus arduous tax accounting with K-1s.
- Efficiency: Easily incorporated into client portfolios.
While private credit may appear to suit specific investor niches, SNIP’s combination of lower fees, downside risk management, and equity-like returns positions it as a superior protective investment solution for risk-conscious investors.
Please see our Halo Disclosure Page for important disclosures
An investment in Structured Notes may not be suitable for all investors. These investments involve substantial risks. The appropriateness of a particular investment or strategy will depend on an investor’s individual circumstances and objectives.
Content and any tools discussed are provided for educational and informational purposes only. Halo Investing makes no investment recommendations and does not provide financial, tax, or legal advice. Any structured product or financial security discussed is for illustrative purposes only and is not intended to portray a recommendation to buy or sell a particular product or service.
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