WSR’s Editor in Chief, Julius Buchanan, hosted Dennis Monohan, Head of Investment Solutions at Halo Investing, in a live webinar on July 16, titled “Rethinking Modern Asset Allocation with Structured Notes,” to discuss how incorporating structured notes into asset allocations can achieve client objectives including managing risk, improving diversification and enhancing return potential.
When Buchanan asked Monohan how the structured notes business has evolved during Halo’s decade in the market, he explained that structured notes have shifted from being predominantly brokerage products to tools increasingly used in advisory accounts. Technology platforms now allow advisors to customize notes, seek competitive pricing from multiple issuers and execute transactions more efficiently. Issuers have also improved their technology, pricing and secondary-market support.
When asked where structured notes belong within an asset allocation – whether as a sleeve, replacement or overlay – Monohan emphasized that the answer varies by product and practice. Income, growth and other defined-outcome notes can behave differently depending on their underlying assets, payoff structures and levels of downside protection.
Rather than automatically placing every note in an equity, fixed income or alternatives sleeve, Monohan encouraged advisors to work backward from the investor’s needs. “We think that there’s a spot for these defined outcome products, and the use of those products should be driven by your desired outcomes,” he said.
The conversation then turned to the webinar’s core theme of rethinking modern asset allocation. Monohan said portfolio construction should account not only for financial objectives but also for investor behavior. “There’s the ideal portfolio for the client, but then what can the client actually stomach?” he asked. Defined-outcome investments may help advisors bridge the gap between the allocation a client needs and one the client can remain committed to during difficult markets.
Monohan explained that traditional Monte Carlo tools generally rely on expected returns, standard deviations and correlations. Structured notes, however, do not necessarily produce a normal distribution of returns. Outcomes may be shaped by protection barriers, buffers, coupons, caps or participation rates, making specialized analysis important.
Monohan demonstrated Halo’s Aura simulation tool, which models structured notes within traditional portfolios across thousands of scenarios. In one hypothetical example, replacing part of a moderate portfolio’s equity allocation with an income note modestly increased expected returns while substantially reducing the frequency of negative outcomes.
When Buchanan asked how notes might be used under bullish, bearish or neutral market outlooks, Monohan previewed a framework incorporating the client’s risk tolerance, objective and time horizon. A bearish outlook might point toward deeper protection or income, while a bullish outlook could support a growth note offering leveraged upside.
Buchanan then turned to two common objections: complexity and cost. Monohan distilled a structured note into four essential components: term, underlying asset, protection and payoff. “Understand those four components and you can understand any structured product,” he said. He also explained that competition among issuers has helped compress embedded fees, while notes purchased through advisor accounts generally do not carry ongoing asset-management fees, trails or surrender charges.
The webinar concluded with an audience question about liquidity. Monohan explained that issuing banks generally provide a secondary market for their notes, consistent with industry expectations. “You’re not locked up,” he said, while noting that liquidity ultimately depends on the issuer remaining available to repurchase the investment.
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