Principal Protected Notes allow investors to benefit from the protection and income potential features of bonds, plus the growth potential of other markets, such as equities. Similar to MLGICs, they guarantee, at minimum, 100% repayment of your original investment at maturity, regardless of how the specified reference asset performs. At the same time, they provide the opportunity for positive returns, based on the performance of the linked asset.
PPNs can be an alternative to GICs and other traditional fixed income investments, offering potentially higher returns. The trade-off is the possibility of no return (0%) or no income flow while the note is held, unless the specific PPN has a specified fixed or variable coupon component.
How do PPNs work?
PPN returns are based on the performance of one or more underlying reference assets, which can include equities, equity indexes, bonds, commodities, currencies or a combination of these. PPNs can provide exposure to traditional assets, as well as assets that may not be readily available to retail investors.
The main differences between PPNs and MLGICs are CDIC insurance eligibility — MLGICs are eligible, while PPNs are not, and the ability to sell PPNs via a daily secondary market. MLGICs are non-redeemable prior to maturity.
The returns on PPNs are based on the performance of the reference assets and a predetermined formula. All formulas are specified in the Information Statement and depend on the specific PPN. The potential returns of a PPN could be less and sometimes materially than the actual performance of the underlying reference assets, depending on the PPN structure.
Types of PPNs
Income Notes offer the potential for higher income relative to traditional GICs and other fixed income instruments. Investors may receive periodic income payments on predefined dates during the term of the PPN, with payments determined by the performance of the reference assets. Income notes may also provide a specified minimum return on some or all payment dates.
Growth Notes offer the potential for enhanced variable returns, payable at maturity, based on the performance of reference assets, while potentially minimizing the risk of down markets if held to maturity. These strategies can offer full, enhanced, partial or capped participation in the underlying reference asset market performance. In the event the underlying reference asset returns are negative at maturity of the Note, your principal is returned. Principal protection is only guaranteed at maturity.
Boosted Return Notes
Boosted Return Notes offer the potential to outperform the reference asset while retaining principal protection at maturity. If the underlying reference asset performance is 0% or greater at maturity, the Boosted Return PPN’s return is calculated using a specified formula, offering the potential for outperformance in a flat or moderately bullish environment.
Key features and benefits
Principal protection: 100% principal protection at maturity
Income potential:Some PPNs may offer the potential for enhanced income, based on the performance of the underlying reference assets
Growth potential: Some PPNs may offer the potential to receive an enhanced return at maturity, depending on the performance of the underlying reference assets
Diversification: Some PPNs may provide exposure to reference assets that may not otherwise be directly accessible
Liquidity:Opportunity to sell PPNs prior to maturity in a daily secondary market1
Currency hedged: No direct currency exposure when the reference asset is denominated in a foreign currency
Minimum investment: Minimum investment is $5,000
Fees: PPNs available through Investor’s Edge will include an upfront selling concession. All fees and selling commissions are stated in the Pricing Supplement for each PPN
Key risk factors
CDIC coverage: PPNs are not eligible for CDIC insurance.
Credit risk: Guarantee of principal protection and any income is dependent on the creditworthiness of the issuer.
Market risk: If the underlying assets perform poorly, there’s a risk that no return, or only the specified minimum guaranteed return, may be payable.
Liquidity risk: There’s no assurance that notes can be sold in a secondary market prior to maturity, or that the secondary market price will be at or above $100 purchase price when the investor wishes to sell. Principal protection is only offered at maturity.