When riding the market whiplash, structured notes can smooth the journey

Traders work on the floor of the New York Stock Exchange (NYSE) on May 13, 2025 in New York City. Photo by Spencer Platt/Getty Images

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What a rollercoaster year it’s been for global markets. Equity indices around the world were shaken earlier this year as escalating U.S. tariff tensions triggered waves of uncertainty. Sharp declines and heightened volatility left investors scrambling for direction amid fears that a prolonged trade war could undermine global economic growth.

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In a dramatic turnaround, however, equity markets have surged back into positive territory this month. The U.S. government’s more conciliatory tone recently toward China provided long-awaited clarity on its trade stance, reinvigorating risk appetite and boosting investor confidence. Major indices responded with strong gains, reversing much of the earlier damage.

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Yet while equity markets embraced the rebound, the bond market is telling a more cautious story. The U.S. 10-year Treasury yield climbed back to hover around 4.5 per cent last week, signalling persistent concerns around sticky inflation, ongoing fiscal excess, and the possibility that interest rates could remain elevated longer than expected.

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This growing divergence between buoyant equity markets and defensive bond markets underscores the complexity of today’s macroeconomic landscape. Investors are navigating a crosscurrent of shifting policy signals, geopolitical developments, and central bank uncertainty. It’s a market that rewards adaptability more than certainty.

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Understandably, many investors may feel tempted to head to the sidelines and wait for more clarity. But doing so runs the risk of missing out should equity markets prove correct in pricing in easing trade risks and resilient economic growth.

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The truth is, no one knows for sure what comes next, despite the endless stream of bullish or bearish takes from market pundits.

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That’s precisely why we at TriVest Wealth Counsel continue to favour structured notes, especially within tax-sheltered vehicles such as registered retirement savings plans (RRSPs) and tax-free savings accounts (TFSAs), where we often allocate up to 100 per cent in our clients’ registered accounts. These strategies offer the ability to customize outcomes depending on market conditions, something traditional investments struggle to provide.

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For instance, in today’s environment, we recently partnered with a Canadian bank’s capital markets division to create an “accelerator note” with a unique look-back feature. The note references a basket of large-cap Canadian stocks such as TC Energy Corp., Enbridge Inc., Canadian Imperial Bank of Commerce, The Toronto-Dominion Bank, Agnico Eagle Mines Ltd., and Manulife Financial Corp., and runs over a three-year term. Six months from now it will lock in the lowest point for the basket since inception and provide 1.18x the upside from that level for the remainder of the term plus a 30 per cent downside buffer from that locked-in low. In other words, even if markets decline sharply over the next few months, investors could benefit from gains off that bottom with significant downside protection.

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We have also issued a similar note in U.S. dollars with even more compelling terms: 1.55x the upside, thanks to higher U.S. interest rates.

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Structured notes can also serve as compelling bond alternatives for income-seeking investors. One strategy we have used recently is a “contingent income” note on Canadian utility stocks, offering a 7.52 per cent annual yield with monthly payments, as long as the index stays above a 30 per cent downside barrier. Even if that barrier is breached, investors don’t lose their full principal but are protected by a tiered buffer below that level.