Amid intensifying debate over global trade policy and rapidly shifting economic conditions, market volatility has surged. Even popular names like NVIDIA and Tesla have seen sharp fluctuations, adding to investor uncertainty.
Falling interest rates continue to erode returns on deposits and money market funds, signaling the end of the golden era of cash management.
Amid the dual challenges of heightened market volatility and declining risk-free rates, the key question for investors is how to preserve capital effectively while adapting to a shifting market landscape.
According to the CIO Office of Noah Holdings, two key trends are shaping the current environment. First, U.S. dollar interest rates have declined from previous highs, making yields on money market funds increasingly unattractive. Looking ahead, the broader trajectory suggests further downside risk for rates. Second, volatility in the U.S. equity market has risen notably. Against this backdrop, investors holding U.S. dollar-denominated assets are faced with a pressing need to reassess portfolio allocations and re-balance for stability. Fixed Coupon Notes (FCNs) have emerged as a timely and strategic solution in this environment. Their unique structural advantages make them well-suited for today’s conditions, offering a compelling option for core allocations within a diversified portfolio.
The 2025 First-Half CIO Report by ARK Wealth Management introduces a strategic asset allocation framework in the form of a pyramid: at the base lies a safety cushion, the mid-layer consists of core stable holdings, and growth-oriented allocations sit at the top. Among these layers, core stable holdings play a pivotal role, serving as the anchor of a resilient portfolio. Selecting the right instruments for this layer is critical to reinforcing long-term capital stability.
Fixed Coupon Notes (FCNs) are particularly well-suited to today’s market conditions and represent a valuable tool for constructing core allocations. Warren Buffett, for example, has previously used FCN-like structures to invest in Coca-Cola, generating millions in returns. Similarly, Duan Yongping, renowned for his disciplined value investing approach, has applied FCNs in his allocation strategies involving companies like NVIDIA, Apple, and Tencent.
While structured products have traditionally been viewed as complex, elevated global equity market volatility has created a favorable window for professional investors to harness the defensive and customizable features of FCNs—positioning them as a timely solution for balancing income generation with capital preservation.
How Do FCNs Work — and Why Are They Relevant Now?
Compared to direct stock investments, which are highly sensitive to price fluctuations, allocating to FCNs linked to underlying equities can help reduce portfolio volatility. In choppy markets, this structure gives investors the opportunity to pursue more stable, incremental returns.
How an FCN Works: NVIDIA as an Example
Take NVIDIA, for instance. At the start of the year, its share price stood around $130. Amid market fluctuations, the stock declined to approximately $97 as of April 22, 2025. For investors holding the stock outright, this would represent a significant unrealized loss.
Now consider a different scenario: an investor enters an FCN linked to NVIDIA, with a strike price of $120 and a 14% annual coupon. If NVIDIA trades at $110 during the term, the investor still receives fixed income from the coupon, helping to cushion against the drop in share price. The capital is not directly exposed to the full equity downside unless specific barriers are breached.
Upside Scenario:
If NVIDIA’s share price rises and touches the pre-set knock-out level, the FCN is automatically redeemed early. The investor receives full principal repayment along with accrued coupon income—effectively locking in a gain while avoiding further market exposure.
Downside Scenario:
If the stock falls below the knock-in barrier and finishes below the strike price at maturity, the FCN may be converted into physical delivery (or a notional equivalent) of the underlying shares. However, the income generated through the fixed coupons during the investment term helps offset part of the loss, providing a buffer compared to direct stock holdings.
Hence, FCNs offer a risk-managed approach that balances downside protection with upside participation, aligning with the needs of sophisticated investors seeking to adapt to a volatile market.
FCNs: Three Layers of Protection for Core Portfolios
[Chart]
FCN: Capturing Opportunities, Seizing Gains, and Smartly Hedging Downside Risks
Bullish Scenario: Strong Gains, Guaranteed Returns
Scenario 1: Significant rise, knock-out triggered
Stable or Slightly Bearish Scenario: Consistent Income, Flexible Positioning
Scenario 2: Moderate decline, position held, income maintained
Bearish Scenario: Risk Managed; Loss Cushioned + Income
Scenario 3: Significant drop, knock-in triggered, partial redemption
派息日: Coupon Payment Date
到期日: Maturity Date
敲出日/价: Knock-Out Date/Price
敲入日/价: Knock-In Date/Price
执行价：Strike Price
接票：Taking delivery of the note
FCNs offer three layers of downside protection, making them a strong candidate for core portfolio allocation in volatile markets.
1. Consistent Income Stream
Regardless of market fluctuations, FCNs deliver fixed monthly coupon payments. This dependable cash flow provides ongoing income and reinforces portfolio stability.
2. Automatic Profit Lock-In During Market Upswings
If the underlying asset reaches a predetermined price level, the FCN’s knock-out mechanism is triggered. The product redeems early, returning principal along with all accrued coupons, allowing investors to efficiently lock in gains without needing to time the market.
3. Built-in Downside Mitigation
In a declining market, the preset strike price defines the maximum potential downside. Even if the underlying asset drops below this level, investors continue to receive fixed coupon payments throughout the term. This helps cushion losses and reduces the risks of panic selling. Acting like a portfolio “shock absorber,” this structure helps preserve asset value and investor discipline amid volatility.
Tailored FCNs to Meet Diverse Portfolio Needs
Every investor differs in their risk appetite, return expectations, and investment horizon, making one-size-fits-all strategies insufficient. Fixed Coupon Notes (FCNs), with their built-in flexibility, are well-suited for customized portfolio construction across varying investor profiles.
FCNs can be precisely structured to match individual objectives. Through professional consultation and risk assessment, investment teams can design bespoke FCN strategies that reflect each investor’s risk tolerance and return targets.
For conservative investors, the focus may be on high-quality, low-volatility underlying assets paired with defensive pricing structures—aimed at enhancing capital stability while maintaining steady income.
For growth-oriented investors, more dynamic terms can be introduced to pursue higher yields, while keeping risk within clearly defined parameters.
For those targeting popular or high-conviction equities, licensed providers can structure FCNs linked to trending names, including U.S. tech leaders and high-profile Chinese ADRs, offering exposure with built-in protection features.
In today’s complex market environment, FCNs stand out not only for their protective features, but also for their adaptability, making them a valuable tool in personalized asset allocation strategies.
Strategic Timing: Why Now Is an Optimal Entry Point for FCN
ARK Wealth Management offers highly customized and compelling Fixed Coupon Note (FCN) strategies for professional investors navigating an environment of declining interest rates and elevated market volatility.
1.Yield Advantage:
FCNs typically offer higher annualized returns than money market funds, making them an attractive alternative for income-seeking investors.
2.Liquidity and Flexibility:
With standard maturities around six months, FCNs provide greater flexibility than longer-term assets such as real estate or primary market commitments. This shorter duration enables more agile reallocation in response to shifting market conditions.
The current macro environment, characterized by rate compression and heightened volatility, presents a favorable backdrop for incorporating FCNs into a resilient core portfolio strategy.
We encourage investors and asset managers to consult with experienced financial advisors to explore bespoke FCN solutions tailored to their long-term objectives and risk parameters.
