How the issuing institutions and investment industry market PPNs is of great concern. The investor’s fear of capital loss is the motivating emotion and PPN marketers understand this fully. PPNs are positioned as a substitute for traditional Fixed Income investment like Guaranteed Investment Certificates (GICs) and government bonds, yet they are not even similar in their features and eventual investment outcomes.
PPNs are a hybrid investment, not a Fixed Income investment. Other than the issuer’s guarantee of investment principal, PPNs do not share any of the same features with other Fixed Income investments and, therefore, should not be compared to each other.
Investors should understand the features and characteristics of a PPN and identify the job a PPN performs as defined by their Investment Policy Statement (IPS). If your IPS does not identify a job for PPNs within your investment portfolio, then there is no need to explore this investment type any further.