In March, VettaFi held its annual Exchange Conference, bringing together experts and asset managers from across the globe. With economic uncertainty top of mind, many attendees were eager to learn about alternative strategies they can put to work in unsettled markets. Matt Kaufman, SVP and Head of ETFs at Calamos Investments, sat down with the VettaFi team to highlight a few standout alternative strategies that deserve consideration.
De-Risking One’s Equity Portfolio
Nick Wodeshick: With today’s rapidly shifting market conditions, many advisors are reconsidering their equity portfolio positioning. What solution would you recommend for clients seeking more risk-conscious equity exposure?
Matt Kaufman: I see advisors and investors utilizing the Calamos Laddered S&P 500® Structured Alt Protection ETF (CPSL) to help de-risk their equity exposure, especially through short-term and even mid-term market volatility. If you’ve got 100% pure equity exposure within your equity sleeve, you may consider going into a 70/30 split, with the 30% being allocated to Structured Protection ETFs like CPSL. From that perspective, it can be a tool advisors use to de-risk an equity sleeve to the point where they’re comfortable.
Before now, there was really never a way for advisors to achieve the risk tolerance that they were looking for in such a way. What have the alternatives been? Move to cash or move to bonds, each with its own risks. Especially cash, given how cash in an inflationary environment can be damaging to your portfolio.
Now, you’ve got a solution where you can get upside to a cap, no downside risk, and you can choose how much to move in and out. It can help create some really interesting skew in your portfolio.
Blending Bond Exposure with Equities
Wodeshick: On the topic of bonds, the Calamos Alternative Nasdaq & Bond ETF (CANQ ) has shown impressive yield performance. Could you walk us through the fund’s strategy and what it can bring to a portfolio?
Kaufman: We built CANQ after rates rose 500 basis points. I believe it was either the sharpest or the second sharpest rise in U.S. history. The thought was that many options-based premium income ETF products were generally made for a zero-rate environment. Now, we can use bonds as a protection layer again.
We put 90% of the portfolio in bonds. From there, we used the remaining 10% of the portfolio for equities. That’s all it takes to create really good upside exposure to QQQ stocks. We buy call options on Nasdaq-100® stocks, we’ve got a built-in bond floor, and it’s performed phenomenally.
Think of what might happen if we have a correction in the Nasdaq-100. It’s a laddered portfolio, so some of the options might expire worthless, but you’ve got a bond portfolio that’s a ballast and holding up the whole thing. If rates start falling in that environment, that will add even more juice to the bond portfolio. It’s kicking off anywhere from 5% to 7% in monthly distribution.
We believe it’s an impressive product. We’ve outperformed the Qs since inception. Since we launched on February 13, 2024, we’ve captured 98% of the Qs upside. The Nasdaq has come down since the recent fall, and we’ve outperformed the Qs with about a two-thirds of the volatility. So yes, we couldn’t be happier with that product.
Advantages of Active Closed-End Fund ETFs
Wodeshick: Lately, closed-end funds have been highlighted as potential bond alternatives. Calamos operates the Calamos CEF Income & Arbitrage ETF (CCEF ). Why do you think investors should consider CCEF in lieu of other closed-end fund ETFs on the market?
Kaufman: As interest rates are falling, the discounts are usually narrowing as well. CCEF has been at Calamos as a strategy for four years now, and it’s been performing phenomenally. It’s doing very well in the market, live as an ETF for about a year.
It invests in discounted closed-end funds that pay strong distribution rates, so you get about 8% to 10% in income. Then we try to find the closed-end funds that are poised to close that discount. Many closed end funds are perpetually traded at a discount.
Having active management gives investors a good opportunity to buy the closed-end funds who are poised to close these discounts. When you look at competitors in the market, many of them are just buying closed-end funds under blanket themes. From our perspective, active management can really help separate out the most attractive funds.
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Before investing carefully consider the fund’s investment objectives, risks, charges and expenses. Please see the prospectus and summary prospectus containing this and other information which can be obtained by calling 1-866-363-9219 Read it carefully before investing.
An investment in the Fund(s) is subject to risks, and you could lose money on your investment in the Fund(s). There can be no assurance that the Fund(s) will achieve its investment objective. Your investment in the Fund(s) is not a deposit in a bank and is not insured or guaranteed by the Federal Deposit Insurance Corporation (FDIC) or any other government agency. The risks associated with an investment in the Fund(s) can increase during times of significant market volatility. The Fund(s) also has specific principal risks, which are described below. More detailed information regarding these risks can be found in the Fund’s prospectus.
Investing involves risks. Loss of principal is possible. The Fund(s) face numerous market trading risks, including authorized participation concentration risk, cap change risk, capital protection risk, capped upside risk, cash holdings risk, clearing member default risk, correlation risk, derivatives risk, equity securities risk, investment timing risk, large-capitalization investing risk, liquidity risk, market maker risk, market risk, non-diversification risk, options risk, premium discount risk, secondary market trading risk, sector risk, tax risk, trading issues risk, underlying ETF risk and valuation risk. For a detailed list of fund risks see the prospectus.
CPSL DISCLOSURES
FUND-OF-FUNDS RISK. Shareholders of the Fund will experience investment returns that are different than the investment returns provided by an Underlying ETF. The Fund does not itself pursue a defined outcome strategy, nor does the Fund itself provide downside protection against SPY losses. Because the Fund will typically not purchase an Underlying ETF on the first day of a Target Outcome Period, it is not likely that the stated outcome of the Underlying ETF will be realized by the Fund. The Fund will be continuously exposed to the investment profiles of each of the Underlying ETFs during their respective Target Outcome Periods. The Fund, with its aggregate exposure to each of the Underlying ETFs, may have investment returns that are inferior to that of any single Underlying ETF or group of Underlying ETFs over any given time period. In between the semi-annual rebalance period of the Index because the Fund is not equally weighted on a continuous basis, the Fund may be exposed to one or more Underlying ETFs disproportionately when compared to other Underlying ETFs. In such circumstances, the Fund will be subject to the over-weighted performance of such Underlying ETF.
As a shareholder in other ETFs, the Fund bears its proportionate share of each ETF’s expenses, subjecting Fund shareholders to duplicative expenses.
There are no assurances the Underlying ETFs will be successful in providing the sought-after protection. The outcomes that the Underlying ETFs seek to provide may only be realized if you are holding shares on the first day of the outcome period and continue to hold them on the last day of the outcome period, approximately one year. There is no guarantee that the outcomes for an outcome period will be realized or that the Underlying ETFs will achieve its investment objective. If the outcome period has begun and the underlying ETF has increased in value, any appreciation of the Fund(s) by virtue of increases in the underlying ETF since the commencement of the outcome period will not be protected by the sought-after protection, and an investor could experience losses until the underlying ETF returns to the original price at the commencement of the outcome period. The Underlying ETFs are subject to an upside return cap (the “Cap”) that represents the maximum percentage return an investor can achieve from an investment in the fund(s) for the outcome period, before fees and expenses. If the outcome period has begun and the Underlying ETFs have increased in value to a level near to their individual Cap, an investor purchasing at that price has little or no ability to achieve gains but remains vulnerable to downside risks. Additionally, the Cap may rise or fall from one outcome period to the next. Unlike the Underlying ETFs, the Fund itself does not pursue a target outcome strategy. The protection is only provided by the Underlying ETFs and the Fund itself does not provide any stated downside protection against losses. The Fund will likely not receive the full benefit of the Underlying ETF downside protections and could have limited upside potential. The Fund’s returns are limited by the caps of the Underlying ETFs.
Cap Rate – Maximum percentage return an investor can achieve from an investment in the Fund if held over the Outcome Period. Protection Level –Amount of protection the Fund is designed to achieve over the Days Remaining.
Outcome Period – The defined length of time over which the outcomes are sought.
The S&P 500 Price Index (SPX) tracks the price return of the S&P 500 Index, which is generally considered representative of the US stock market.
Unmanaged index returns, unlike fund returns, do not reflect fees, expenses or sales charges. Investors cannot invest directly in an index.
The “S&P 500” is a product of S&P Dow Jones Indices LLC or its affiliates (“SPDJI”) and S&P Global, and has been licensed for use by Calamos Advisors LLC (“CAL”). Standard & Poor’s® and S&P® are registered trademarks of Standard & Poor’s Financial Services LLC (“S&P”) and Dow Jones® is a registered trademark of Dow Jones Trademark Holdings LLC (“Dow Jones”). The trademarks have been licensed to SPDJI and have been sublicensed for use for certain purposes by CAL. Calamos S&P 500 Structured Protection ETFs are not sponsored, endorsed, sold or promoted by SPDJI, Dow Jones, S&P, any of their respective affiliates (collectively, “S&P Dow Jones Indices”) or S&P Global. Neither S&P Dow Jones Indices nor S&P Global make any representation or warranty, express or implied, to the owners of the Calamos S&P 500 Structured Protection ETFs or any member of the public regarding the advisability of investing in securities generally or in Calamos S&P 500 Structured Protection ETFs particularly or the ability of the S&P 500 to track general market performance. S&P Dow Jones Indices and S&P Global only relationship to CAL with respect to the S&P 500 is the licensing of the Index and certain trademarks, service marks and/or trade names of S&P Dow Jones Indices and/or its licensors. The S&P 500 is determined, composed and calculated by S&P Dow Jones Indices or S&P Global without regard to CAL or the Calamos S&P 500 Structured Protection ETFs. S&P Dow Jones Indices and S&P Global have no obligation to take the needs of CAL or the owners of Calamos S&P 500 Structured Protection ETFs into consideration in determining, composing or calculating the S&P 500. Neither S&P Dow Jones Indices nor S&P Global are responsible for and have not participated in the determination of the prices, and amount of Calamos S&P 500 Structured Protection ETFs or the timing of the issuance or sale of Calamos S&P 500 Structured Protection ETFs or in the determination or calculation of the equation by which Calamos S&P 500 Structured Protection ETFs are to be converted into cash, surrendered or redeemed, as the case may be. S&P Dow Jones Indices and S&P Global have no obligation or liability in connection with the administration, marketing or trading of Calamos S&P 500 Structured Protection ETFs. There is no assurance that investment products based on the S&P 500 will accurately track index performance or provide positive investment returns. S&P Dow Jones Indices LLC is not an investment advisor. Inclusion of a security within an index is not a recommendation by S&P Dow Jones Indices to buy, sell, or hold such security, nor is it considered to be investment advice.
NEITHER S&P DOW JONES INDICES NOR [THIRD PARTY LICENSOR] GUARANTEES THE ADEQUACY, ACCURACY, TIMELINESS AND/OR THE COMPLETENESS OF THE [INDEX] OR ANY DATA RELATED THERETO OR ANY COMMUNICATION, INCLUDING BUT NOT LIMITED TO, ORAL OR WRITTEN COMMUNICATION (INCLUDING ELECTRONIC COMMUNICATIONS) WITH RESPECT THERETO. S&P DOW JONES INDICES AND [THIRD PARTY LICENSOR] SHALL NOT BE SUBJECT TO ANY DAMAGES OR LIABILITY FOR ANY ERRORS, OMISSIONS, OR DELAYS THEREIN. S&P DOW JONES INDICES AND [THIRD PARTY LICENSOR] MAKES NO EXPRESS OR IMPLIED WARRANTIES, AND EXPRESSLY DISCLAIMS ALL WARRANTIES, OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE OR USE OR AS TO RESULTS TO BE OBTAINED BY [LICENSEE], OWNERS OF THE [LICENSEE ETF], OR ANY OTHER PERSON OR ENTITY FROM THE USE OF THE [INDEX] OR WITH RESPECT TO ANY DATA RELATED THERETO. WITHOUT LIMITING ANY OF THE FOREGOING, IN NO EVENT WHATSOEVER SHALL S&P DOW JONES INDICES OR [THIRD PARTY LICENSOR] BE LIABLE FOR ANY INDIRECT, SPECIAL, INCIDENTAL, PUNITIVE, OR CONSEQUENTIAL DAMAGES INCLUDING BUT NOT LIMITED TO, LOSS OF PROFITS, TRADING LOSSES, LOST TIME OR GOODWILL, EVEN IF THEY HAVE BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES, WHETHER IN CONTRACT, TORT, STRICT LIABILITY, OR OTHERWISE. THERE ARE NO THIRD PARTY BENEFICIARIES OF ANY AGREEMENTS OR ARRANGEMENTS BETWEEN S&P DOW JONES INDICES AND [LICENSEE], OTHER THAN THE LICENSORS OF S&P DOW JONES INDICES.
CANQ DISCLOSURES
Risks of investing in the *Calamos Nasdaq® Equity & Income ETF* include risks associated with: Authorized Participant Concentration Risk — Only an Authorized Participant may engage in creation or redemption transactions directly with the Fund, and none of those Authorized Participants is obligated to engage in creation and/or redemption transactions; Debt Securities Risk — Debt securities are subject to various risks, including interest rate risk, credit risk and default risk; Equity Securities Risk — The securities markets are volatile, and the market prices of the Fund’s securities may decline generally; FLEX Options Risk — The Fund may invest in FLEX Options issued and guaranteed for settlement by The Options Clearing Corporation (“OCC”). FLEX Options are customized option contracts that trade on an exchange but provide investors with the ability to customize key contract terms like strike price, style and expiration date while achieving price discovery in competitive, transparent auctions markets and avoiding the counterparty exposure of over-the-counter options positions; High Yield Risk — High yield securities and unrated securities of similar credit quality (commonly known as “junk bonds”) are subject to greater levels of credit and liquidity risks; LEAPS Options Risk — The Fund’s investments in options contracts may include long-term equity anticipation securities known as LEAPS Options. LEAPS Options are long-term exchange-traded call options that allow holders the opportunity to participate in the underlying securities’ appreciation in excess of a specified strike price without receiving payments equivalent to any cash dividends declared on the underlying securities; Liquidity Risk – FLEX Options — In the event that trading in the underlying FLEX Options is limited or absent, the value of the Fund’s FLEX Options may decrease; Liquidity Risk – LEAPS Options — In the event that trading in the underlying LEAPS Options is limited or absent, the value of the Fund’s LEAPS Options may decrease; Market Maker Risk — If the Fund has lower average daily trading volumes, it may rely on a small number of third-party market makers to provide a market for the purchase and sale of Fund Shares; Market Risk —The risk that the securities markets will increase or decrease in value is considered market risk and applies to any security; New Fund Risk — The Fund is a recently organized investment company with a limited operating history; Non-Diversification Risk — The Fund is classified as “non-diversified” under the 1940 Act; Options Risk —The Fund’s ability to close out its position as a purchaser or seller of an over-the-counter or exchange-listed put or call option is dependent, in part, upon the liquidity of the option market; Other Investment Companies (including ETFs) Risk — The Fund may invest in the securities of other investment companies to the extent that such investments are consistent with the Fund’s investment objective and the policies are permissible under the 1940 Act.
Nasdaq® and Nasdaq-100, are registered trademarks of Nasdaq, Inc. (which with its affiliates is referred to as the “Corporations”) and are licensed for use by Calamos Advisors LLC. The Fund has not been passed on by the Corporations as to their legality or suitability. The Fund is not issued, endorsed, sold, or promoted by the Corporations. The Corporations make no warranties and bear no liability with respect to the Fund(s).
CCEF DISCLOSURES
Risks of investing in the Fund include risks associated with (1) the Fund’s investment in closed-end fund shares; (2) the closed-end funds’ investments; and (3) any other investments of the Fund, including investments in ETFs, BDCs, and derivative instruments. The shares of closed-end funds may trade at a discount or premium to, or at, their NAV. The securities of closed-end funds may be leveraged. As a result, the Fund may be exposed indirectly to leverage through an investment in such securities. An investment in securities of closed-end funds that use leverage may expose the Fund to higher volatility in the market value of such securities and the possibility that the Fund’s long-term returns on such securities (and, indirectly, the long-term returns of its shares) will be diminished. In addition, closed-end funds are allowed to invest in a greater amount of illiquid securities than open-end mutual funds. Investments in illiquid securities pose risks related to uncertainty in valuations, volatile market prices, and limitations on resale that may have an adverse effect on the ability of the fund to dispose of the securities promptly or at reasonable prices. The Fund may invest in BDCs, which typically operate to invest in, or lend capital to, early stage-to-mature private companies as well as small public companies. The Fund’s investment in shares of ETFs subjects it to the risks of owning the securities underlying the ETF, as well as the same structural risks faced by an investor purchasing shares of the Fund, including authorized participant concentration risk, market maker risk, premium-discount risk and trading issues risk. Derivatives are instruments, such as futures and forward foreign currency contracts, whose value is derived from that of other assets, rates or indices. The use of derivatives for non-hedging purposes may be considered more speculative than other types of investments.
STRUCTURED ALT PROTECTION ETF and STRUCTURED PROTECTION ETF are trademarks of Calamos Investments LLC.
Calamos Financial Services LLC, Distributor
Calamos Financial Services LLC
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