- The new ETF is designed to provide investors with “100% downside protection” to the stock market.
- But buying ETFs also has the pitfall of limiting the stock market's upside potential.
- Calamos S&P 500 Structured Alt Protection ETF will go on sale on Wednesday under the ticker symbol “CPSM.”
The new ETF promises to offer investors “100% downside protection” on the stock market, but there are some caveats.
Calamos S&P 500 Structured Alt Protection ETF – May launches this Wednesday under the ticker symbol “CPSM.”
The ETF is designed to provide 100% protection against the S&P 500 for one year to investors who purchase the ETF on May 1, the first day of issuance.
The problem is that investors' upside for the S&P 500 is limited to a range of 9.20% to 9.65%.
“These are packages of option positions customized to expire on the same day one year from now and can provide upside to the cap. There is no free lunch here, so the cap is just 9.65% You're 100% protected for the next 365 days,” Matt Kaufman, head of ETFs at Calamos, told CNBC on Monday.
Another issue is that investors must purchase the ETF on the first day of issuance to ensure 100% downside protection. An investor can buy her ETF after May 1st, but its downside protection will vary by less than 100% depending on the option price.
“The earlier we get involved from day one, the closer we can get to 100% protection,” Kaufman said.
This ETF offers investors an attractive risk-reward profile, delivering returns of over 9.65% with no downside. This, as history has shown, is likely to be the type of product that is attractive to retired investors who want to have some exposure to the stock market without the potential downside.
The ETF has an annual expense ratio of 0.69%, and Calamos plans to offer 11 more structured ETFs over the next year that track various indexes, including the Nasdaq 100 and the Russell 2000. The cap for these ETFs has not yet been determined. ETF.
On average, the S&P 500 returns about 10% a year, and after inflation it returns 7%, but it tends to deliver annual returns well below or above that average return.
For example, in 2023, the S&P 500 rose about 25%. This is a scenario in which investors may wish they hadn't bought a structured ETF product like CPSM.
But on the other hand, investors in structured debt investments like CPSM would probably have been pretty happy in 2022, when the S&P 500 lost nearly 20%.
Structured debt investments that limit the downside and limit the upside of the stock market have always existed, but they have been difficult to access due to high fees. The new products offered by Calamos are unique in that he incorporates these products into his ETFs, making them more accessible to investors.
