The Investment Case for Active ETFs | ETF Trends

Data indicates that active ETFs are gaining momentum in the investment space. Years ago, the overall ETF market was seeing exponential growth. The low-rate environment that followed the Great Financial Crisis saw the number of ETFs more than triple, from around 900 to well over 3,000 by the end of 2022, when rates started to rise. Similarly, assets during that period grew from around $530 billion in 2008 to more than $6.5 trillion at the end of 2022.

Graphic provided by Calamos Investments

Active ETF Flows Movin’ On Up

More recently, that outsized growth has been concentrated in the actively managed subset of the ETF industry. Right now, there are roughly $550 billion in assets in actively managed ETFs. That is less than 7% of the total amount invested in U.S.-listed ETFs.

An article from Morningstar notes that in the first quarter of 2024, U.S.-listed ETFs as a whole added $195 billion, with actively managed ETFs representing one-third of that inflow. This is an outsized amount given their relatively low asset level compared to the total ETF market. The Q1 percentage of active flows is also up significantly from 22% for all of 2023.

Reasons for Active Growth

There are several reasons why traders and investors alike are pivoting resources toward actively managed ETFs.

  • For one thing, they can harness the benefits of a mutual fund while enjoying the increased cost-efficiency and liquidity of the ETF structure. Generally speaking, the ETF wrapper offers more liquidity and tax efficiency.
  • Active ETFs can also benefit from the increased transparency benefits of the ETF wrapper. Most ETFs are fully transparent, allowing investors to examine the fund’s current holdings. Semitransparent ETFs can operate with different visibility rules but are a small percentage of the ETF universe.
  • An active ETF can leverage several of the mutual fund’s strengths. This adjusts investments in response to market movements in a way that is impossible for a passively managed ETF. This flexibility can be particularly crucial in moments of market volatility. That is because the active ETF can take defensive positions in real-time rather than at the next index rebalance.

Calamos Brings Its Active Expertise to the ETF Market

Calamos Investments offers ETFs that leverage the benefits of actively managed strategies.

The Calamos CEF Income & Arbitrage ETF (CCEF) seeks high monthly income and capital appreciation by investing in discounted closed-end funds.

CCEF’s actively managed framework allows it to quickly reposition assets in discounted, undervalued closed-end funds. This exploits inefficiencies in that market when the funds potentially appreciate. Calamos has two decades of experience operating in the closed-end fund market, which informs CCEF’s portfolio oversight.

The ETF is already seeing good results, with the NAV up 6.07% since inception, as of March 31st, 2024. It oversees more than $8 million in AUM and has a net expense ratio of 2.74%. As of March 31, it offers a distribution yield of 8.14%.

Calamos Alternative Nasdaq & Bond ETF (CANQ) also leverages the flexibility of active investing. The fund employs a hybrid investing approach, offering exposure to Nasdaq-100 stocks via FLEX®options contracts while providing portfolio diversification through bond investing. This active, adaptable approach allows the fund to adjust its exposures as needed amid rapidly changing markets.

CANQ’s active management strategy has shown solid returns. As of March 31st, 2024, the NAV is up 1.73% since inception. It has a net expense ratio of 0.90%. CANQ’s distribution yield as of the end of March is 4.9%.

Calamos currently has four ETFs listed in the United States and has filed for many more. The goal is to create a comprehensive lineup based on the firm’s well-honed, active expertise.

For more news, information, and analysis, visit the Alternatives Channel.

Disclosure Information

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.  

Risks of investing in the CCEF 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.

Additional Information

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.  

Calamos Financial Services LLC, Distributor

Calamos Financial Services LLC
2020 Calamos Court | Naperville, IL 60563
866.363.9219 | | [email protected]
2023 Calamos Investments LLC. All Rights Reserved.
Calamos and Calamos Investments are registered trademarks of Calamos LLC.  

Risks of investing in the Calamos Alternative Nasdaq & Bond 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®, Nasdaq-100®, Nasdaq-100 Index® and Nasdaq-100 Top 30 Hybrid Income Index® are registered trademarks of Nasdaq, Inc. (which with its affiliates is referred to as the “Corporations”) and are licensed for use by Calamos Avisors 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.