On this episode of the “ETF of the Week” podcast, VettaFi’s Head of Research Todd Rosenbluth discussed the Calamos S&P 500 Structured Alt Protection ETF – November (CPSN) with Chuck Jaffe of Money Life. The pair discussed several topics related to the fund to give investors a deeper understanding of the ETF overall.
Chuck Jaffe: One fund, on point for today. The expert to talk about it. This is the ETF of the Week. Welcome to the ETF of the Week, where we get the latest take from Todd Rosenbluth, the Head of Research at VettaFi. And if you go to VettaFi.com, you’ll find all the tools you need to be a savvier, smarter investor in exchange traded funds.
And you’ll get more details on the new, newsworthy, trending, and timely ETFs that we talk about here. Todd Rosenbluth, great to chat with you again!
Todd Rosenbluth: It’s great to be back, Chuck.
Chuck Jaffe: Your ETF of the Week is…
Todd Rosenbluth: The Calamos S&P 500 Structured Alt Protection ETF – November. The ticker is CPSN.
Chuck Jaffe: CPSN, it is the Calamos Structured Protection ETF for November. Structured Alt Protection ETF for November, if we’re going to get every term in there.
Now, this is a brand new fund. That November date is important. This fund just started. There’s a lot to cover here.
We are recording this on election day. This is airing post-election day, but we don’t know what the results are going to be. Is this about, “Hey, since we don’t know the results, we’ll go for maximum protection in an equity fund, and this is it”?
Todd Rosenbluth: That’s part of it. Not only do you and I not know the results as we’re recording this, it’s quite possible that when the listeners and those that are watching it see and hear this, we might not have finality. The market is likely to be volatile for the presidential election.
It’s quite likely that we don’t know who’s going to be leading the House of Representatives for weeks to come. Market volatility is concerning to many investors. This ETF from Calamos gives you that 100% downside protection. Upside of roughly 7%, depending upon when you buy the fund, because it’s 7% from the launch date on November 1. This is a great way to be participating in some of the market gains, but yet be able to sleep at night.
Chuck Jaffe: Whenever you’re looking at a structured protection fund, all of the devil is in the details. So let’s go over this. This is a fund that, when they launched on November the 1, came out and said the cap is 7.43%. The cap means the maximum you could make in this fund, no matter how much the stock market makes, is 7.43%. But it’s 100% downside protection, which means no matter how much the market would tank, your loss would be zero.
So you’re giving up upside potential. What happens if the market puts in another 15% or 20% year for the fact that you will have zero in losses? How good is that trade, and how much of that trade really depends on how any fund is structured? Because you can get ones that don’t protect you 100% and give you a little more potential gain.
And there’s a lot of goofiness — or maybe it’s smartness — in the details.
Todd Rosenbluth: So, this fund is going to do what it says it’s going to do from the launch date. You are going to have that protection. There are other funds that are out there that offer some protection. These are buffered ETFs. Innovator and First Trust offer a suite of these products, among others, where there’s 15% downside protection or 30% downside protection.
This is giving you a 100% protection. It’s not because it’s better or worse. It’s that this is how it’s structured. This is how it’s using options. So really the the issue is, do you as an investor think that the market’s going to rally much stronger than that 7% between now and the next 12 months? That’s important for us to state.
This is a 12-month time horizon. And Calamos has launched products, since six months ago, roughly every month, that have a 12-month rolling forward basis. If you think the market is going to do much greater than 7%, this is not the fund for you. If you are comfortable taking on some principle risk in having the market, the S&P 500 be down 10%, 15%, 20% within that 12-month period, but want that reward… This is not a fund for you.
This is a fund for people who have fear, but want to participate in some of the upside. The caveat, I would say is, this audio and video recording will have a longer shelf life. As the stock market goes up, the upside potential that you’re going to get capped out on is going to shrink. And there is going to be some downside that you could lose because the starting point, we’re now running the race, to use that metaphor.
We have started the race, because it is no longer November 1 as we’re recording this. So as I’m looking right now, there is 99.8% downside protection, no longer 100% protection. Close to 100%, but not exactly there. So, the devil is in the details on when you buy this fund, if this is the fund for you.
Chuck Jaffe: We’re talking about this as the ETF of the Week for the first week of November 2024, just in case somebody is looking at back at this way after it’s aired. You might, if you’re interested in the structure, take whatever the flavor of the month is. In other words, yes, they do issue new ones of these.
If you like them, you would want to do this. Does that also mean that an investor who is interested in this kind of wants to ladder their portfolio? That if you’ve got a portion that you want to put into an asset protection fund, you maybe want to go put a third in, you know, this month, and a third and next month, or a third in in a quarter or whatever it might be, and a third six months from now.
Do you want to do this more like a laddered kind of a thing than you would with any regular, ordinary ETF?
Todd Rosenbluth: So Calamos actually offers a laddered approach. The ticker is CPSL. That does the work for you. That is not my ETF of the Week, because it’s a slightly more complicated strategy. And you’re going back for a number of months, and you will go forward for a number of months. So that’s why we’re focusing on the November series, because that’s the one that came out.
But Calamos is doing this for you. Or of course, you could do this yourself and buy on a rolling basis the months that are a focus for you. You could do this in a risk on, risk off.
So you could pair this strategy, the November series from Calamos, with the S&P 500 with SPY or IVV or VOO — those S&P 500 index-based ETFs — and then limit your downside, but be able to control your own destiny as to how much downside you have, as opposed to those Innovator and First Trust ETFs that we talked about. There’s a lot of different use cases for this.
Chuck Jaffe: It’s also important that people understand that when we talk about the cap rate here, that you’re only getting the cap rate if the market performs up to or above the cap rate level. You’re not getting 7.5%, or almost 7.5%, if the market is up 2% over the next year. So there’s no guarantee on the upside. All of the protection is on the downside.
Todd Rosenbluth: That’s correct. So, right, the market has to rally from now into the next 12 months. And that is likely to happen. The market typically goes up in a 12-month time period, but doesn’t always go up in that 12-month period. So actually, that’s why this fund makes sense for people who don’t believe the market is going to be that strong. They’re moderately bullish, I guess, as opposed to being bullish, that there’s still room to to go in the market.
But we’re recording this and I believe the S&P 500 is up roughly 20%, maybe even higher, by the time people are listening. Or I guess it could be lower if the market moves. So we’ve had quite a run thus far in 2024. We might not have that strong run for the rest of the year or for the 12 months forward.
And so that’s why this ETF could make sense for some investors.
Chuck Jaffe: We don’t always talk about expenses here. We know that expenses are important, but you’re usually not picking a fund based on expenses. But this one’s interesting, because we have to talk expenses. The fund has an expense ratio of 0.69%. But of course, if you wind up in a situation where the market goes gangbusters, if the market does 15 or 20% next year, you are giving up that upside potential.
How do you weigh that in? Because it’s not a cost. It’s not part of the expense ratio. But when you look back, you might look back and go wow, that cost me a lot.
Todd Rosenbluth: Right. So, you could do this on your own, and it would be labor intensive for you to be able to use options to manage it. So, options-based ETFs tend to have a higher fee than just a traditional index-based product. The underlying ETF, SPY, is nine basis points. You can get S&P 500 exposure for 2 or 3 basis points.
You are paying up for the options-based strategy that Calamos is offering. And yes, if the cap is 7% on a gross basis, on a net basis after expenses, you obviously have to take that roughly 70 basis points out. So, there’s a cost to invest in this product. For some investors, that’s certainly going to be worth it for that downside protection.
Chuck Jaffe: For anybody who is considering this, where does this fit in a portfolio? In other words, what’s the role you want this fund? You consider it equity when you’re capping the equity? Do you consider it cash because you can’t really lose if you’re close enough to the guarantee? How do you play this?
Todd Rosenbluth: I guess it matters what your mindset is. If you’re thinking of this in complement to your existing equity strategy, and this is a downside — this is downside protection. But this is a cash alternative. Although it doesn’t pay you any income. You’re not getting any fixed income the way that you would with a short-term Treasury-bill-based product. We’ve talked about some of those products.
Or if you’re in a money market fund, you’re getting some income. You are getting equity exposure. You’re just doing it in a lower-risk way. So it can fit into your asset allocation strategy in a number of different ways. We know of some investors that are using this series, not necessarily this ETF since it just came out, but the series as a cash alternative.
And we know of some investors and advisors that are using this as part of the equity allocation. It can serve multiple purposes. This is what makes this Calamos ETF compelling to us to highlight for consideration during the likely volatility of election week — month? We’ll see.
Chuck Jaffe: It’s the CPSN. The Calamos S&P 500 Structured Asset Protection ETF. The ETF of the Week from Todd Rosenbluth at VettaFi. Todd, really interesting. We’ll talk to you again next week!
Todd Rosenbluth: See you next time, Chuck.
Chuck Jaffe: The ETF of the Week is a joint production of VettaFi and Money Life with Chuck Jaffe. And yeah, I’m Chuck Jaffe. And you can learn all about my hour-long weekday show by going to MoneyLifeShow.com, or by searching for it wherever you find great podcasts.
And if you’re searching for great information on exchange traded funds, well, search no further than VettaFi.com, where they have all the tools you need to make yourself a better investor. They’re on X at @Vetta_Fi.
Todd Rosenbluth, their head of research and my guest here on ETF of the Week, he’s on X too, at @ToddRosenbluth. The ETF of the Week is here for you every Thursday.
And we will be back with another great ETF for you next week. But until then, be safe everybody, and happy investing!
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