Calamos Investments has become the latest investment manager to unveil a suite of ETFs dedicated to defined outcome investing.
Calamos Investments plans to roll out a comprehensive suite of defined outcome ETFs over the next year.
Defined outcome investing refers to an investment strategy that shapes the potential outcomes of a reference asset or index to fit specific protection and return levels, allowing for a more controlled investment experience.
Calamos’s suite, titled ‘Structured Protection’, includes three product lines focused on major US equity indices: the S&P 500, Nasdaq 100, and Russell 2000.
Each product line will feature four ETFs with one-year outcome periods, staggered to start quarterly, culminating in a total of 12 ETFs.
These Structured Protection ETFs leverage FLexible EXchange (FLEX) options—customizable, exchange-traded option contracts guaranteed by the Options Clearing Corporation—to create their defined outcome profiles.
Specifically, each ETF will aim to provide a 100% downside buffer, as referenced from the start of their one-year outcome periods, with potential equity upside capped according to market conditions at the outset of the outcome period.
Defined outcome ETFs typically have a perpetual structure meaning that their buffers and caps are reset at the end of each annual outcome period.
Investors should note that, as the defined outcome profiles have been tailored for their specific outcome period, this may affect the funds’ interim returns during the outcome period in two ways.
Firstly, due to the time value of the underlying options, the ETFs are likely to exhibit lower betas than traditional index-tracking ETFs. As such, they may lag the performance of their targeted index when markets are trending upwards.
Secondly, the ETFs are designed to provide full downside protection as referenced from the start of their outcome period. An investor who purchases shares of an ETF after the outcome period has begun may be immediately exposed to the downside in so far as the underlying index has appreciated since the start of the outcome period.
While these dynamics can present a challenge, Calamos will provide full daily disclosure for its Structured Protection ETFs including remaining cap, remaining downside before buffer, and remaining days in the outcome period.
The first fund in the suite, the Calamos S&P 500 Structured Alt Protection ETF (CPSM US), was listed on NYSE Arca on 1 May with an initial upside cap of 9.81% gross of fees.
Over the next year, Calamos plans to launch additional ETFs in this suite according to the following schedule:
S&P 500 Structured Alt Protection ETFs in August, November, and the following February.
Nasdaq 100 Structured Alt Protection ETFs in June, September, December, and the subsequent March.
Russell 2000 Structured Alt Protection ETFs in July, October, January, and April.
Each of the 12 ETFs within the suite has an expense ratio of 0.69%, positioned competitively below the average cost for similar defined outcome ETFs currently available in the US. For comparison, the lowest-cost one-year defined outcome ETFs in the US, offered by PGIM Investments, come with expense ratios of 0.50%. These funds track the S&P 500 while providing limited buffers against the first 12% or 20% of losses over their outcome periods.