In a recent episode of "Behind the Ticker," host Brad delves into the innovative financial products from Calamos with guest Matt Kaufman. Kaufman, with a rich background in the ETF and insurance industries, discusses his journey through various financial sectors and how these experiences have shaped the development of new ETF products at Calamos. The episode focuses on the launch of Calamos's new ETF, CPSM, which offers 100% downside protection with capped upside potential, a novel approach in the ETF space aimed at providing investors with a safety net in volatile markets.Kaufman explains the technical aspects of CPSM, describing it as a structured product that combines options to deliver both capital protection and potential gains linked to the S&P 500 index. This ETF is particularly relevant in a rising rate environment where traditional low-risk investments like CDs and money markets become more attractive due to higher returns. Kaufman’s detailed explanation sheds light on the potential of CPSM to be a game-changer for risk-averse investors looking for equity exposure without the downside risk.Throughout the podcast, Kaufman not only details the specific mechanics of CPSM but also discusses broader financial strategies and the future of ETFs. He envisions a significant shift of assets from traditional mutual funds to more tax-efficient and liquid ETFs, predicting growth in active ETFs. The conversation also touches on how these structured products can be incorporated into diversified investment portfolios to manage risk effectively. This episode provides deep insights into the intersection of ETF innovation and risk management, positioning Calamos at the forefront of this evolving market landscape.
Deeper Dive: Insights from the Full Conversation
Beyond the headline strategy, the full conversation between Brad and Matt Kaufman covered several additional themes worth highlighting for advisors and investors.
On Process and Philosophy
It was a fantastic opportunity looking back, learned to tremendous amount about the insurance world, about hedging strategies, what works, what maybe doesn't work, and what we saw there was largely rate-driven, a lot of insurance products are rate-driven, and so after the financial crisis rates were extremely low, and it was very difficult to, from a investor's perspective, it was difficult to provide or get risk management or income from bonds. And so people were looking toward the equity markets to do that.
Now that rates are higher, I think we have opportunities to generate risk management and income from bonds again. And so, to the extent there's rate declines, I think that those bonds make perform well. So, we have some other ETFs that are focused on that type of approach as well. Can Q is one of those ETFs that we launched a couple months ago. One thing that we've seen advisors use these protection products for is just derisking equity exposure.
Market Context and Positioning
They were running equity risk management strategies, covered call strategies to generate income. People were looking at the equity markets to generate risk management and income. And that worked very well. We had built around 50, 55 funds, largely for life insurance companies, variable-newty sub-accounts, raised a significant amount of assets there. The other thing that we noticed is it was difficult for life insurance companies to deliver meaningful upside on their fixed index to newities, which for an ETF user may not be familiar with that marketplace, but that delivers equity linked upside with no downside risk.
And then you would pay ordinary income tax on that, which here in the highest tax bracket that turns into 3.2, 3.3 percent. Or you can turn in that guaranteed 3.2, 3.3 percent and get the chance to earn your upside of the market. So you get the, you can link your cash essentially to the equity markets, get upwards of 9.8 percent, and then have no greater downside risk over that one year out compared. So again, it's for folks who want to buy in at the beginning, hold till the end, they get that out-comperiod performance.
But if you bought in that day, you would have instead of a 9.8% upside. If the market was up 5, let's say your ETF's up 2%, so you would have a 7% cap because you've got a 7% left. And then you would have 2% of downside risk left. Or, I said another way, you'd have 98% protection. It's still very strong protection because the ETF price is up 2%. So, that might be difficult to follow just on audio, but hopefully everybody's tracking there.
Notable Insights
"The trouble or the opportunity is on the mutual fund side, that active bucket 13 trillion is almost exclusively in the mutual fund."
Key Takeaways
- This episode provides deep insights into the intersection of ETF innovation and risk management, positioning Calamos at the forefront of this evolving market landscape.
- The conversation explores important themes in etf structure relevant to today's advisor landscape.
- The conversation explores important themes in risk management relevant to today's advisor landscape.
What This Means for Advisors
For financial advisors evaluating options for client portfolios, this conversation with Matt Kaufman highlights important considerations around growth investing. Understanding the strategy behind each fund—not just the ticker—helps advisors make more informed allocation decisions and better communicate the rationale to clients.
The themes of growth investing and etf structure discussed in this episode are particularly relevant in the current market environment, where advisors are increasingly looking for differentiated solutions that go beyond traditional benchmarks.
Listen to the Full Episode
This article is based on an episode of Behind the Ticker, hosted by Brad Roth, Founder and CIO of THOR Financial Technologies. For the full conversation with Matt Kaufman, including additional nuances and details, listen on Spotify, Apple Podcasts, or watch on YouTube.