Matt Kaufman

Thanks, Brad. Thanks for having me. In Las Vegas, not Miami this year.

Yeah, it's still nice here, but for me as an East Coaster, I think I'd rather take the short flight than the long flight, but it's great.

You'll take the humidity and the short flight versus the dry, temperate climate.

Plus all the money I'll probably lose at the blackjack table. Okay, fair enough, fair enough. So why don't you briefly just refresh everybody on who you are, what you do, and a little bit about Calamos as a whole. Sure.

So Matt Kaufman, I'm the head of ETFs at Calamos Investments. For those not familiar with Calamos, Calamos is about a 50-year-old risk manager, largely built on a foundation of convertible bonds. So if you're not familiar, for those listening, with a convertible bond, it combines a call option, upside option of a company, and it ties it to its fixed income counterpart or its corporate bond. So what you end up with is the upside of a stock in good markets, and then you've got a bond floor. If that stock stops performing, you've got a built-in bond floor. So Calamos was built in the 70s, 1977, just a few years after the Chicago Board Options Exchange was founded.

And that's what we're here to talk about today is these new structured Bitcoin products. I joked with you when you got here. I said, I had a feeling these were coming. So at kind of a high level, can you explain what these structured alt protection ETFs are and how they work? Yeah.

Last time we spoke, we were talking about doing these on very broad liquid underlyings like the S&P, Nasdaq 100, Russell 2000. So believe it or not, Bitcoin is now one of those assets. Bitcoin is the seventh largest asset in the world. It's almost $2 trillion. If you view it by commodity standards, it just passed silver. Silver is about 1.7, 1.8. Bitcoin is about $2 trillion. If you put gold, gold is number one and gold is about $18 trillion asset. But all that to say is we now check the boxes for the ability to, what I would say, safely deliver a hedged version of Bitcoin. It's $100 billion ETF market.

And so it's obvious Bitcoin is known for its volatility. So these structured protection ETFs really are for that client who probably wants exposure to the asset class, but is scared of that crypto winter that seems to come every so often.

Yeah, the crypto winters seem to come every fourth year. And I think we're in the third year of four. And so if you're a student of history or you think that it repeats itself, then that could be a reason to enter into a protected version of Bitcoin. I think we're down 20% since we launched CBOJ, which was our 100% protected series. And the ETF worked exactly as we expected. It protected investors from nearly all of that loss. It will be all of that loss protection if you hold till the end of the one-year outcome period. I think CBOJ is down about 1% right now, while Bitcoin's down about 20%. But as far as the application points go, you think of 0% downside, 10% downside, or 20%

And so, yeah, you mentioned a three. So we have CBXJ, CBTJ, and CBOJ. So CBOJ is the 100% downside protection. Can we go a little bit deeper? So when we're looking at the underlying holdings, how is this thing constructed in order to deliver this protection? I know it uses options, but can you just kind of go into that a little bit? Yeah.

So if we can just recreate that 100% protection product. So pretend like I give you $100 or we spend 100% of the portfolio value. There's no leverage or anything in the products, but we'll spend about 96% goes into U.S. treasuries. And those are zero coupon bonds. So they're not paying you any interest or any income. But the interest rate, so let's say interest rates about 4% today. The price that you pay is discounted by the amount that you'll receive over the life of those bonds. So that's why it's 96% and not 100%. So we spend about $96 on those zero coupon bonds, and that gives us about $4 or 4% to play with.

That makes a ton of sense to me. So let's talk about how markets can impact these ETFs. The structure doesn't change. It's buy and hold. You're flipping it at the end of the year. But for example, if Bitcoin experiences a really sharp decline, let's start there. Do you have any sort of arbitrage in the product if you maybe buy it later into the one year? And I know we talked about this with the index or the equity version, but I think we should refresh everybody's memory. It is point to point. So it can react somewhat differently in the middle of the outcome period. So let's start with sharp decline. Bitcoin's down 20%. 20%. What can investors expect holding these products?

Yeah, I think understanding that starts with an understanding of what a floor actually is. So there's floors, and you might be familiar with a buffer. So a buffer is going to protect you from the first set of losses. So if you have a 10% buffer, you're going to be protected from 0 to 10, and then you're exposed from minus 10 to minus 100. So you have 90% at risk. A floor is the inverse. A floor is going to expose you to the first 10% of loss. And then you're protected from minus 10 to minus 100. So that's why I say this allows you to choose how much to put at risk. I know going ahead of time, going into Bitcoin, how much I'm going to put at

My brother has started a little project of looking at your ETFs like every day and whether or not there's an arbitrage opportunity because there can be a lot of opportunity mid point to point in some of these. And it's obviously worth taking note of. So these structured products are fairly new to the market, at least in the ETF market. For those people, the advisors listening to the show, what are the risks here in terms of maybe liquidity or potential mispricing? can you just kind of talk about that? Because these are fairly new in the ETF space.

Yeah, this was an exercise that we made sure we had down before we brought the products out. So again, like I said, you don't want to build defined outcomes or structured outcomes on illiquid assets. And so you're not going to see an Ethereum or a Solana protection product from Calamos anytime soon because those assets simply aren't mature enough to be able to do that. When you build and innovate in the financial services space, you've got to do it with security. If you're building a piece of technology, a lot of times you can build the first version, you get it out to the market. It might break a couple pieces of the software, it might not work right. And then you iterate and you update, I think around the 350th iPhone update since they

Well, that's almost like a benefit for you that you get to showcase it right out of the gate and you don't have to wait for something to happen to really showcase the value here. There's a lot of other benefits to these types of products. It's mainly you're going to get better tax efficiency at the end of this point to point. You're not going to have to... Because it's wrapped in an ETF, you're not going to have to go out tomorrow. As an individual investor, putting these together. So just from a fee standpoint, what does the fee structure look like on these? I know it's going to be more expensive, but it should be more expensive. So can you just talk about what somebody could expect on a fee schedule for these three?

We charge 69 basis points. That's the unitary fee for the ETFs. That's about as simple of an answer as I've got.

So kind of the last few things here. Do you start to see or foresee more structured products in different areas of the financial market? Like, is this going to go all the way down to sector-specific exposure? I think of the sector SPDR ETFs. And are you even going to go deeper into finding more places to make this work?

Yeah. There's thousands of ETFs in the market. I remember 15 years ago when people would say, is the market saturated? And there were hundreds of ETFs in the market. And we just keep finding new areas of opportunity. And I always say it's a great time to be an investor, especially with ETFs in the market, because you can now get what we call spot exposure. You can get the S&P 500. And there's so many different derivative, to use a pun there, derivative options that you can use to get exposure to the S&P 500. Now you can get income. You can get buffers. You can get a 5%, 9%, 10%, 15%, 20%, 30%. There's every different opportunity for you to access the S&P in a way that works for you.

And I don't see that changing. Yeah, no. Neither do I. I only see it getting bigger. Do you foresee anything else coming? You probably are following the space, specifically the crypto space, a little bit closer now. Any developments that might be coming to enhance product offering? do you have any kind of foresight into what might else be coming so that we can continue to innovate specifically in the crypto ETF space?

Yeah, as far as crypto ETFs go, we watch the options markets very closely. And so I think the lifting of position limits on IBIT and other spot Bitcoin ETPs may cause more people to enter the market into those types of solutions. We don't have to build things that way. But I do think there's going to be a lot more innovation and product development when it comes to giving people exposure. What makes me a little nervous is when you start to see less liquid underlyings. And so I think it's important for investors to do their due diligence and know exactly what they're owning. And now not only are you owning a volatile asset, but you're owning it in a way that you may not understand or in a way that might not give you liquid exposure to that asset.

Yeah. So in your mind, who do you think is kind of the ideal investor for this type of product? I could see it being a couple of different people as somebody who wants to dip their toe in the crypto space but doesn't want to get, blown to pieces if things get ugly. I could see some people who maybe are running active Bitcoin strategies using this as maybe their risk off tilt. So they're still going to get upside exposure, but maybe their risk off and they get long one of your downside protection. So in your mind, who do you think is really looking and going to be buying this product?

We could do a whole podcast on that alone. It's a great, great question. How we're seeing advisors use this and even retail investors and some institutions, which is probably why I said we could go a long time. We see a lot of advisors building models. They're building crypto models right now. The early adopters are and they're using our ETFs as a core for that. They've got some Bitcoin exposure. They've got, Ethereum, but they're using the 20 floor as their core. they don't want to blow up the client. They don't they want to know what their downside risk is. And, to them, 60 percent upside for a sleeve is is quite enough upside. that's that's good for them.

Well, Matt, Bitcoin only goes down 12 percent in a day when I buy it. So exactly. Me too. But hey, I appreciate you jumping off the airplane, coming right over here and hang out with me for about 25 minutes. Before I let you go, where can people go learn more about Calamos and this new Bitcoin ETF suite?

Yeah, go to calamos.com. You can go to our ETFs and see all of the ETFs we have there. To your brother's point, he's probably using our structured outcome tool. That shows you every product we have and where they sit relative to their outcome period. So we see a lot of people using that tool also.

Well, again, Matt, thanks so much for being with me. Take care.

We'll see you next time.