ETFs
Buy “100% Downside Protection” ETFs
With inflation remaining stable across the economy, it can be difficult to find the right investment to beat inflation. Many look to ETFs as a solid investment, but they can still face volatility.
Calamos Investments Head of ETFs Matt Kaufman Joins Wealth! to discuss how Calamos can help protect against inflation with “100% downside protection” in its ETF offering.
Kaufman explains how Calamos secures this protection feature: “We will sell a portion of your upside exposure in order to pay for this protection. And so we sell a portion of your upside opportunity up to… get the upside up to 9-10%, then you get the downside protection in one package, all of that expires on the same day . And it’s all in an ETF that will never expire. The ETF will remain open. product. So every year you will get a new period of results in which you can invest. “
For more expert insights and the latest market action, click here to watch this full episode of Wealth!
This message was written by Nicolas Jacobino
Video transcription
Markets are seeing green on the screen today after the Consumer Price Index known around your neighborhood as CP I points to moderate inflation in April.
But overall, it’s been a volatile year here.
Perhaps there is a way to protect against some volatility in the market.
And as part of the ETF report presented by invest QQQ, joining me now is Matt Kaufman, who is the Calamos manager of the S. Matt ETF.
It’s great to have you here with us today.
Thank you for.
Absolutely.
All right.
So here’s an interesting way to look at S ETFs and, and there’s one that provides an inflation hedge, tell us how that’s possible.
Of course.
So this is a series of S ETFs that offer 100% downside protection and this seems unreal.
So you’re going to have to understand, it looks like magic.
We’ll talk about how that’s not the case, we’ll, you know, pull back the curtain here.
So 100% protection for a stock market like the S and P 500 NASDAQ 100 or also registered with Russell, Russell 2000.
And then you get the upside potential of that market up to a ceiling.
So there’s nothing free here, you’re capped on the upside, which is currently at five cents in the S and P, around 9 to 10 percent.
You thus benefit from the rise in the market over a period of one year without any risk of a decline in this result.
ALL RIGHT. And we were just looking at the chart and how this order or this ETF would execute.
Can you explain to us here, the layers of protection as well?
Of course.
So we build this with a portfolio of options positions, there are three layers of options.
The story continues
So the first is to create your exposure layer, create the exposure at S and P 500.
Next comes the protective layer.
So we buy a put to create protection against a market decline.
That’s right.
And then, on the plus side, we’re going to sell some of your upside exposure in order to pay for that protection.
So we sell a portion of your upside opportunities, provided you get 9-10% upside and then you get downside protection, all in one package.
Everything expires on the same day and it’s all in an ETF that will never expire, the ETF will stay open, you can just stay in the product.
So every year you will get a new period of results in which you can invest.
Why would anyone consider this versus just a normal ETF, a basket of stocks that are maybe thematic or fit the sector that they certainly have a long-term investment thesis for.
As you said earlier, this gives you the opportunity to outpace inflation.
So we were talking earlier about, you know, taking care of your family, you know, having money saved for a vacation.
So it might be short term money that you want to put aside, you don’t want to lose your capital on that money, but you want to potentially grow.
So that might be an area where you can beat inflation and still save that for, you know, maybe a family vacation.
But then, you know, for long-term investors, you retire, you think about the risks that retirees face, a lot of it is financial, you face longevity risk, you risk outliving your money.
The risk of inflation constitutes a significant risk for retirees.
So this gives you the opportunity to think about growth upwards of 9-10%, which is significantly higher than the current inflation rate.
So, buying a product like this gives you the opportunity to be in the stock markets and exceed this inflation rate.
Is this something that applies to different sectors?
Um, so could you also add inflation hedge or inflation protection to different baskets of securities?
It’s a good thought exercise.
You can now protect your capital across several classes of liquid assets.
So we do it on the S and P 500.
We launched.
This first product worked very well.
It was, you know, passed quickly, on June 3.
We have the NASDAQ CP and J series, and then the Russell A 2000 is scheduled to launch in July and we will continue to have one every month.
Matt Kaufman, who is the Calamos manager of the ETF.
Thank you very much for taking the time.
THANKS.