ETFs
ETFs with 100% Downside Protection: Should You Buy? – May 8, 2024
Outcome ETFs are one of the fastest growing segments of the ETF market. They allow investors to participate in the market’s rise up to a ceiling, while limiting losses in the event of a market decline.
The Calamos S&P 500 Structured Alternative Protection ETF (CPSM – Free report) ), which debuted last week, aims to match the return of the S&P 500 up to a set cap, while protecting against 100% of losses over a one-year period.
CPSM is the first of 12 products in the Calamos Structured Protection ETF series, which will provide investors with protected exposure to the S&P 500, Nasdaq-100 (QQQ – Free report), and Russell 2000 (IWM – Free report) . The company plans to deploy new funds every month.
The Innovator Equity Defined Protection ETF (JUL – Free report), launched last year, was the first ETF in the world to promise no losses to investors.
Like other defined outcome ETFs, these products also invest in a basket of FLEX options with variable strike prices. The strategy involves purchasing calls to gain exposure to the SPY and puts for downside protection, then offsetting costs by selling calls, which caps upside returns.
Investors should remember that stocks tend to rise over the long term and should generally ignore short-term volatility. Since its inception in January 1993, the SPDR S&P 500 ETF (TO SPY – Free report) returned an average of about 10.3% per year. By seeking downside protection, investors forgo any potential upside beyond the cap.
At the same time, many risk-averse investors, particularly those who are retired or near retirement, have been reluctant to buy stocks lately. There is a lot of money waiting.
Some investors choose products such as fixed indexed annuities and market-linked CDs that protect against downside risk but carry much higher fees, high investment minimums, long lock-up periods, and unfavorable tax treatment . ETFs like TJUL and CPSM are much better options for these investors.
To learn more, please watch the short video above.
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