Calamos Extends Autocallable Line Into Growth

A new contender is willing to challenge other ETFs to a cage match.

That’s the Calamos Autocallable Growth ETF (CAGE), of course, whose index the company said has absolutely smashed broad-market index funds (at least for theoretical investors who had adequate time on their hands). It’s the newest entrant in the firm’s autocallable line of exchange-traded funds, which package notes of varying maturities. The company was the first to bring an autocallable ETF to the market with its nearly $1 billion Calamos Autocallable Income ETF (CAIE) last June. A few other companies have since followed, but the new CAGE fund is the first to take autocallables into growth territory. 

“If you’ve got time on your side, a kitschy line is: ‘You could make that time more valuable with CAGE,’” Calamos head of ETFs Matt Kaufman said.

Like Stocks … But Bonds

The new ETF is essentially a bundle of 52 bonds tied to stock market returns. What differentiates it from Calamos’s Autocallable Income ETF, and the more recently launched Nasdaq Autocallable Income ETF (CAIQ), isn’t just that the coupon payments are reinvested in the fund. It also does away with the -40% coupon barrier, instead going with 0%, meaning that the notes pay on their maturity dates if the market is positive, rather than just being higher than -40%, as is the case with the autocallable income funds. It also employs a different means of reducing long-term risk, in the form of “memory,” a feature in which coupons in down markets are saved up and paid in full later, assuming the markets recover. It also has a 50% principal barrier, which means that notes return principal if the index is consistently down. The fund is expected to be more volatile than the S&P 500, but that’s by design, Kaufman said. “You’re just storing growth in down markets and capturing it when the markets recover,” he said. “If you’ve got time on your side, you can compound remarkably.” 

The cost of all that is an expense ratio of 74 basis points. As with the two other autocallable funds in the Calamos line, the growth version uses JPMorgan as the swap counterparty. The swap index for the new fund is the MerQube US Large-Cap Volatility Advantage Autocallable Growth Index, whose annualized returns over 10 years are 23.75%, Calamos (happily) pointed out.

Here’s how the autocallable ETF market looks, currently:

• Since CAIE launched in June, 10 other funds have arrived, and total assets are over $1.25 billion, per data from Morningstar Direct.
• Among those adding to the pile are FirstTrust, TrueShares, Innovator and REX Shares.
• GraniteShares also launched two funds in February, with one focused on notes tied to Tesla and another to Nvidia.

Don’t Get It? Investors don’t necessarily need to understand how the new growth fund works in order to potentially benefit from it as a long-term holding, Kaufman said. While structured notes have long been a tool for high-net-worth investors, a retail variety that packages more than 50 notes and employs memory and protection barrier features is perhaps even more difficult to understand. “It’s a bit of a mindbender to get your head around,” he said.