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Written by: Nick Wodeshick
Advisors and investors of all sizes know that fostering consistent income is the key to success for many portfolios. One way to do this is through autocallable ETFs.
For many folks, yield comes through the more traditional avenues of fixed income, like bonds and bond ETFs. Certainly, it goes without saying that bonds have long been relied upon for both diversification and current income.
That being said, the advantages that bond income brings tend to be cut down a notch when inflation enters the picture. With the cost of goods and services increasing, can the income that bonds bring to the table keep pace, especially as the Fed trims interest rates?
Pace Your Income Through the Equity Market
This is when an income strategy that is designed to keep pace with inflation can make its mark. One such strategy is the Calamos Nasdaq Autocallable Income ETF (CAIQ). CAIQ is a laddered fund from the team at Calamos Investments that invests in a selection of autocallable yield notes.
These notes are market-linked investments that provide coupon payments and eventual principal based on how an underlying index is performing. As long as the index is above its barrier level, the note may keep delivering yield until it gets called. However, if the index falls below the barrier level, coupon payments stop until the index returns above the threshold.
CAIQ's inflation-linked nature comes from its index of choice. All of its laddered autocallable notes use the MerQube Nasdaq-100 VolAdvantage Autocallable Index as their chosen index—which has a weighted average coupon of 17.96%. Since this index is tied to the equity markets, CAIQ's income is thus linked to how the market is responding to inflation. It’s important to note that there is no assurance CAIQ will keep pace with inflation. Still, this can give the fund a significant leg up over traditional bond funds, which instead see their income determined by yield curve positioning and Fed policy.
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Related: CAIE Momentum, Investor Conviction and Impact – Meet Calamos’ Jordan Rosenfeld
Before investing, carefully consider the fund’s investment objectives, risks, charges and expenses. Please see the prospectus and summary prospectus containing this and other information which can be obtained by calling 1-866-363-9219. Read it carefully before investing.
An investment in the Fund is subject to risks, and you could lose money on your investment in the Fund. There can be no assurance that the Fund will achieve its investment objective. Your investment in the Fund is not a deposit in a bank and is not insured or guaranteed by the Federal Deposit Insurance Corporation (FDIC) or any other government agency. The risks associated with an investment in the Fund can increase during times of significant market volatility. The Fund also has specific principal risks, which are described below. More detailed information regarding these risks can be found in the Fund’s prospectus.
The principal risks of investing in the Calamos Autocallable Income ETF and the Calamos Nasdaq Autocallable Income ETF include: autocallable structure risk, contingent income risk, early redemption risk, barrier risk, authorized participant concentration risk, calculation methodology risk, cash holdings risk, correlation risk, costs of buying and selling fund shares, counterparty risk, credit risk, derivatives risk, equity securities risk, index risk, interest rate risk, investment in a subsidiary, laddered portfolio risk, liquidity risk, market maker risk, market risk, new fund risk, non-diversification risk, premium-discount risk, secondary market trading risk, swap agreement risk, tax risk, trading issues risk, valuation risk, and volatility target index risk.
Autocallable Structure Risk: The Fund’s returns are correlated to the performance of a synthetic portfolio of autocallable notes tracked by the Laddered Autocall Index. Autocallable notes have specific structural features that may be unfamiliar to many investors.
Contingent Income Risk: Coupon payments from the Autocalls are not guaranteed and will not be made if the Underlying Index falls below the Coupon Barrier on observation dates. This means the Fund may generate significantly less income than anticipated during market downturns.
Early Redemption Risk: Autocalls in the Portfolio may be called before their scheduled maturity if the Underlying Reference Index reaches or exceeds the Autocall Barrier on observation dates. This automatic early redemption could force reinvestment of that portion of the portfolio at lower rates if market yields have declined.
Barrier Risk: If the Underlying Reference Index falls below the Protection Level Barrier at the maturity of an Autocall in the Portfolio, that portion of the Portfolio will be fully exposed to the negative performance of the Underlying Reference Index from its initial level. This conditional protection creates a binary outcome that can result in sudden, significant losses if barriers are breached.
The MerQube Nasdaq-100 Vol Advantage Autocallable Index is designed to reflect the collective performance of a theoretical portfolio of 52 to 260 synthetic Autocallables arranged in a laddered structure with staggered entry points with similar fixed parameters (the “Parameters”) as described below within the section entitled “Autocallable Index Portfolio Characteristics”.
Nasdaq® is a registered trademark of Nasdaq, Inc. (which with its affiliates is referred to as the “Corporations”) and is licensed for use by Calamos Advisors LLC. The Fund has not been passed on by the Corporations as to their legality or suitability. The Fund is not issued, endorsed, sold, or promoted by the Corporations. THE CORPORATIONS MAKE NO WARRANTIES AND BEAR NO LIABILITY WITH RESPECT TO THE FUND(S).
Calamos Financial Services LLC, Distributor
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Calamos® and Calamos Investments® are registered trademarks of Calamos Investments LLC.