Obviously, the word “cage” is synonymous with confinement and limited mobility, but don’t let the ticker on this new exchange traded fund (ETF) fool you because it’s unlocking the potential of autocallable investing via the ETF wrapper.
Calamos, the pioneer in the autocallable ETF space, introduced the Calamos Autocallable Growth ETF (CAGE) on Monday, April 20. CAGE is a stablemate of the Calamos Autocallable Income ETF (CAIE) and the Calamos Nasdaq Autocallable Income ETF (CAIQ) – successful funds in their own right – but this rookie ETF charts its own course because it’s the first of its kind that accentuates growth.
CAGE “seeks to generate amplified long-term capital appreciation via synthetic exposure to a laddered portfolio of long-dated autocallable growth options, delivered via exposure to the MerQube US Large-Cap Vol Advantage Autocallable Growth Index,” according to Calamos.
In simple terms, advisors can deploy CAGE as a complement or alternative to traditional broad market exposures because the new ETF has a clear objective: compound and grow wealth at a clip in excess of the S&P 500 over the long-term.
CAGE Has a Long Memory
Like its relatives CAIE and CAIQ, CAGE holds a basket of 50ish autocallable yield notes, which are income-generating, market-linked instruments. Autocollables pay coupons and return principle upon maturity and the vernacular stems from the ability of the issuer to call the notes when certain thresholds are hit or exceeded.
Looked at differently, autocallables offer better income potential than traditional fixed income assets with the tradeoff being that investors could endure downside if the underlying asset turns lower. CAGE shares those similarities with its established counterparts, but the newly minted ETF sets itself apart from its peers by leveraging memory.
(Image: Calamos Investments)
“CAGE is the world’s first ETF to incorporate memory into its coupon payments, creating a remarkable compounding opportunity that stores growth through down markets and captures it during up markets,” notes the issuer.
CAGE’s “plumbing” isn’t as complex as it may appear to be first glance. Essentially what the new ETF does it stores coupon payments when the market is faltering and takes them in when bullish conditions are pervasive. Perhaps even better than that – and this is a point for advisors to consider – is that the coupons, when they’re not stored, are reinvested. That’s win-win for clients because it creates tax deferment while harnessing the power of compounding.
Will CAGE Deliver the Goods?
Advisors know that there’s no such thing as a sure thing in investing and there are plenty of income-based ETFs on the market today that leave clients feeling as though they got a raw deal. Time will tell if CAGE avoids those fates, but it is entering the ETF arena with some favorable index history on its side.
(Image: Calamos Investments)
Past performance isn’t a promise of future returns, but it is clear CAGE is breaking new ground. Plus, tax-efficient compounding may well appeal to a broad swath of clients.
“We find that CAGE is a remarkable way to potentially compound wealth over time, with a unique feature that stores coupons in down markets, and pays them all at once when markets recover,” adds Calamos. “No income distributions. Just growth — with the potential to compound significantly faster than the S&P 500 over time.”
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