A new exchange-traded fund (ETF) is set to launch, offering investors a unique proposition of “100% downside protection” to the stock market, but with a few conditions.
What Happened: The Calamos S&P 500 Structured Alt Protection ETF – May will be introduced on Wednesday under the ticker symbol “CPSM,” according to the press release.
The ETF is designed to provide investors who purchase it on its first day of issuance with 100% protection to the S&P 500 over a one-year period.
However, this protection comes with a trade-off. The ETF will also cap investors’ upside gains to the S&P 500 at a range of 9.20% to 9.65%. The cap is determined by a package of options positions that expire on the same day, one year from the purchase date.
“These are a package of options positions all customized to expire on the same day, one-year from now that can deliver the upside to a cap, there’s no free lunch here, so a cap of right around 9.65% is what we’re seeing now, with 100% protection over the next 365 days,” Calamos’ head of ETFs Matt Kaufman told CNBC on Monday.
For investors to secure the 100% downside protection, they must buy the ETF on its first day of issuance. Purchases made after May 1 will offer a lower level of downside protection, depending on option prices.
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When comparing anticipated returns of CPSM, some ETFs stand out. For instance SPDR S&P 500 Trust ETF (NYSE:SPY), currently trading at $510, boasting a one-year return of 27.48%. Similarly, the iShares Core S&P 500 ETF (NYSE:IVV), priced at $512.59, has shown a one-year return of 27.66%. Notably, the Vanguard S&P 500 ETF (NYSE:VOO), trading at $468.84, has delivered a one-year return of 27.70%, according to the data from Benzinga Pro.
Why It Matters: The introduction of this unique ETF comes at a time when the stock market is experiencing a series of unexpected turns. Economists at Macquarie recently revised their predictions for interest rates, suggesting a potential hike. This shift is driven by signs of inflation rebounding and a resilient U.S. economy.
Despite these changes, the stock market’s long-term bull rally is expected to continue, with the S&P 500 potentially surging by 34% by the end of 2026, according to Bank of America’s technical strategist, Stephen Suttmeier.
However, not all experts share this optimistic outlook. Paul Dietrich, the chief investment strategist at B. Riley Wealth, has warned of a major correction in the stock market, pointing to indicators signaling a historic bubble.
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This content was partially produced with the help of Benzinga Neuro and was reviewed and published by Benzinga editors.
