On this episode of the “ETF of the Week” podcast, VettaFi’s Head of Research, Todd Rosenbluth, discusses the Calamos Laddered S&P 500 Structured Alt Protection ETF (CPSL) with Chuck Jaffe of Money Life. The pair discusses several topics related to the fund to give investors a deeper understanding of the ETF.

Chuck Jaffe: One fund, on point for today, and the expert to talk about it. Welcome to the ETF of the Week!

Yes, this is the ETF of the Week, where we get the latest take from Todd Rosenbluth, the head of research at VettaFi. And at VettaFi.com, you’ll find all the tools you need to be a savvier, smarter investor in ETFs. You’ll get more details on the new, newsworthy, trending, and timely ETFs that we talk about here.

Todd Rosenbluth, it’s great to chat with you again!

Todd Rosenbluth: It’s great to be back, Chuck.

Chuck Jaffe: Your ETF of the Week is…

Todd Rosenbluth: The Calamos Laddered S&P 500 Structured Alt Protection ETF, CPSL.

Chuck Jaffe: CPSL, the Calamos Laddered S&P 500 Structured Alt Protection ETF. It is not just a mouthful. This is a tough one for us to explain because it is a fund of funds. It basically invests in 12 other funds, if I understand it correctly. Those 12 funds being short duration ETFs that are very specific. So, why are we stepping into this one and all of its complications now?

Todd Rosenbluth: So, I think this is quite simple. if you think that the market is likely to pull back, as many people do. We are recording this on Tuesday. I feel like I’m a broken record: “We are recording this on Tuesday.” The government is expected to shut down at 12:01 on Wednesday. By the time people are listening to this, the government will have been shut down or terms will have been agreed to and the government doesn’t.

I think that makes a lot of people nervous. So, CPSL came to mind to me, because, despite all of the moving parts, what’s simple about this is if you’re worried about the market going down, you want close to 100% downside protection and you’re willing to get only some of the gains of the S&P 500. This is the right ETF for you to be able to do that. There’s a lot of things that are under the hood, and we can dive into that. But if you’re nervous either for a short time period or a longer time period, CPSL can help you to sleep at night.

Chuck Jaffe: Yes, and I will point out, completely unrelated to the shutdown, I’ve had a number of folks tell me on my show Money Life that they think the market is due for a decline — some a small technical decline, some something bigger. But if you have that nervousness, a fund of this type— not this specific fund — is designed to eliminate some-to-all of the downside risk.

This particular fund basically says you’re not going to lose money. But explain how it accomplishes that because it’s not like you’re sticking your money in the mattress.

Todd Rosenbluth: Right. So, this is an ETF from Calamos. Like many of their ETFs, it’s using options. So, using options, you can protect the downside, and in exchange for protecting the downside, you limit your upside. And, actually, it was almost a year ago to the day where I talked about one of these underlying funds that’s inside CPSL. It was a structured protection ETF on November, and it was around Election Day.

I think we might have been recording it on Election Day. We weren’t sure at the time how the election was going to go and how the market was going to react. The downside to having a fund like that, which was a November series, is that it matters when you buy it. So your downside or your limited or your zero downside is in the 12-month time period.

And so if you bought the November fund later on in November, or even in December, or in January, if that was the case, then you might end up having downside. So the laddering that’s in this name here for CPSL is there are 12 months of the year. There are 12 ETFs that are represented, one for each month of the year.

And when I looked beforehand, on average, there was 96%-97% downside protection. So, not 100% downside protection. But for people who are buying at any point, it’s close to [zero downside.]And there’s an upside cap of 6% or 7% for each of those individual funds. So, if you like that limit to close to zero and get around 6%-7% for whatever time period you had in mind, CPSL can do that as a stand-alone.

And I don’t want to get ahead of where you’re going to go next, and on how else you can fit in a portfolio. So, I’ll let you talk this time.

Chuck Jaffe: Yes, the 12-month structure thing is important, because what’s happening here in this ladder is that, functionally, Calamos creates a new fund every month that’s a 12-month fund. The old fund rolls into the new fund, and it’s all part of this bigger fund. So that rather than having one or trying to have multiple months or whatever it might be and multiple rollover decisions, you’re just buying one fund that does all of this for you. But you are giving up some upside potential.

I mean, if you look during the 12 months — and Calamos has this graphic on their website if you go to look for details on CPSL — you will see that in certain cases, if you had been in the SPY, you would have been getting 20%. You’d be up 20%. And this fund is going to be up closer to 7% because it’s limiting your upside. This can’t be something you want to do with a lot of your portfolio. So, what is that role that you want this fund to play in a portfolio?

Todd Rosenbluth: So since I set you up for it, I’ll answer it. But bear with me one second to point out that we haven’t had a month that the market’s been down, I don’t think, since CPSL’s inception. It came to market in September of last year. And if we did, then I’m failing to remember. The market sold off earlier in the year, and then very quickly snapped back.

So, we haven’t seen the true value that this fund, CPSL, can offer, because we haven’t seen the market sell off for a prolonged period of time. And I’m not rooting for it in any way, shape, or form. But people may want to use this fund, CPSL to protect themselves.

So, I guess the two use cases to me are: If you were worried about the market selling off and you were inclined to move and sell out of your S&P 500-based strategy for ETFs and many mutual funds, you might move and sell it and go to cash. This ETF, CPSL, is a better alternative to me in that you’re getting some — not a lot, but some — of that upside potential and you’re significantly reducing the downside that you’d end up taking on.

The other part of it is, instead of selling all of your position, you could sell 10% of your S&P 500 exposure and put this in in place of that. So, you’re still getting more of the upside than you would if you were in this. You’re not getting as much if you were in the S&P 500. But you took some of your chips off the table, for a fee, of course.

So, we’ve seen advisors that are combining their S&P 500-based strategies — iShares and Vanguard and State Street have among those ETFs — with this Calamos fund. And some people are using it as an “I just got to get out of the market” or “I think I got to get out of the market because something bad is going to happen, and the market’s going to sell off.”

Chuck Jaffe: This structure is somewhat similar to, like equity-indexed annuities and things along those lines. And the problem, having sat through many rubber chicken dinners about people making pitches on those things, is that they’re often pitched as that equity alternative.

You can get the upside and you’re giving up things like they’ll measure the upside based on what does the S&P 500 do. But they’re removing dividends from the equation to make it look a little bit better, etc. And the fact is that in those cases, the equity-indexed annuity always seems to the audience like it’s a stock market replacement, when what it really is, is kind of a replacement for a CD or your ultra-conservative stuff.

You’re going to bring that return expectation way down. Because even if you think the market’s going to do OK, you’re going to give up so much of it. So, while you said that people are using this as a strategy with their S&P 500 stuff for loss protection, does it more belong in like this is where you park cash because you’re nervous and you don’t want to be in a spot where you’re going to suffer the loss? So you put your cash in something like this instead of using a money market fund, etc.? Because it has better upside?

Todd Rosenbluth: So to me this is an alternative. This is not equity exposure. It’s also not direct fixed income exposure. To me, it’s an alternative. And so for many people, they’re building a portfolio that’s a broad bucket of things that perform differently than the equity side of the ledger.

We’ve talked about gold. That’s an alternative to me. We’ve talked about crypto. That’s an alternative to me. This I would put in that same camp as an alternative. Is it an alternative that has the potential to earn you more money in the equity markets, or if the equity market does well? It’s going to do better than you would in cash.

If the market sells off, you’re not getting yield. You’re just protecting the downside. So, I think you have to, with CPSL, understand what it does for your portfolio and also what it doesn’t do for your portfolio. If you’re seeking income as a safe alternative, that’s not this. If you’re seeking some upside potential as an alternative, I think CPSL can fit in nicely into certain portfolios.

Chuck Jaffe: People are going to hear this and go, “OK, I’m still not sure I understand what it does.” And we’ve always put out, “If you don’t understand it, don’t buy it.” So, as we’ve made this, if we have failed to explain it to people, do you say the same thing: “If you don’t understand it, don’t buy it”?

Or do you say, in this case, “Look, you’re buying a product that has pretty much zero downside risk. So if ever you were going to buy a product that maybe you don’t fully understand the inner workings of, it’s one where you feel that there’s pretty much a guarantee that you’re going to lose no money”?

Todd Rosenbluth: I’m a big believer that if you don’t understand something and it’s too complicated, then it isn’t for you. If you think it’s too good to be true, that you have almost zero downside and up to 7% or 8% upside, if that doesn’t sound possible or plausible to you, you can either say, “Thanks guys, I enjoyed the conversation, but I’m good.” Or, go to the website!

I think they actually do a really good job of showing you what’s inside the funds, show you how they go about doing it, show you what you’re giving up and what you’re protecting on the downside. The Calamos team are experts in this options-based ETF world. I have confidence that they’ll help you understand it.

But if it seems too good to be true or it seems too complicated, investing is supposed to serve a good purpose for you. And that’s OK. You don’t have to buy every ETF we talk about. In fact, I’m not suggesting you buy every ETF we talk about. That’s 52 different ETFs in a given year.

Chuck Jaffe: Yes, and this one will be more of an acquired taste. You definitely want to make sure you understand it, and I will confirm what Todd said. The Calamos.com website has fabulous information on these funds, because they’ve had to figure out how to explain it to the public.

And in this case, the fund we’re talking about takes some explanation. It’s the Calamos Laddered S&P 500 Structured Alt Protection ETF, CPSL, the ETF of the Week from Todd Rosenbluth. Todd, great stuff. We’ll see you again next week!

Todd Rosenbluth: See you next week. Go blue!

Chuck Jaffe: The ETF of the Week is a joint production of VettaFi and Money Life with Chuck Jaffe. And I am Chuck Jaffe. And I’d love it if you check out my hour-long weekday podcast by going to MoneyLifeShow.com, or by searching for it wherever you find your favorite podcasts.

Now, if you’re searching for better and fuller information on your favorite exchange traded funds, there’s no better place to go looking than VettaFi.com. They’ve got a full suite of tools that’s going to help you. They’re on X or Twitter at @Vetta_Fi. Todd Rosenbluth, their head of research, my guest, he’s there too. He’s at @ToddRosenbluth.

The ETF of the Week is here for you every Thursday. Please make sure you don’t miss an episode. Follow along on your favorite podcast app. We’ll be back with another ETF for you to consider next week. And until then, happy investing, everybody!

Note: This article was created in part through assistance from AI tools. The content has been thoroughly reviewed and edited by the author.

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