Calamos Investments LLC

07/19/2024 | News release | Distributed by Public on 07/19/2024 10:24

The Case for Small Cap Exposure with Downside Protection

The Case for Small Cap Exposure with Downside Protection

July 19, 2024

Considering the favorable environment for small caps, Structured Protection ETFs present an opportunity for investors seeking both growth potential and downside protection. Here are three reasons to Consider the Calamos Russell 2000 Structured Alt Protection ETF - July (ticker: CPRJ) now.

  1. Small Caps Performed Well During Fed Rate Cuts

    Historically, stocks across all market caps tended to rally after the Fed's first rate cut, but small caps often outperformed. That's because small caps rely more heavily on external financing than their larger cap peers, so falling borrowing costs are a tailwind.

    Why this matters? Given clients' substantial large cap allocations, diversifying with small caps could lead to more robust gains. The Fed's expected rate cuts, coupled with resilient growth, create an opportune environment, in our opinion. With a current cap of nearly 11% as of July 8, 2024, CPRJ offers meaningful upside potential.

    Small caps have gained the most when the Fed has cut rates

    Performance after first rate cut

    Past performance is no guarantee of future results. Source: Jefferies using Federal Reserve Board, Haver Analytics, Center for Research in Securities Prices (CRSP®), and the University of Chicago Booth School of Business. Note: used fed funds rate from 1954 until 1963, then used the discount rate from 1963 until 1994 and the fed funds rate after that. Market caps defined by CRSP based on placing market caps into deciles. Deciles 1 and 2 are large, and 6 through 8 are small.

  2. Small Caps are Historically Cheap Relative to Large Caps

    In both absolute and relative terms to large caps, small caps are trading at the most attractive levels seen in decades. This valuation backdrop should help propel small caps upward.

    Why it matters? We believe the current environment offers a solid entry point to own small caps for the longer term. CPRJ stands out due to its appealing potential for gains, protection against losses when held for a one-year period, and the tax-efficient ETF structure.

    Valuations

    Source: Calamos Investments

  3. Small Caps are Notably Trailing Large Caps

    The performance dispersion between small-cap and large-cap stocks has reached its widest point since 1998 and represents one of the largest gaps ever. This situation creates a potential "heads-you-win, tails-you-win" scenario.

    Why this matters? If stocks continue to rise through year-end, small caps are likely to narrow the gap compared to large-cap leaders. In this scenario, CPRJ investors will participate up to a cap. Alternatively, if stocks sell-off, investors have the 100% downside protection of CPRJ for the one-year outcome period, mitigating risk.

    Source: Stockcharts.com

Bonus Reason: The cap rate on small caps with 100% downside protection (via CPRJ) is currently the highest in the space compared to all one-year principal protection ETFs on the S&P 500, Nasdaq 100, and Russell 2000. Higher volatility in the Russell 2000 and a dividend yield on par with the S&P 500 has equated to a higher starting cap rate for CPRJ relative to its S&P 500 and Nasdaq 100 counterparts (CPSM and CPNJ).

Why this matters? The higher cap rate offers investors the opportunity for higher gains over the outcome period (with no greater downside risk). Also, historically, the total return of the Russell 2000 has primarily been comprised of capital appreciation (as opposed to dividends), which allows for optimal potential to achieve the higher cap rate.

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(s) is subject to risks, and you could lose money on your investment in the Fund(s). There can be no assurance that the Fund(s) will achieve its investment objective. Your investment in the Fund(s) 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(s) can increase during times of significant market volatility. The Fund(s) also has specific principal risks, which are described below. More detailed information regarding these risks can be found in the Fund's prospectus.​

Investing involves risks. Loss of principal is possible. The Funds face numerous market trading risks, including authorized participation concentration risk, cap change risk, capital protection risk, capped upside risk, cash holdings risk, clearing member default risk, correlation risk, derivatives risk, equity securities risk, investment timing risk, large-capitalization investing risk, liquidity risk, market maker risk, market risk, non-diversification risk, options risk, premium-discount risk, secondary market trading risk, sector risk, tax risk, trading issues risk, underlying ETF risk and valuation risk. For a detailed list of fund risks see the prospectus.​

There are no assurances the Fund will be successful in providing the sought-after protection. The outcomes that the Fund seeks to provide may only be realized if you are holding shares on the first day of the Outcome Period and continue to hold them on the last day of the Outcome Period, approximately one year. There is no guarantee that the Outcomes for an Outcome Period will be realized or that the Fund will achieve its investment objective. If the Outcome Period has begun and the Underlying ETF has increased in value, any appreciation of the Fund by virtue of increases in the Underlying ETF since the commencement of the Outcome Period will not be protected by the sought-after protection, and an investor could experience losses until the Underlying ETF returns to the original price at the commencement of the Outcome Period. Fund shareholders are subject to an upside return cap (the "Cap") that represents the maximum percentage return an investor can achieve from an investment in the funds' for the Outcome Period, before fees and expenses. If the Outcome Period has begun and the Fund has increased in value to a level near to the Cap, an investor purchasing at that price has little or no ability to achieve gains but remains vulnerable to downside risks. Additionally, the Cap may rise or fall from one Outcome Period to the next. The Cap, and the Fund's position relative to it, should be considered before investing in the Fund. The Fund's website,www.calamos.com, provides important Fund information as well information relating to the potential outcomes of an investment in a Fund on a daily basis.​

These Funds are designed to provide point-to-point exposure to the price return of the Reference Asset via a basket of Flex Options. As a result, the ETFs are not expected to move directly in line with the Reference Asset during the interim period.​

Investors purchasing shares after an outcome period has begun may experience very different results than fund's investment objective. Initial outcome periods are approximately 1-year beginning on the fund's inception date. Following the initial outcome period, each subsequent outcome period will begin on the first day of the month the fund was incepted. After the conclusion of an outcome period, another will begin.​

FLEX Options Risk The Fund will utilize FLEX Options issued and guaranteed for settlement by the Options Clearing Corporation (OCC). In the unlikely event that the OCC becomes insolvent or is otherwise unable to meet its settlement obligations, the Fund could suffer significant losses. Additionally, FLEX Options may be less liquid than standard options. In a less liquid market for the FLEX Options, the Fund may have difficulty closing out certain FLEX Options positions at desired times and prices. The values of FLEX Options do not increase or decrease at the same rate as the reference asset and may vary due to factors other than the price of reference asset.​

Shares are bought and sold at market price, not net asset value (NAV), and are not individually redeemable from the fund. NAV represents the value of each share's portion of the fund's underlying assets and cash at the end of the trading day. Market price returns reflect the midpoint of the bid/ask spread as of the close of trading on the exchange where fund shares are listed.​

100% capital protection is over a one-year period before fees and expenses. All caps are pre-determined.​

Cap Range - Maximum percentage return an investor can achieve from an investment in the Fund if held over the Outcome Period. Cap range depicted is the high and low cap rate over the past 15 trading days. Actual cap delivered by the Fund may be different.​

Protection Level - Amount of protection the Fund is designed to achieve over the Days Remaining.​

Outcome Period - Number of days in the Outcome Period.​

STRUCTURED ALT PROTECTION ETF and STRUCTURED PROTECTION ETF are trademarks of Calamos Investments LLC.​

Calamos Financial Services LLC, Distributor​

Calamos Financial Services LLC​