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Innovator Equity Defined Protection ETF - 2 Yr to July 2025 (TJUL) - free report >>
Calamos S&P 500 Structured Alt Protection ETF - May (CPSM) - free report >>
ETFs with 100% Downside Protection: Should You Buy?
Defined-outcome ETFs are one of the fastest-growing segments of the ETF market. They allow investors to participate in the market's upside up to a cap, while limiting losses if the market falls.
The Calamos S&P 500 Structured Alternative Protection ETF (CPSM - Free Report) , which debuted last week, seeks to match the return of the S&P 500 up to a defined cap, while protecting against 100% of losses over a one-year outcome period.
CPSM is the first of 12 products in the Calamos Structured Protection ETF series, which will offer investors protected exposure to the S&P 500, Nasdaq-100 (QQQ - Free Report) , and Russell 2000 (IWM - Free Report) . The firm plans to roll out new funds monthly.
The Innovator Equity Defined Protection ETF (TJUL - Free Report) , which launched last year, was the world’s first ETF to promise no losses to investors.
Like other defined-outcome ETFs, these products also invest in a basket of FLEX options with varying strike prices. The strategy involves buying call options to gain SPY exposure and put options for downside protection, and then offsetting the costs by selling call options, which caps upside returns.
Investors should remember that stocks tend to go up over the long term, and they should generally ignore short-term volatility. Since its inception in January 1993, the SPDR S&P 500 ETF (SPY - Free Report) has returned an average of about 10.3% annually. By seeking downside protection, investors forgo any potential upside beyond the cap.
At the same time, many risk-averse investors, particularly those in or nearing retirement, have been reluctant to buy stocks lately. There's a tremendous amount of cash sitting on the sidelines.
Some investors choose products like fixed indexed annuities and market-linked CDs that protect against downside risk but come with much higher fees, carry high investment minimums, long lockup periods, and unfavorable tax treatment. ETFs like TJUL and CPSM are much better options for such investors.
To learn more, please watch the short video above.