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Why High-Income Seekers Are Turning to Autocallable ETFs

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Investors seeking higher income have been flocking to ETFs that use derivatives to generate attractive payouts. Auto-callables, long popular among high-net-worth investors for their juicy coupons, are now available to retail investors in a low-cost, transparent ETF structure.

An autocallable is a market-linked investment that provides periodic coupon payments and returns principal at maturity, or earlier if the security is called, provided that the referenced index (such as the S&P 500) does not decline beyond predetermined thresholds.

In simple terms, it functions like a bond whose income and principal repayment depend on the equity market staying above specific levels.

Autocallables offer potentially higher monthly income than traditional fixed-income securities, but with capped upside and the risk that a significant market decline could suspend coupon payments or, in severe cases, result in principal loss.

Calamos launched the first autocallable ETF backed by JPMorgan in June, followed by Innovator Capital Management.

The Calamos Autocallable Income ETF ((CAIE - Free Report) ) provides exposure to about 52 autocallable notes maturing weekly, enhancing diversification and reducing risk. Coupon levels can vary with market volatility and the current levels are around 14.2 percent.

Last month, Calamos launched the Calamos Nasdaq Autocallable Income ETF ((CAIQ - Free Report) ), which currently has a coupon of almost 18 percent.

The Innovator Equity Autocallable Income Strategy ETF ((ACEI - Free Report) ) offers exposure to a laddered portfolio of autocallables linked to US large-cap stocks, with an average coupon of 14.3 percent.

The Innovator Index Autocallable Income Strategy ETF ((ACII - Free Report) ) holds a laddered portfolio of swaps linked to three major US market ETFs: S&P 500 ((SPY - Free Report) ), Nasdaq-100 ((QQQ - Free Report) ), and Russell 2000 ((IWM - Free Report) ).

The fund’s performance depends on the worst-performing of the three indexes, and it pays a monthly coupon as long as that index stays above a defined coupon barrier.

Investors should remember that these products are suitable only for those who need higher income than traditional bonds, hold a neutral to slightly bullish market outlook, and are comfortable capping upside potential in exchange for steady payouts.

To learn more about these ETFs, please watch the short video above.

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