Speaker 1:
Welcome to ETF Central, recorded here at the New York Stock Exchange, the home of ETFs. We're diving deep with the people shaping the space, the technology's driving innovation, and the stories behind the tickers. Whether you're an investor, issuer, or industry insider, welcome home.
Bilal Little:
Welcome to ETF Central. This is a really exciting opportunity for me. I followed this gentleman for a little while here, and I'm excited to have Matt Kaufman, the global head of ETFs at Calamos. So thanks for joining the show. How you doing?
Matt Kaufman:
I'm doing great. Thanks for having me.
Bilal Little:
Absolutely. So Matt, this is important to me. I feel like you're one of the young guys in the business, young, meaning you got 20 years in the business, but you've gotten a really attractive shot to lead a very innovative investment firm, which is Calamos. You spent 10 years at Milliman, a $170 billion shop. So they tap you to come over to Calamos. What's it been like? How's the run been?
Matt Kaufman:
It's been fantastic. Yeah, I appreciate that. The way that I think about the financial services industry, I have a lot of mentors who are much older than I am. In athletics, you get a five to 10 year run if you're lucky, your body starts to go out. Financial services, you're using your brain and your brain can keep going and keep growing. So there's a lot of folks who've been in the industry for a very long time, but being able to do this for 20 years, we're seeing areas of disruption.
Back to that original comment, John Calamos has been a founder of Calamos, been around since the late '70s. They've been doing convertible bonds, which what I would call the original payoff profile. A lot of option strategies have payoff profiles. I thought what we were building nine, 10 years ago with the buffer ETFs was innovative, and I think it was. I went over and met with Calamos and he's like, "Oh yeah, I've been building these things for 40 years." I was like, okay, this isn't as new as we expected.
We're using new tools. What I love about Calamos is everything is there. Everything is in house, it's in place. We have an options team. We have great trading desk, product development, fund admin, tax. It's all there. It's been built over the last 40 years. So it was an easy effort to be able to take what the foundation was and what they've been doing for so long and just bring it into the future. It's like, oh, you guys have everything here. You just need the ETF wrapper.
Bilal Little:
Yeah. So look, innovation is happening, right? The ETF wrapper is that, but let's just talk about Calamos pulling their legacy business forward. For people who don't know, just give a quick level set commercial of who Calamos is and what you guys do.
Matt Kaufman:
Calamos is a $40 billion asset manager. We focus on liquid alternatives, as you would expect, long-standing mutual fund business. We've gotten into private credit over the last few years as well with Aksia. I came over about two years ago to start the ETF business. John Calamos had reached out and the COO, Dan Dufresne reached out as well and said, "We want to start ETFs." I said, "Do you know what you're asking?" He's like, "Oh, we get it. This is a space we need to be in."
I said, "Well, it's probably going to look a little different than you think it is." We talked through that process and he said, "We understand. We know where the future is. We know that ETFs are the future. We see that on the horizon." So it was a great fit to be able to take everything that Calamos's heritage has been built on and bring it into the future.
Yeah, a billion-dollar asset manager, started in the late '70s. The options markets were in the mid '70s, so the firm started just shortly after the options market came alive in Chicago. We're the largest convertible bond manager in the United States. We're second largest globally.
So if you're familiar with a convertible bond or you're not familiar, a convertible ties a corporate bond to a call option. So as the market's performing or as the company's performing, you've got a call option to that company's stock. Then on the downside, you're tied to the bond, to a bond floor.
So that was like I said, one of the original payoff profiles. We're doing similar work in the ETF space now. We're building synthetic convertibles through product CANQ. We've got income products, we've got structured protection products, but a lot of the payoffs that we're building were all pieces of John Calamos's book on converts that he wrote in the '80s.
Bilal Little:
So let's stay with just the innovative component of this. I think this is important. When you guys decided to launch ETFs, you didn't just jump in and say, okay, we want to be another traditional, active, long only equity strategy. You guys literally put some stakes in the ground of saying, okay, we're going here with innovation. We're going here with innovation.
Just maybe unpack the suite a little bit because you got 35 ETFs. You've launched a little bit of everything. I was actually here for the Giannis launch, when you did that.
Matt Kaufman:
Excellent, excellent. That was a fun one.
Bilal Little:
A couple years ago. Yeah. So that was definitely fun. What I see with what you guys are doing is you're putting a stake in the ground of innovation, and maybe unpack that.
Matt Kaufman:
Yeah, I remember that Giannis launch, that was the first ETF that we brought. Calamos has a great relationship with Giannis Antetokounmpo.
Bilal Little:
Hold on. How long did it take you to say the name correctly?
Matt Kaufman:
I had to practice for the interview. I'll say that. It kind of rolls off the tongue now. Yeah, I remember that particular bell ringing. We were doing a presentation. I was sitting in the back of the room, kind of the new guy in the room. I thought everybody was staring at me, and I was like, well, I know I'm new here, but why is everyone looking at me? Then I turned around and seven-foot Giannis was right behind me. I was like, oh, they're looking at him. So it was kind of funny.
Yeah, back to innovation. So I started my career at PowerShares. The story that we often tell there is we got exempt of relief from another asset manager in Chicago. They said, "All the good indexes are taken. We don't think there's any room for growth in ETFs." The SPY was taken, Qs was taken, the Dow was taken. We hear that, I've been in the industry 20 years and I've heard that every quarter. People keep saying that, "Are we done yet? Are we done yet?" So we built this whole smart beta ETF space.
From there, I went to Milliman, and what we were doing at Milliman was hedging balance sheets on large life insurance companies. So we got to learn futures and learned options, learned hedging and risk management. What I realized is that was pretty inefficient. A lot of those strategies could be made extremely efficient in the ETF wrapper.
So taking everything that we've learned from insurance companies and from options and hedging, and we can bring that into the ETF space and give people a remarkably better experience. So we built the intellectual property for buffer ETFs, which is a pretty big space today.
You say buffer ETF now, and people nod and say, "Oh yeah, I get it." Eight years ago everyone said, "What the heck is a buffer?" No one knew what that was. So that was a new term we needed to teach people in the ETF market. That I think put a stake in the ground of what's possible, how we can build the future.
Historically, financial advisors would meet with their clients. You'd go through a risk tolerance questionnaire, you'd check a box, conservative, moderate, aggressive. The reason that they would check that box was because it was historically looking at a 60/40 portfolio, 70/30.
Then the only way to know if you've achieved that checkbox is to live for another 10, 20 years and then look back and say, "Okay, did it work?" If you hit a shorter environment like 2022, where those asset classes become highly correlated and fall together, well, you failed that checkbox.
Bilal Little:
Absolutely. Or you walk through the lost decade.
Matt Kaufman:
Exactly. Exactly. Now you don't have to do it that way anymore. You can choose a protection level. You can choose exactly the risk management level you're looking for and dial it in. So when I was at Calamos, when I started at Calamos, the space that had not been captured in that outcome-based space was the capital protected space. If you follow structured products, you follow annuities. We built the buffered annuity version in 2017.
At Calamos, we brought the fixed index annuity version or the capital protected note. The reason we did it was rates were higher. Rates were at zero for a very long time. The buffer was the best trade at the time. When rates are higher, you can afford to deliver capital protection, and that's where the flows were going to. People were buying capital protected notes, they're buying CDs, they're chasing the high interest rate. Well, you can use that high interest rate and you can buy upside to the market.
We launched that in May of 2024, came out with a bang for those types of products. People are using those today. Retirees are using those in a very big way. That's something I think probably nearer to my heart. My own parents are in their late 70s. That group of people, there's 11,000 retirees hitting the market every single day. It's the largest group of retirees we've ever seen before. You talk about that wealth transfer, but what are we doing for those folks as they age, as they decumulate?
Bilal Little:
They got a 20 to 25 year period.
Matt Kaufman:
They're living longer. Exactly. You hit peak 65 and you've got this potentially long life trajectory ahead of you. Inflation was not in the equation for the last 15 years, and then it came out of nowhere. We did PPP loans and everything during COVID, M2 spiked, inflation hit. So that impacts people that are not tied to inflation, people who are not earning an income, they cannot get an income adjustment from your portfolio unless you take on more risk, which a lot of retirees just can't do. So those folks have got to outpace inflation over time if they're withdrawing from their portfolio.
Well, if you can buy an ETF, that gives you a hundred percent principal protection and twice the risk-free rate, well now you've solved your problem. You can solve inflation risk. You can solve volatility risk in your portfolio. You can tie yourself to the equity markets without having to rely on fixed income factors. So there's remarkable ways that you can solve problems for investors using the ETF wrapper in a way that doesn't have to tie their money up for the next 20 years to get an income payment from a balance sheet.
Bilal Little:
No, I'm glad you brought this up because it sounds like Calamos was pretty early at embracing the ETF rule because this is important. That's the inflection point, right?
Matt Kaufman:
Exactly.
Bilal Little:
ETF Rule is the inflection point. So I want you to talk about, because you've seen this level of launch, this velocity of launches come and actually obviously spike. Since then you have 2020, not a lot of launches. Everyone was trying to digest what was happening with the rule, and now you had single stocks, you had options. You had to your point, the buffer.
Now you're starting to see innovative solutions like what we're going to talk about here shortly, almost penetrate to your point, the annuity market and other aspects of the investment landscape. So maybe just give your perspective on why the ETF rule was so important and how it actually supported the innovation that has taken place at Calamos.
Matt Kaufman:
Prior to the ETF rule, I use the, probably an archaic term now, exemptive relief. You don't need that anymore. That used to be a valuable piece of paper. It used to take 18 months or so to get exemptive relief from the SEC. You'd hire expensive attorneys to draft all the paperwork.
If somebody had that, it was often a decision for a firm who wanted to enter the ETF space. Like, okay, do we wait 18 months before we get this permission slip? Or do we go out and buy someone else's who might already have it? So there were folks who were actually doing the legwork of getting exemptive relief just so they could sell it to someone that might want it.
Then the ETF rule came out in 2020, like you said, and that was a game changer. It was a game changer for anyone who wanted to get into the ETF market because it standardized the rules. You no longer needed exemptive relief. You follow 6c-11, you're good to go. Register your ETF with the SEC, and off you go.
There was a second rule that really allowed for the innovation that we're doing here, which is the derivatives rule. Exactly. So prior to that, ProShares, I would say, had a moratorium on 2X leverage type products that use swaps. Then those got cut off, and then no one else had them. So congratulations to ProShares for locking the market up for that long. That's not the case anymore. You don't have to do the speculative part of options. There's a whole other half of the equation, which is hedging. You can be a risk manager.
That's what Calamos is doing. That's who we are. We're risk managers. So we are delivering derivatives based strategies into the ETF world within the 6c-11, within the derivatives rule. So one of the products we launched, we're here today to ring the bell for our autocallable income ETF. So just when you think there's no more room for growth in ETFs, the derivative income ETF space is massive. It's all covered call strategies today.
You're selling off your upside, you're collecting an income. Well, if we take a monthly buy right strategy, that coupon level can vary based off of market volatility and different factors. So every month your yield might change. This month if all is high, you might get one to 2%. If all is low next month, you might get 50 basis points.
There's a whole other half of the pie in derivative income outside of the ETF world, and it's the autocallable space. It's a massive market. It's about a hundred billion dollars in issuance and callable yield notes in the structured product space, I'd say is one of the loan categories that has not made its way to ETFs yet. Largely because it's not a listed options market. You cannot build a five-year, deep in the money put option with a call feature, that is an OTC type option.
So what we've done is we've worked with JP Morgan as our hedge provider, and MerQube, which is a very, I'd say strong custom index provider in the option space. We built the world's first autocallable income ETF. So if you're not familiar with autocalls, you can think of it like a bond whose coupon and par value are tied to equity markets.
So a normal bond, you're tied to credit duration, fixed income factors. Think of this like a bond where your principal and your coupon are tied to the equity markets not falling too far. So you're trading deep tail risk for a high stable coupon. So we've taken that whole autocallable idea, we built that in index with MerQube, that ladders 52 or more autocallables.
We trade that index on swap again because the derivative rule allows us to do that. Now you can create a remarkably more efficient experience for investors. It's remarkably more efficient for advisors. I met with an advisor in Ohio. Go Buckeyes. I don't know if you're losing some listeners.
Bilal Little:
Come on. Come on. My wife is from Cincinnati, so she'll support this.
Matt Kaufman:
Oh, excellent. Okay. West side or east side?
Bilal Little:
She's from west side I want to say.
Matt Kaufman:
Okay. My wife is too. So that's always the question. When you meet someone from Cincinnati, you got to know which side of the town they're from.
Bilal Little:
I got to figure this out now. Hold on. Your wife's from Cinci?
Matt Kaufman:
Yeah.
Bilal Little:
Oh, I got to ask. This is going to be good. We'll talk about that.
Matt Kaufman:
Okay. See, I'm losing my train of thought.
Bilal Little:
You said, "Go Buckeyes."
Matt Kaufman:
Oh, I was talking to an advisor in Ohio. So he had papers all over his desk.
Bilal Little:
Sounds normal.
Matt Kaufman:
He's like, "Look at this. These are all structured notes. These are all autocallable notes." I was like, "What do you do with those?" He said, "I try to find one that has a good coupon, good risk management built in." So an autocall will give you a coupon, and then it has what's called a coupon and a maturity barrier. So we taught you buffers several years ago. A barrier preserves par and preserves coupon as long as the market doesn't fall below that barrier.
So if I gave you a 40% downside barrier, as long as the reference index is not down 40%, you get your coupon. As long as it's not down 40% at maturity point to points, a European barrier, then you preserve your par rate, you get your principle back. So that's how it works. He's like, "I find notes. I buy them six months later, I get called away and I have to shop all over again. My coupons are different. I have bad tax treatment. It's operationally burdensome." I said, "Hold the phone for a few months. We'll call you soon."
Bilal Little:
Hold on. Is this your aha moment or were you already working on it?
Matt Kaufman:
We were working on it.
Bilal Little:
Okay. You were already working on it.
Matt Kaufman:
Yeah, we were working on it.
Bilal Little:
Okay.
Matt Kaufman:
So I was able to call that advisor back last week and he said, "You're right. This is the easy button for me." We've had 20 or 30 phone calls since we've launched just with advisors all doing that same thing. This is way more tax efficient so if you use the swap-based model, all of our goal is for most of that distribution to be tax-deferred until you sell.
So one of the advisors we were talking to said, "I've got older clients," back to our retirees. "I'm going to use this ETF CAIE for that particular client because he's going to get tax-free distributions. We'll give a little bit out from the collateral, but majority will be tax-free. Then he can bequest those shares to his heirs. They'll get a step-up in the basis, so he would've gotten tax-free income for the rest of his life. Then he can give those shares of CAIE to his heirs and they will not inherit any tax basis."
Bilal Little:
So let's go back a little bit.
Matt Kaufman:
I got deep in the weeds.
Bilal Little:
No, no, no, this is good. This is good because I want to make sure that we thread the needle on how we got here. When did you, JP Morgan, and your index provider get together and say, we want to address this a hundred billion dollar opportunity?
Matt Kaufman:
I'd say the star's kind of aligned on this one. The autocall market has been on, in my mind in particular for a very long time. We built things with flex options and did those types of strategies. Flex options are very efficient for delivering broad, vanilla-based exposure.
If you want to do something that provides a consistent, high stable coupon that has a call feature so that you can actually deliver that and then ladder all of that together, like building all of these things, you need to go and partner with a structuring desk or partner with a bank. So it's not disruptive in that regard. It's actually collaborative.
So one of the comments that we made internally, everyone in the ETF space is watching JEPI and JEPQ. Again, those covered call strategies. Everyone wants to come up with a strategy, "Hey, don't, why don't we build a JEPI competitor?" Our comment was, "Why don't we partner with them?"
So we're going to the other side of the house. This is not the asset management side, but we're working with JP's equity derivatives desk to deliver derivative income into the market. Then I've known the CEO of MerQube for several years. We worked on some projects together when he was at S&P, become good friends. We've always talked about the autocall space. So it was about a year ago I said, "Hey, I want to put a hard effort on the autocall." He goes, "I think that we're getting close too."
So we all went and collectively met together and it was very evident that we were all there. We had the index, we had the partners, we had the hedge provider. It was all ready to go. One of the faster launches that I've seen, so normally you'd file with the SEC. It's a 75-day process, and we built this thing in about 75 days, which I've never seen before.
Bilal Little:
That's insane.
Matt Kaufman:
Usually for something like this, it takes a lot longer, but this one came together.
Bilal Little:
It's exciting to see this bit of a blue ocean development take place in the ETF landscape, and it actually continues to support the wrapper of this, the most innovative investment vehicle or tool in our lifetime.
Matt Kaufman:
Yes.
Bilal Little:
How would you say... Because of that, retail investors have access to ETFs without the need of a financial advisor.
Matt Kaufman:
Yes.
Bilal Little:
So I want to get your perspective on how someone should look at the risk profile of this investment and what are some potential areas of risk that should be disclosed and, or understood?
Matt Kaufman:
So with a traditional autocallable note, you have what's called barrier risk. So it's a single point in time risk, which if at maturity, let's say you have a three or five year note, if the market is correcting severe sustained drawdown like the global financial crisis, if that reference index is down, in this example 40%, five years from now, you will lose principle. That is the risk.
It's the risk and reward trade-off that you're taking. Your trading off deep, in the money tail risk that 40% or more, for a high coupon. So the worst case would be if the market's down 40% or more, you would lose 40% of your principal. If it's not, if it's down 39, you're going to mature at par, you're going to get all of your money back and all of your coupons.
One example that we give that I think helps a lot of retail investors think about it is, I'll use Monopoly money with a hundred dollars bill, and then I have a stack of ones. So if we just pretend like you have a 12% annualized income that pays monthly, so you would give me your a hundred dollars, that's your par value. Then let's look every month, is the reference index positive? Yes. Here's your dollar. Is it flat? Yes. Here's your dollar. Next month. Is it down 20%? Yes. Here's your dollar.
Then what's worst case, is it down 40%? No dollar for you. No soup for you. Then it can come back. If the reference index comes back up the next month, start getting paid again. Then there's a call feature. It's in the name autocall. So after one year, is a one year non-call period, the market is positive, the reference index is positive, you get your money back. So you get your hundred dollars back, you get your final coupon. Thanks for doing business with us, sir. Off you go. So that's the traditional way.
Bilal Little:
Phenomenal breakdown. I love it.
Matt Kaufman:
That's the traditional way. What happens, so what's the risk? The risk is you have single point timing risk. You have single coupon risk. What if you ladder that? What if you went out and bought 52 or more of these, laddered them weekly? Now I've spread out my maturity risk over 52 or more checkpoints. Your coupons are all very stable. So if you lose a coupon on one, you got 51 others to check your coupon rate at. It creates a remarkably stable experience. If you put it in an ETF, the benefits are that there's liquidity.
Bilal Little:
Spend some time on this because the trading of ETFs and the capital market side is the part that I think education needs to be shared.
Matt Kaufman:
Oh, I agree.
Bilal Little:
So spend some time on this.
Matt Kaufman:
There's some balance there too. So the benefit of the liquidity is that you can get in and out at any time. Maybe the detriment is that you know what the value is at all times. So if you buy a note or a piece of paper from a bank or an insurance company that you buy on day one, you close your eyes, go home, and then you come back three years later and you get the outcome. You do not know what that thing did over the last three years.
Whereas here, those bonds will mark to market with the reference index. So you'll have an experience that looks a lot like the S&P 500. Maybe a little bit more volatile, maybe a little bit higher beta, but largely it's going to look like the S&P 500 over time. So if you're comfortable with that type of experience, you can get a high stable coupon.
I think of it like a rubber band. Think of your bond that will trade at a premium or a discount based off of market movements. So if the market's moving down, your bond is going to trade at a discount, that rubber band is going to stretch. As long as the rubber band doesn't break, that's your barrier.
Bilal Little:
Absolutely.
Matt Kaufman:
You're going to go back to par. You're going to rebound back to par. So if you had bought this, it wasn't live, but if you'd bought this in April when Trump made the tariff announcement, you had a 15, 20% drawdown, well, what happened? It snapped back. That market could have stayed down and you'd still snap back because it's a bond.
Bilal Little:
In theory, you might miss one month's income payment.
Matt Kaufman:
Potentially. You wouldn't have, but yes.
Bilal Little:
You wouldn't have, but potentially.
Matt Kaufman:
Yeah, correct.
Bilal Little:
Yeah, okay.
Matt Kaufman:
That's only one month's coupon on one 52nd of your portfolio.
Bilal Little:
For sure. For sure.
Matt Kaufman:
It's remarkably diversified.
Bilal Little:
I love that. So now let's talk about portfolio construction. Where does a product like this fit, and what's that risk profile? Meaning, am I peeling from equities? Am I peeling from obviously fixed income? Explain some of that.
Matt Kaufman:
Most folks who use autocallable notes are taking from equities. They're turning their equity exposure into an income payment. We're seeing that on covered call strategies as well. Derivative income strategies.
The other piece of the puzzle would be some are taken from high-yield bonds. If you think of it that way. A high-yield bond has credit risk, duration risk, but it has default risk. So if you think of a global financial crisis, what's the default rate of my high-yield bonds? Well, now you can think of that similarly to an autocall strategy, which is how often did I breach the barrier? So that is another way some advisors are thinking about it.
I'd say anybody who wants an income payment, right now, the index we're trading swap on as an average weighted coupon of about 14.7%. So if you think that we're in a slow growth environment in our economy and the S&P 500's not going to grow by more than 14%, here's a way to capture that as a coupon stream that's extremely tax efficient.
Bilal Little:
I'm glad you brought this up because the tax component is the other part for high net worth investors.
Matt Kaufman:
Yes. Right.
Bilal Little:
So maybe unpack how the income is taxed and what that benefit looks like.
Matt Kaufman:
Yeah. I would say having built ETFs for 20 years or more, tax efficiency is one of the highlights of the ETF wrapper. Investors and ETFs want tax efficiency. It's one of the biggest reasons they're using ETFs outside of liquidity, low cost, transparency, all that.
So everything that we do at Calamos, we strive to be as tax efficient as possible. So our structured protection ETFs that have no downside risk, upside to the equity markets, all of that grows tax deferred. So we're going to dive a little bit into the weeds maybe for 30 seconds.
Bilal Little:
That's okay.
Matt Kaufman:
If you look at listed options, equity options are treated as capital, but those are American style. So there's two styles of options. American style, which means you can get called away. European style means you can't. So if you try to do this yourself with listed options, you can choose equity options, but you could get called away. One of your legs could get broken and you have to start over.
You could use index options. Those are 1256 contracts, and those are mark to market at fiscal year-end, and you have to distribute out your gains. Those are taxed at 60/40 treatment. Those are European style. So that's why you would use flex options for broad, vanilla based outcome products because it allows you to customize those options.
I can choose equity options that are European style, match those two things together, and I can deliver you a remarkably tax efficient experience where you'll grow tax deferred, compound growth inside the fund, and pay long-term capital gains when you sell if you've held for longer than one year. So you compare that, compare capital protected ETF to any other note or bond or CD, you have a term, you pay ordinary income at the end.
Bilal Little:
Absolutely.
Matt Kaufman:
You do not have to do that here. Compound those. Even if you miss a year and you get zero, compound seven or 8% year after year, you're in a remarkably better position. So that's how we think about the markets. Then some folks who do income type strategies will use index options because that's taxed at 60/40. With CAIE, with the autocall ETF, we've done even better.
So with that one, we're using swaps. So we've got 97% of the portfolio is in treasuries. That's your collateral. So again, I said we were paying about 14% coupon on that. So we will have to pay out about three of that 14 as ordinary income. The other 11, our goal is to distribute that again as return of capital. So there's a new thing I think people need to think about.
There's bad ROC, bad return of capital, which is, oh, we didn't quite get there on the coupon, so we're going to give you some of your money back to get there. It's not what's happening here. What I would call this is good ROC. This is good return of capital, which just means that all of those other distributions, the other 11% is going to be treated that way, which means you do not pay tax on that until you sell.
Bilal Little:
I'm glad you transitioned this. This is important to the tax conversation because I want to touch on one last point on this because I think you really unpacked the strategy well. The product has less than $20 million, but we talked about liquidity. For somebody that's looking at the product, how do you address the liquidity conversation for them to feel comfortable that the liquidity is there? I think this is, again, more of the education that's needed from the capital market side.
Matt Kaufman:
Yeah. There's two types of liquidity. There's on-screen liquidity and there's implied liquidity. So credit Dave Abner for coming up with the implied liquidity concept, but that's what ETFs are for. ETFs have market makers and they have the ability to create and redeem shares.
We've been telling this story and educating for 20 years. I still get this question from advisors, am I impacting shareholders if there's a big run on the ETF? How does that not hurt the ETF? We have to explain the creation redemption process. Most of them get it, but I think...
Bilal Little:
They still don't get it.
Matt Kaufman:
They still don't, exactly. You got to see it.
Bilal Little:
You got to see it. Yeah.
Matt Kaufman:
When you see it, then you're comfortable. So all of our product, I'll use the autocallable income ETF again, it's based on liquidity of the S&P 500. It's a massive complex. So JP Morgan's hedging their positions with S&P 500 futures. It's a multi-trillion dollar complex. If you look at the implied liquidity of SPY, which essentially says, okay, what trade size could I take on today?
What's the liquidity of the underlying holdings of that ETF? It's like $42 billion per day. It's massive. The ETF's been around for two weeks, 20 million in size. We've grown pretty good for two weeks in the market, but we could take on a billion dollar trade and we could take it out and everything would be just fine.
Bilal Little:
I love that. So I want to switch gears just because I have you. I think you really unpacked that strategy very well. This is important to me, just given the fact that you have a unique seat as running a very innovative investment platform. Where do you see the ETF industry going? You guys just now launched a product that basically is somewhat disrupting the annuity space, [inaudible 00:33:18] product place.
Matt Kaufman:
Yeah, that's a very good question. I like thinking about that. We could probably do a whole other podcast about that. The way that I view innovation, you can be the biggest and the best at something. I know you have a history at BlackRock, iShares. So that beta market is captured. Vanguard, iShares, low cost. We have it now, to quote Seinfeld again. We can get really low cost access to the stock market, that's been democratized. So it makes no sense to come in and do that again.
With PowerShares we were the third ETF provider in the market. I think maybe third or fourth. We built smart beta ETFs. No one had done that yet. When I was at Milliman, had a few ETF clients building buffer ETFs. We were the 103rd provider there. Calamos was the 300th provider. So what are you going to do? What are you going to do different?
So the way that I think about innovation is rather than being the biggest and the best, you have to disrupt that. You have to build a new category and then you can own that category. You can be the biggest and the best at that. The autocall space has never been done before. It's never been captured. This was not an ETF. This is a category.
If you follow the structured note market, autocallables dwarf buffer sales. So we're going to have a lot more of these types of products into the market. The derivatives rule really allowed for growth of structured type strategies. Coming from an actuarial consulting firm, the way that we think about building products is you have to innovate, but you have to do it with security.
If you innovate in the tech space, we all have iPhones or whatever phone you have, and you can build the beta version. The iOS can kind of work. You get an update every two or three weeks, maybe it breaks and then they fix it. No big deal. In financial services, you're dealing with people's life savings. So what you have to build has got to work.
Bilal Little:
It's got to work. Trust and risk. Right?
Matt Kaufman:
Exactly. Exactly. So I think that's a big reason Calamos has been around for so long is because they've innovated, but with security. I think that's why we work very well together is because I take that same approach to our ETF line. I don't want to scare the market, but if you think of how many stocks or companies are listed on the New York Stock Exchange, how many ETFs are listed on the New York Stock Exchange, it's several thousand. I don't know if you know [inaudible 00:35:53].
Bilal Little:
There's over 2,400 listings.
Matt Kaufman:
2,400. Okay.
Bilal Little:
This year, you might see ETFs eclipse that.
Matt Kaufman:
Okay, so 2,400. So if you want a sense of where the future might go, go to the Frankfurt Stock Exchange. Do you know how many structured products are listed on that exchange?
Bilal Little:
No clue.
Matt Kaufman:
1.4 million.
Bilal Little:
What?
Matt Kaufman:
So again, not to scare people, but if you say there's no room or room for growth, we have just gotten started.
Bilal Little:
Whoa. As we get ready to wrap, this is a point in the show where I basically ask for one of the asset managers, ETF underdogs, the ETF underdog is a product that's under 50 million that no one pays attention to, that they should pay attention to. I want you to basically be able to provide a quick commercial on what it is because I think we need to bring visibility to the product set that is available in the market.
Matt Kaufman:
Oh, I appreciate that. My favorite, maybe it's one of my top favorites now that we launched autocall, but...
Bilal Little:
His portfolio managers will be totally upset.
Matt Kaufman:
Exactly. Exactly. A lot of my own retirement money is in CANQ. That product, CANQ, we launched about a year and a half ago. If you think of a normal buffer, floor type strategy that gives you exposure to the upside with a built-in protection level rather than an explicit protection level, we're owning bonds.
So we have an actively managed, fixed income portfolio. We have great active management at Calamos. I think it sets us apart. So we have 90% of our portfolio in an active bond portfolio. So that's your risk management, that's your floor.
We can go up and down on the credit spectrum, duration. Then we take 10% of the portfolio and we buy upside to some large tech stocks. So we've got a lot of different tech stocks in there, but that creates a synthetic convertible exposure. So we do that inside the portfolio.
We knew that one was going to have to take time to prove itself out. It's not extremely intuitive on the surface. We've outperformed the NASDAQ 100 since we've launched. Almost every time period, we've captured about 90, 95% of the upside. We've captured about 65% of the downside. You get upside to the stock market with a built-in bond floor. So I'm seeing that as the innovation of what could be done in the future.
Bilal Little:
I love that. With that, Matt, I think we'll end the podcast. I really appreciate you for coming, buddy.
Matt Kaufman:
Thank you.
Bilal Little:
Appreciate it.
Speaker 1:
That's a wrap for today's conversation, but the ETF discussion doesn't stop here. For more insights, deep dives and voices shaping the market, stay connected on etfcentral.com. From the New York Stock Exchange, we'll see you next time.
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