Calamos's New ETF Takes on JPMorgan's JEPI

Upstart ETF issuer Calamos Investments has launched its fourth exchange-traded fund, with an aim to grab market share from JPMorgan Chase & Co.'s popular JEPI and JEPQ.

Calamos, perhaps best known for its sustainability ETF launched last year with the NBA's Giannis Antetokounmpo, last week launched the Calamos Alternative Nasdaq & Bond ETF (CANQ), an actively managed fund that pairs options-based exposure to select Nasdaq 100 stocks with a diversified fixed income position.

That strategy pits Calamos, with $33 million in ETF assets, against funds from JPMorgan, the sixth-largest U.S. issuer with $138.5 billion invested in its exchange-traded funds. The difference between CANQ and the JPMorgan ETF  Equity Premium Income ETF (JEPI) and the JPMorgan Nasdaq Equity Premium Income ETF (JEPQ) is that CANQ's options-based strategy doesn’t cap upside gains.

The objective, according to Calamos, is to “deliver risk-managed equity exposure and attractive monthly income.” The fund charges a 0.77% management fee, more than double that of JEPI, JPMorgan's biggest fund at $31.9 billion in assets.

Matt Kaufman, head of ETFs at New York-based Calamos, summed up the CANQ strategy as using 10% of the fund’s assets to buy laddered call options on some of the Nasdaq 100 stocks.

“The performance comes from the call options,” he said in an interview. “The other 90% of the assets are going into a bond foundation made up of a diversified portfolio of fixed income ETFs.”

Kaufman believes the strategy is the perfect answer to collared strategies that keep investors in the market by offering downside protection in exchange for caps on the upside.

CANQ vs. JEPI: Options Strategy Offers Unlimited Upside

CANQ doesn’t have a cap on the upside, and he says the floor is established by the significant exposure to bond ETFs.

“The equity portion is all laddered options,” Kaufman said.

On the equity side, there is synthetic exposure to the top 15-to-20 stocks in the Nasdaq, plus the equal-weighted exposure to the index through options on the Direxion Nasdaq-100 Equal Weighted Index Shares ETF (QQQE).

“There’s pretty significant upside potential,” Kaufman said. "If every stock in the Nasdaq goes down and the options all expire worthless, you will have spent 10% but still you have a bond floor.”

Regarding the fixed income foundation, Kaufman said the strategy “can go anywhere.”

“We will generally be investing in low-cost fixed income ETFs,” he said. “But that could include high-yield, mortgage-backed, long-term corporates, collateralized loan obligations and some senior loans.”

Kaufman said a case for the strategy is pegged to the Federal Reserve’s near-term monetary policy.

“As we look forward, we’re facing a couple of likely scenarios including low rates and high growth or low rates and low growth,” he said. “Because of the rate environment I think bonds are a viable option for risk management and for income. And if rates are going down and equities are going down, you’ve got the income from the bond pricing going up.”