Calamos Wraps Closed-End Funds in New ETF

CCEF is timed to take advantage of the Fed’s pending rate cuts.

Wealth Management Editor
Reviewed by: Staff
Edited by: James Rubin

Calamos Investments is pushing deeper into the ETF space with a strategy designed to take advantage of the historically wide discount in the closed-end funds space. 

The Naperville, Illinois-based firm with more than $35 billion under management launched the Calamos CEF Income & Arbitrage ETF (CCEF) on Jan. 16. This is the third ETF from Calamos since it entered the space a year ago. 

CCEF, which is carrying a separately managed account track record that hits the coveted three-year mark in February, is an actively managed strategy that invests in closed-end funds. 

The appeal of the strategy is that it is catching the Federal Reserve’s monetary policy at a potentially opportune time. After a concentrated run of rate hikes that set the Fed’s rate above 5%, with expectations for rate cuts coming this year, the average discount rate for closed-end funds is expected to narrow. 

The current average discount rate for closed-end funds is at 11.7%, which compares to the five-year average discount of 7.4%. As interest rates fall, the discount rate will narrow, driving up the net asset value of the underlying closed-end funds. 

“We did this by design and launched at a perfect time,” said Matt Kaufman, head of ETFs at Calamos. 

“The timing was right, and it presents an opportunity for long-term investors,” he added. 

CCEF extends a separately managed account strategy that Calamos has been managing since February 2021. 

Calamos Captures Closed-End Fund Discount 

The extreme discount to NAV inside the closed-end funds is rare but not unprecedented. Similar discounts developed during both the Covid pandemic and the 2008 global financial crisis. But in both those cases, the discounts were created by weaker equity prices. 

“The current discount is largely driven by interest rates moving higher, which drives up the cost of leverage, and the cost of financing for closed-end funds has moved up considerably,” Kaufman said.  

CCEF is currently investing in 35 closed-end funds, but the prospectus allows for a range of between 20 and 100 underlying funds.  

The strategies of the underlying funds range widely to include municipal bonds, equities, global infrastructure, energy and India. 

While the current environment appears ideal for CCEF, shifts toward higher interest rates could have a negative impact on performance. 

“If rates go up, leverage cost go up as well and you could see further widening of the discount,” Kaufman said. “Your NAV would likely decrease.” 

The ETF’s expense ratio is listed at 2.74%, but 2% of that is a required posting by the Securities and Exchange Commission because it reflects the fees charged by the underlying closed-end funds.  

Contact Jeff Benjamin at [email protected] and find him on X at @BenjiWriter 

Jeff Benjamin is the wealth management editor at, responsible for coverage related to the financial planning industry. This includes writing, hosting podcasts, webinars, video interviews and presenting at in-person events.

Jeff is a veteran journalist with more than 30 years’ experience covering the financial markets. He has won more than two dozen national and regional awards for his reporting. He most recently worked as a senior columnist at InvestmentNews where he wrote about investment products and strategies, as well as the broader financial planning industry. Prior to that, Jeff worked as an analyst at Cerulli Associates where he researched and wrote reports on the alternative investments industry. Jeff also worked as a money management reporter at Dow Jones Newswires, where he covered the mutual fund industry.

Based in North Carolina, Jeff is a former Marine and has a bachelor’s degree in journalism from Central Michigan University.