Brand New ETFs Off To Interesting Starts

A few quick hits today.

There was news reported in multiple places from Fidelity's survey showing the number of 401k millionaires grew last year by 11.5%. Part of the headline in the link I am including refers to these people as poster children for staying the course. Staying the course hopefully starts at a younger age but whenever it starts, the discipline to put in a meaningful percentage every year and let the market do its thing for you makes the path to a workable, financial outcome much easier to achieve. 

How old are you now? Where was the S&P 500 when you started and where is it now? The stock market will continue to saw tooth higher in the future, with or without you so you might as well go along for the ride. The fancy word for this that I like to use is ergodicity. The stock market is ergodic, it will generally work from the lower left to the upper right at some annualized rate. This isn't always easy to remember, like maybe in 2022, but it is always true. If you don't believe that, you should probably sell out right now and never buy stocks again. That's not a sarcastic comment. Don't own stocks if you don't believe they will go higher over the long term

A month ago, I mentioned the then brand new Defiance Treasury Alternative ETF (TRES). It owns short dated treasuries and uses option combos consisting of "credit spreads, debit spreads, long calls and long puts." Currently it has combos on TLT, it looks like credit spreads using calls and puts and then long more calls and puts beyond what is spread off. It appears somewhat directional with more long puts than long calls after netting out the short options in each spread. 

A month is obviously no time at all but this isn't a great first impression. Even if this first month turns out to be an aberration, it is a good reminder how quickly complex option positioning can go against you... until today. It certainly has been a smooth ride but it's been almost straight down. 

About a week ago I mentioned the newly listed Calamos Alternative NASDAQ & Bond ETF (CANQ). It is a multi-asset fund consisting of fixed income and equity exposure. It puts 90% into what appears to be a diversified fixed income portfolio with exposure to quite a few different income sectors via ETFs. The other 10% goes into long term call options on several NASDAQ stocks as well as calls on the Direxion Equalweight NASDAQ 100. 

In my post I said the fund appeared to be leveraged despite the prospectus not mentioning it. I was able to speak to the someone else at Calamos and it is leveraged along the lines, it appears, like the Return Stacked Stocks & Bonds ETF (RSSB). With the notional value of the calls in CANQ, the amount of stock controlled by all the calls, it looks to be a 90/100 bonds/stocks or 90/90. Calamos bases the notional equity exposure on the price of the common stock, not the strike price of the option. In that other post, I used Adobe as an example, the fund owns 1 call struck at $711 but the correct way to look at it is based on the price of the common not the strike price of the options.

A couple of interesting points. I mentioned the prospectus referring to this as a convertible security proxy. The answer on this is yes. Convertibles have a lot of equity beta so maybe this fund will too, I'd expect that to be the case but we'll see. My contact at Calamos said that none of the equities owned in the fund (via call options) have convertible securities outstanding. The combo of the calls and the fixed income then might give a convertible effect. That will be something to follow up on. 

NASDAQ is considered a tech proxy but that isn't quite right. It's close but not 100% tech. The fund has calls on a bunch of mega cap tech but also has calls on Costco and Pepsico. I'll try to circle back in six months to see how it compares to RSSB and also a convertible fund.

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