What To Make Of A 14% Yield In A 5% World

On Tuesday I sat in on a webinar for the Calamos Autocallable Income ETF (CAIE). Based on the webinar, autocallables are a longstanding and widely used institutional product packaged as a structured note that pays a high income and is usually tied to some sort of reference security, in this case a low volatility version of the S&P 500. CAIE purports to be the first product that makes autocallables available in an ETF so it avoids high minimums and makes it more liquid. 

The expected distribution yield should be close to 14%. The distribution will be characterized as a return of capital which makes it tax friendlier versus dividends. At one point they said the return/volatility profile will resemble put-writing but then later they said it will have a little more volatility than the S&P 500, maybe a 20 vol versus 16-18 for the S&P 500 they said. Their comments about put-writing and a 20 vol don't necessarily conflict, not saying that, but being a little more volatile than the S&P 500 paints a better picture. 

They said it is a diversified income stream when compared to traditional fixed income but the way they talked about derivative income funds (covered call fund) at the start, CAIE may not be diversified against covered call funds. There are strategic differences. The said that covered call funds are more sensitive to market drawdowns which makes sense and that autocallables have a level, 40% down for the reference index in the case of CAIE, where problems start to occur. They noted that 40% breaches have only occurred 3-4% of the time and they were mostly concentrated during the financial crisis where there were multiple months where the index was 40% below the high. Read the literature to get a better handle on this. 

This is a complex product and I am not yet at the point where I can really dissect what can go wrong. At a high level, I would take a 14% yield in a 5% world to mean there is a lot of risk. Understanding that point is pretty important. It's ok if something has a lot of risk in this context so long as any prospective investor realizes it, that could be like a first level filter. If I am interested in buying something, a second level filter would be understanding the idiosyncratic risks of the product or strategy. Catastrophe bonds are easier for me to understand for whatever reason, autocallables not yet, maybe not ever, who knows?

But if CAIE does turn out to be a little more volatile than the S&P 500 with the tradeoff being a 14% "yield," I can get 75-80% of that "yield" from catastrophe bonds with a small fraction of the volatility. Cat bonds have risk to be clear but the risks are much easier for me to frame out at this point. You can search the archive in the right sidebar to learn more about cat bonds. 

If I wanted to add $1400 of income to a $100,000 portfolio, would it make more sense to have a 10% allocation to CAIE or a 2.8% allocation to the YieldMax Amazon ETF (AMZY)? AMZY had a 50% "yield" in 2024 while dropping about 11% on a price basis (the return for the underlying was very good but AMZY couldn't keep up with the dividend). Interestingly, AMZY's total return wasn't that far away from the common.

If CAIE malfunctions in a way that at this point is beyond what we understand about it, causing it to cut in half, that is a 500 basis point hit to the portfolio arguably caused by chasing yield. If Amazon common cuts in half because there is a 30% drop in the S&P 500 (not unrealistic) how much would AMZY drop? At the April, 2025 low, AMZY was down the same 29% as the common stock but even if it dropped 75% versus a 50% drop for the common, there would be fewer dollars at risk, $2100 from AMZY versus $5000 from CAIE in my scenario.

My scenario of a 50% risk to CAIE might turn out to be very very wrong, maybe I will come to learn that in time but my first inclination about something with such a high yield is to assume it is very risky. The risk to something like AMZY or cat bonds is easier to frame out, for me anyway but if I learn differently about CAIE I will blog an update.

Roundhill will be launching an S&P 500 ETF that looks to avoid paying any dividends by selling stocks before their respective ex-dates and the proposed symbol is XDIV. If it goes as plans, it would be a more tax efficient way to access the index. The fee has a couple of moving parts but for now, with the fee waiver, XDIV should cost 0.0849%, 8.5 basis points, which wouldn't exceed the tax liability for people likely to be interested in this. 

The information, analysis and opinions expressed herein reflect our judgment and opinions as of the date of writing and are subject to change at any time without notice. They are not intended to constitute legal, tax, securities or investment advice or a recommended course of action in any given situation.