Animal Spirits Podcast Episode Summary

Title: Talk Your Book: Autocallable Income
Hosts: Michael Batnik and Ben Carlson
Guest: Matt Kaufman, Senior Vice President and Head of ETFs at Calamos
Release Date: July 7, 2025
Description: Animal Spirits explores the intersection of markets, life, and investing, with insights into the latest strategies and products. In this episode, hosts Michael Batnik and Ben Carlson discuss the newly launched Calamos Auto Callable Income ETF (CAIE) with Matt Kaufman, delving into the mechanics, benefits, and risks of auto callable income strategies.

1. Introduction to Auto Callable Income Strategies

Ben Carlson initiates the discussion by expressing the hosts' approach to exploring new investment strategies, particularly those they are unfamiliar with.

"I wanted to go in kind of blind because I want it to seem like we're going to do it live." (00:45)

Michael Batnik concurs, highlighting their mission to be educators for their audience.

2. What Are Auto Callables?

Auto callables are structured notes that pay a coupon based on the performance of an underlying equity index. Unlike other structured products with capped upside and downside protection, auto callables offer higher income at the expense of increased volatility.

"With that higher income comes more volatility." (01:36)

Ben elaborates that auto callables are not defined outcome products; instead, they offer higher returns with greater risk.

3. Introducing the Calamos Auto Callable Income ETF (CAIE)

Matt Kaufman introduces the CAIE as a pioneering ETF that encapsulates auto callable strategies, making them accessible and scalable for advisors and investors.

"Today we're talking about the Calamos Auto Callable Income ETF. And this is a very interesting product." (04:43)

Michael Batnik emphasizes the ETF's role in the evolving derivative income space, which already boasts significant assets through products like covered call ETFs.

"There is a massive derivative income revolution happening inside ETFs." (05:25)

4. Benefits of CAIE

The CAIE offers a laddered portfolio of auto callables, diversifying maturity and timing risks. This structure provides advisors with a streamlined solution, eliminating the need for managing individual notes.

"We've solved all of that with this ETF. We have a laddered portfolio of auto calls." (07:08)

Ben Carlson praises the ETF as an "easy button" for advisors, simplifying the implementation of structured income strategies.

5. Understanding the Trade-offs

The hosts discuss the crucial balance between yield and risk. Higher coupons come with the acceptance of potential principal loss if the underlying index significantly declines.

"The biggest question you ask here is, what's the trade-off? I'm getting this yield. What am I giving up?" (03:20)

Michael Batnik explains that while auto callables offer high income, they expose investors to "deep in the money tail risk," meaning significant losses during major market downturns.

6. Performance and Yield Insights

Michael reveals that the CAIE currently offers a substantial coupon of approximately 14.7%, a figure driven by the ETF's ability to stabilize underlying volatility through a customized reference index.

"The coupon's about 14.7%." (14:54)

Matt Kaufman questions the sustainability of such yields, prompting Michael to explain the ETF's design features that maintain high, stable coupons.

7. Comparison with Other Structured Products

The discussion places CAIE within the broader landscape of structured note ETFs, comparing it to leveraged exposure products and principal-protected notes. Michael showcases a spectrum where CAIE occupies the high-yield, high-volatility end.

"On the other end of the spectrum, you've got principal protected notes... The auto callable market... is a very large income category." (09:10)

8. Advisor and Client Considerations

Ben and Michael explore how advisors can communicate the complexities of auto callables to clients. The laddered structure of CAIE helps mitigate individual note risks, making it a manageable addition to client portfolios.

"If you're an advisor looking through these different strategies, how would you explain each of those buckets to your clients?" (13:44)

Michael likens auto callables to bonds that pay steady coupons, contingent on the equity index not falling below a specified level, aiding advisors in simplifying explanations.

"Think of it like a bond that pays you steady coupons, so long as the equity reference asset doesn't fall too far." (25:43)

9. Risks and Worst-Case Scenarios

The hosts address potential adverse scenarios, such as prolonged market downturns leading to missed coupons and principal losses. Michael assures that the laddered approach mitigates these risks, preventing catastrophic losses from affecting the entire portfolio.

"If the market is down below that barrier, you're going to miss that coupon for that month." (25:59)

10. Personal Experiences and Practical Applications

Ben Carlson shares his personal strategy of diversifying into different protection levels within the auto callable framework, demonstrating practical application and benefits during market volatility.

"I sold half of my bitcoin exposure and then I put some in the 0 floor and the 10 floor just to give myself." (31:23)

11. Future Outlook and Adoption

Matt Kaufman expresses optimism about the growth potential of CAIE, positioning it as a significant player in the structured income ETF space. He anticipates that the demand for such products will continue to rise, fueled by advisors seeking scalable income solutions for clients.

"I think the space is going to be multiples larger than that [the initial target of $7 billion]." (29:19)

12. Conclusion and Call to Action

The episode wraps up with Matt encouraging advisors to educate themselves on auto callable strategies and consider CAIE as a viable income solution for their clients. He provides contact information for those interested in learning more.

"If you're not familiar with the auto callable space, I would just encourage you to get familiar with it... You can find me personally, I'm on LinkedIn." (33:15)

Notable Quotes

1. Ben Carlson (02:07):
   "This isn't the other ones where your downside and upside are capped. It's like there's higher income and with that higher income comes more volatility."

2. Matt Kaufman (04:43):
   "The product that we're going to be talking about today is the perfect example of the evolution inside of this magical wrapper."

3. Michael Batnik (14:54):
   "The coupon's about 14.7%."

4. Matt Kaufman (09:10):
   "We just launched yesterday. We're seeing a ton of people have interest in this."

5. Michael Batnik (25:29):
   "The only reason that the coupon is so high is because we've customized an underlying reference index to stabilize the volatility so that you can get a high stable coupon."

6. Ben Carlson (13:44):
   "If you're an advisor looking through these different strategies, how would you explain each of those buckets to your clients?"

7. Matt Kaufman (29:19):
   "I think the space is going to be multiples larger than that [the initial target of $7 billion]."

8. Michael Batnik (33:15):
   "If you're not familiar with the auto callable space, I would just encourage you to get familiar with it. It's going to be a category in ETFs that's going to grow significantly over the coming years."

Key Takeaways

• Calamos Auto Callable Income ETF (CAIE): A new ETF that encapsulates auto callable income strategies, offering high stable coupons tied to equity index performance.

• High Yield with Trade-offs: Investors receive substantial income payouts (~14.7%) but must accept increased volatility and potential principal loss during significant market downturns.

• Laddered Portfolio Structure: CAIE's laddered approach diversifies maturity and timing risks, simplifying the implementation for advisors and enhancing portfolio stability.

• Market Positioning: Positioned within the broader structured product ETF space, CAIE stands out by targeting the high-yield income segment with a scalable and manageable solution.

• Advisors' Adoption: The ETF serves as an "easy button" for advisors seeking to integrate structured income strategies into client portfolios without the complexities of managing individual notes.

• Future Growth: With a target of $7 billion in assets and expectations of significant expansion, CAIE is poised to become a prominent player in the income-focused ETF landscape.

Final Thoughts

This episode of Animal Spirits provides a comprehensive exploration of the Calamos Auto Callable Income ETF, shedding light on how structured income strategies are revolutionizing the ETF space. With high yields and a manageable risk framework, CAIE offers a compelling option for income-seeking investors, while emphasizing the importance of understanding the associated trade-offs. Advisors are encouraged to educate themselves on these innovative products to better serve their clients' evolving investment needs.

For more information, visit Calamos.com or reach out to Matt Kaufman directly via LinkedIn or email.