“The sweetest fragrance, it brings a wind of change.”
–Peter Frampton, “Wind of Change”
English is a wonderful language for many reasons, but one of the more interesting ones is its frequent use of homonyms.
A “homonym” refers to words that have completely different meanings but are pronounced and spelled the exact same way. This opens the door for a lot of fun wordplay. For example, when I say, “the fresh winds of change,” I’m primarily referring to “change,” the act of making something different, while at the same time alluding to “change” — as in, money.
To me, no investment best embodies both meanings of change than cryptocurrency. The virtual currency has created a great deal of “change” in the currency market, while also making a boatload of “change” for its investors. In my opinion, one of the best ways to get into the cryptocurrency market is through cryptocurrency ETFs, including a fresh, new investment.
The Calamos Bitcoin Structured Alt Protection ETF – January (CBOJ) was founded only a month ago, on Jan. 22, making it as fresh as fresh can be. CBOJ is an actively managed fund designed to track the positive price return of spot Bitcoin up to a cap, while providing protection against price decreases for a one-year period. It uses the BRRNY, a benchmark index, to determine this cap.
CBOJ employs two portfolio construction methods: one involves using the U.S. Treasuries, options and cash equivalents, and the other uses options and cash equivalents. While the fund does not invest directly in Bitcoin, it does offer perpetual investment opportunities, with new options chosen at each annual reset date in January. Returns will differ if investors buy or sell shares in the middle of a period.
This fund’s primary objective is to remove the volatility inherent in a very volatile asset class that is uncorrelated to traditional securities.
In the case of CBOJ, it offers 100% downside protection with an estimated upside cap of 10–11.5%. That risk dynamic is achieved by purchasing options via puts and calls to offset the internal math of the fund. This allows investors to capitalize on a portion of the upside gains (assuming they start at the beginning of the outcome period) without realizing any of the potential downside implications. It should be noted that the fund does not and will never own actual spot Bitcoin.
The fund has $43.61 million in assets under management and an expense ratio of 0.69%. It is down 0.82% over the last month. Due to the extreme newness of the fund, data for its three-month and year-to-date performance has yet to materialize (so no price chart is helpful here).
While the rise in cryptocurrency has brought on some fresh winds of change, they may not create smooth sailing for every portfolio. Investors should always do their due diligence before adding any stock, fund or ETF to their portfolio.
As always, I am happy to answer any of your questions about ETFs, so do not hesitate to send me an email. You just may see your question answered in a future ETF Talk.
