Structured outcome ETFs evolve into derivatives-based products

Matt Kaufman, head of structured solutions at Calamos Investments, described structured outcome ETFs as derivatives-based products that replicate bank- and insurer-style structured notes inside an ETF wrapper. The first U.S. product launched in June 2025; more than 70 similar funds are now in market or registration worldwide.

The new generation of these ETFs uses listed options, OTC derivatives and swap agreements to deliver defined outcomes over set periods. Managers package strategies to target income, growth or downside management by combining options positions, swaps and diversified baskets of instruments. Banks’ equity derivatives desks work with asset managers to recreate structured-note payoffs without relying on a single issuer’s balance sheet.

Calamos, founded in 1977 and known for convertible bond management, has been active in options-based ETFs. Kaufman said growth in the options market has contributed to an expansion in active ETF filings because many options-based funds do not track an index. He grouped uses of options in three categories: to seek growth, to generate income, and to manage downside risk.

Market activity has accelerated. More than $350 billion flowed into active ETFs in the first half of the year, according to Kaufman. In the U.S., covered-call funds total more than $100 billion, and structured-note issuance tied to autocallable strategies exceeds $100 billion a year. Globally, the market for structured notes and similar products is considerably larger.

Product designs vary by objective. Buffered ETFs provide a defined buffer against initial losses while allowing participation in market upside up to a cap. Autocallable income ETFs typically pay coupons when performance thresholds are met and can be called early, similar to callable bonds. Autocallable growth ETFs can accumulate coupons inside the fund, allowing compounding and tax treatment that depends on local rules.

Kaufman stressed the importance of clear communication with advisers and clients. “Education is key here,” he said. He added that these products involve trade-offs: “You can’t give someone all of the upside and all of the protection.” Risks depend on structure. Autocallable funds may fail to return par if the underlying index falls past a barrier by maturity. Covered-call funds can experience net asset value erosion if the fund repeatedly sells upside as markets decline. Managers use laddered note baskets or synthetic structures that mature at par to try to mitigate those effects.

The ETF wrapper changes accessibility and liquidity for these strategies. Instruments that once required large minimum investments or holding to maturity can now be bought and sold intraday. Since June 2025, several manufacturers and banks have launched structured ETFs and others remain in registration as advisers seek yield alternatives outside traditional fixed-income factors such as duration and credit.