Due to its significant overweight to technology stocks and sizable exposure to other growth names, the Nasdaq-100 Index (NDX) usually isn’t thought of as an income seeker’s paradise.
Additionally, the composition of the benchmark can make it vulnerable to rising interest rates as is on display this year. However, there are exchange traded funds that solve both of these scenarios for investors. The Global X Nasdaq 100 Risk Managed Income ETF (QRMI) is part of that group.
QRMI, which debuted last August, follows the Nasdaq-100 Monthly Net Credit Collar 95-100 Index. For investors new to options income, QRMI is a practical idea because it simplifies a strategy that might be difficult or costly for novice investors to implement on their own. An options collar consists of selling calls for income and buying puts for downside protection.
QRMI “employs a protective net-credit collar1 strategy for investors seeking the income characteristics of a covered call fund, while mitigating the risks of a major market selloff with a protective put. QRMI seeks to achieve this outcome by owning the stocks in the Nasdaq 100 Index (NDX), while buying 5% out-of-the-money put options on NDX and selling at-the-money call options on the same index,” according to Global X.
Due to its use of another options leg, QRMI sports a lower yield than pure covered call ETFs. However, the Global X fund’s dividend yield of 2.36% is five times the dividend yield on the standard Nasdaq-100 Index.
Equally as important in what’s a trying environment for equities, QRMI is living up to its billing of providing some downside protection/performing less poorly than standard benchmarks. QRMI’s year-to-date loss is only half what’s seen on NDX and the Global X ETF is beating the S&P 500 by about 200 basis points.
Another reason to consider a risk-managed ETF like QRMI, and it’s one that’s highly relevant today, is low inflation risk.
“Risk managed income strategies are typically used as long-term strategic allocations in income-oriented portfolios, given that they have negligible inflation risk and seek to provide a diversified source of income,” says Global X analyst Rohan Reddy.
QRMI has an annual fee of 0.60%, or $60 on a $10,000 investment, and is expected to make monthly distributions. That’s something to consider by investors that are looking for steady income.
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The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.