The NASDAQ-100 Index, due in large part to its significant technology exposure, often outperforms the S&P 500, but does so with sometimes higher volatility and always a lower dividend yield. The Nationwide Risk-Managed Income ETF (NYSEArca: NUSI) is an ETF that solves those riddles for investors.

The Nationwide Risk-Managed Income ETF incorporates options exposure to help generate income and mitigate risk as a way to enhance total returns. Investors have long capitalized on covered call options strategies for income generation or protective put options strategies to protect against and limit losses.

In plain English, NUSI offers investors a less volatile, income-based approach to the popular NASDAQ-100 Index.

“The Nasdaq-100 is heavily allocated towards top performing industries such as Technology, Consumer Services, and Health Care, which have helped the Nasdaq-100 outperform the S&P 500 by a wide margin between Dec. 31, 2007, and March. 31, 2020,” according to Nasdaq Global Indexes.

Why NUSI Matters Today

NUSI avoids some of the current dividend risks with the S&P 500 because the Nationwide ETF is an income-generating spin on the Nasdaq-100 Index (NDX), an index lightly allocated dividend-offending sectors, such as energy and real estate.

“Despite recent overall market volatility, the Nasdaq-100 TR Index has maintained cumulative total returns of approximately 2.5 times that of the S&P500 TR Index,” according to Nasdaq.

With its covered call writing and put buying mechanisms, NUSI mitigates some of the volatility associated with tech-heavy benchmarks such as NDX.

“One year rolling volatility (calculated by taking the standard deviation of daily returns, annualized) was 94% correlated between Dec. 31, 2007, and March 31, 2020, when comparing the two indexes. Given the large exposure the Nasdaq-100 has towards Technology, the ability for the Nasdaq-100 to closely track the volatility of the S&P 500 is rather impressive,” according to Nasdaq.

NUSI is an actively managed portfolio of stocks included in the Nasdaq-100 Index and an options collar. Per index rules, the fund only invests in the top 100 largest by market cap, nonfinancial stocks listed on NASDAQ. A collar strategy involves selling or writing call options and buying put options, thus generating income to hedge some downside risk. The strategy seeks to generate high current income monthly from any dividends received from the underlying stock and the option premiums retained.

“The Nasdaq-100 is heavily allocated towards top performing industries such as Technology, Consumer Services, and Health Care,” according to Nasdaq. “The growth of companies in these industries has continued to be strong. Given the way technology is influencing the world and making companies more efficient, this trend is more than likely to continue going forward.”

For more on income strategies, visit our Retirement Income Channel.

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.