With advisors and investors scurrying to source yield against the backdrop of rising Treasury prices and dividend cuts among common stocks, the Nationwide Risk-Managed Income ETF (NYSEArca: NUSI) remains a compelling income idea.
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.
“Once again, yields are low… really low,” said BlackRock in a recent note. “This creates an obvious challenge for investors that still need their portfolios to generate income. While junk bonds offer high levels of income, you probably shouldn’t have risky junk bonds as your only income generator.”
One way of looking at that is investors need to consider some fresh ideas when it comes to sourcing income and NUSI is an avenue for doing just that.
NUSI Is Increasingly Relevant
One of the many perks with NUSI is that it’s approachable for scores of investors, including those that like to do things themselves.
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.
“Income is an important aspect to many portfolios and often the top priority when it comes to investing,” according to BlackRock. “Although we may be in a low yield environment today, opportunities for potential income continue to exist both in bonds and broader asset classes. Constructing the optimal portfolio while weighing risk and return is difficult.”
Covered call strategies can potentially augment a portfolio during periods of heightened volatility. The covered-call options allow an investor to hold a long position in an asset while simultaneously writing, or selling, call options on the same asset.
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.