Recently, some market observers are highlighting the dividend difficulties of the energy, industrial, and consumer discretionary sectors. That’s of little importance to the Nationwide Risk-Managed Income ETF (NYSEArca: NUSI) because the fund is an income-oriented spin on the Nasdaq-100 Index and that benchmark features scant energy and industrial exposure.
Plus, most of its consumer cyclical components don’t pay dividends so there’s nothing to cut. 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.
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.
Avoiding Another Trouble Spot
In addition to not being highly exposed to dividend trouble spots in the energy, industrial, and real estate sectors, NUSI has another perk: the Nasdaq-100 excludes financial services stocks. That’s relevant at a time when market observers are increasingly concerned about the ability of that sector to maintain and grow payouts.
“Most banks in the United States remain bullish about their ability to pay dividends to investors during the coronavirus pandemic, even as their European counterparts halted such payments for the rest of the year,” reports Allisa Kline for American Banker. “But just how long that optimism persists depends on the speed of the nation’s economic recovery and the outcome of federal stress tests that determine how well big banks would weather a severe financial crisis.”
Integral to the NUSI thesis is that it’s income stream isn’t primarily derived from individual stocks. Rather, the fund’s covered call strategy generates the bulk of income investors receive.
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.
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.