The Nationwide Risk-Managed Income ETF (NYSEArca: NUSI) is gaining attention as a complement or alternative to traditional fixed income investments within retirement portfolios. Low Treasury yields are just one reason why.

Another reason why investors may want to embrace what is offered by NUSI is what low bond yields imply when it comes to future returns.

“For bonds, there is a strong relationship between the yield at the time of purchase and the subsequent returns,” writes Matthew Bartolini, head of SPDR Americas research. “And this makes sense, as the mathematics behind a bond’s yield equate to the expected cash flows from the coupon as well as any price movement related to trading at a premium (negative return expectation as the bond moves closer to maturity at par) or a discount (positive return expectation as the bond moves closer to maturity at par).”

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.

Understanding the NUSI ETF

NUSI can act as a complement to traditional equity and fixed income allocations or as a hedge for investors with heavy exposure to technology and growth stocks because the fund is a “rules-based options trading strategy that seeks to produce high income using the Nasdaq-100 Index,” according to Nationwide.

As has been frequently noted this year, declining interest rates are boosting the relevancy of NUSI.

“The sizable reduction in today’s interest rates has led to notable duration-induced price appreciation with this historical relationship decoupling,” notes Bartolini. “Yet, this price appreciation will likely dampen potential future returns, as the correlation may mean revert – as it has done historically after prior rolling correlation decouplings during other severe risk events. In fact, the relationship has already started to mean revert.”

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

This article was prepared as part of Nationwide’s paid sponsorship of ETF Trends.

put is an options contract that gives the owner the right, but not the obligation, to sell a certain amount of the underlying asset, at a set price within a specific time. 

Call options are financial contracts that give the option buyer the right, but not the obligation, to buy a stock, bond, commodity or other asset or instrument at a specified price within a specific time period.

Nasdaq-100 Index – A basket of the 100 largest, most actively traded U.S companies listed on the Nasdaq stock exchange.

Collar – an options trading strategy that is constructed by holding shares of the underlying stock while simultaneously buying protective puts and selling call options against that holding.

Mean reversion – A theory used in finance that suggests that asset price volatility and historical returns eventually will revert to the long-run mean or average level of the entire dataset.

Performance data quoted represents past performance; past performance does not guarantee future results. Index performance is not illustrative of fund performance. One cannot invest directly in an index. Please call 1-877-893-1830 for fund performance.

ETFs, hedge funds, equities, bonds, and other asset classes have different risk profiles, which should be considered when investing. All investments contain risk and may lose value. Investing involves risk, including the possible loss of principal. Shares of any ETF are bought and sold at market price (not NAV), may trade at a discount or premium to NAV and are not individually redeemed from the Fund. Brokerage commissions will reduce returns. The Fund’s return may not match or achieve a high degree of correlation with the return of the underlying index.

NUSI Prospectus

Call 1-800-617-0004 to request a summary prospectus and/or a prospectus. You may also download the prospectus at the link above or by visiting etf.nationwide.com. These prospectuses outline investment objectives, risks, fees, charges and expenses, and other information that you should read and consider carefully before investing.

KEY RISKS: The Fund is subject to the risks of investing in equity securities, including tracking stock (a class of common stock that “tracks” the performance of a unit or division within a larger company). A tracking stock’s value may decline even if the larger company’s stock increases in value. The Fund is subject to the risks of investing in foreign securities (currency fluctuations, political risks, differences in accounting and limited availability of information, all of which are magnified in emerging markets).

The Fund may invest in more-aggressive investments such as derivatives (which create investment leverage and illiquidity and are highly volatile). The Fund employs a collared options strategy (using call and put options is speculative and can lead to losses because of adverse movements in the price or value of the reference asset). The success of the Fund’s investment strategy may depend on the effectiveness of the subadviser’s quantitative tools for screening securities and on data provided by third parties.

The Fund expects to invest a portion of its assets to replicate the holdings of an index. Correlation between Fund performance and index performance may be affected by Fund expenses and because the Fund may not be invested fully in the securities of the index or may hold securities not included in the index. The Fund frequently may buy and sell portfolio securities and other assets to rebalance its exposure to various market sectors. Higher portfolio turnover may result in higher levels of transaction costs paid by the Fund and greater tax liabilities for shareholders.

The Fund may concentrate on specific sectors or industries, subjecting it to greater volatility than that of other ETFs. The Fund may hold large positions in a small number of securities, and an increase or decrease in the value of such securities may have a disproportionate impact on the Fund’s value and total return. Although the Fund intends to invest in a variety of securities and instruments, the Fund will be considered nondiversified. Additional Fund risk includes: Collared options strategy risk, correlation risk, derivatives risk, foreign investment risk, and industry concentration risk.

Nasdaq-100 Index: An unmanaged, market capitalization-weighted index of equity securities issued by 100 of the largest non-financial companies, with certain rules capping the influence of the largest components. It is based on exchange, and it is not an index of U.S.-based companies. Market index performance is provided by a third-party source Nationwide Funds Group deems to be reliable (Morningstar). Indexes are unmanaged and have been provided for comparison purposes only. No fees or expenses have been reflected. Individuals cannot invest directly in an index.

Nationwide Fund Advisors (NFA) is the registered investment advisor to Nationwide ETFs, which are distributed by Quasar Distributors LLC. NFA is not affiliate with any distributor, subadviser, or index provider contracted by NFA for the Nationwide ETFs.

Nationwide, the Nationwide N and Eagle and Nationwide is on your side are service marks of Nationwide Mutual Insurance Company. © 2021 Nationwide

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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.