Fixed-income investors are currently faced with a stubbornly low-yield environment with no end in sight. Many have increasingly sought out alternatives to traditional bond investments to generate more income, but many attractive yield options typically come with their own set of risks.
In the upcoming webcast, Dynamic Strategies for Generating Income While Managing Risk, Mark Hackett, Chief of Investment Research, Nationwide; and Jonathan Molchan, Executive Director and Portfolio Manager, Harvest Volatility Management, will explain the struggles of yield generation in a low-rate environment and outline a new risk-managed income strategy that could generate higher income relative to traditional income-focused investments.
On December 19, Nationwide launched the Nationwide Risk-Managed Income ETF (NYSArca: NUSI) to help investors target high current income with less risk relative to traditional income-focused investments. The fund strategy seeks to provide some downside protection while maintaining upside potential. NUSI comes with a 0.68% expense ratio.
“The persistent low-interest rate environment has made it exceedingly more difficult for investors to generate reliable streams of income without taking on additional risk,” Michael Spangler, senior vice president of Nationwide Financial, said in a note. “The Nationwide Risk-Managed Income ETF adds to Nationwide’s differentiated lineup of solutions that seeks to deliver better investor outcomes while managing the short- and long-term risks inherent to retirement planning, with a targeted focus on income generation.”
The Nationwide Risk-Managed Income ETF will use an options trading strategy called a protective net-credit collar to generate income. The options strategy sells an upside call option and uses a portion of the proceeds received to buy a put option to hedge downside risk on an underlying portfolio of securities.
Specifically, the ETF will try to achieve high monthly income generation, portfolio volatility reduction, reduced duration risk, and interest rate sensitivity, capital appreciation from equity participation, downside risk mitigation and enhanced tax efficiency of index options.
Harvest Volatility Management will sub-advise the fund.
“We are very excited to have partnered with Nationwide to bring this investment option to the market,” Molchan said in a note. “Given current market conditions, we believe NUSI offers a timely strategy that will help investors meet their income needs in a low yield environment. The Fund follows a systematic, risk-managed approach that seeks to provide capital appreciation via US equity exposure.”
Financial advisors who are interested in learning more about fixed-income strategies can register for the Thursday, January 30 webcast here.