It’s unlikely to surprise income-starved investors that have been following the situation, but the Federal Reserve is confirming its lower for longer policy, putting a spotlight, though unintentionally on ETFs such as the Nationwide Risk-Managed Income ETF (NYSEArca: NUSI).
NUSI can act as a complement to traditional equity and fixed income allocations or as the ideal protective 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.
In a Sept. 4 interview with National Public Radio, Fed Chairman Jerome Powell confirmed U.S. interest rates will reside near historic lows for years to come. That could be good news for some riskier assets, but it’s bleak for income investors because those low rates will suppress yields on previously favored income-generating assets such as U.S. Treasuries and highly rated municipal bonds.
Lean on NUSI
In this backdrop of increased uncertainty and economic weakness due to the coronavirus outbreak, world governments have shown they are willing to do whatever it takes to support growth. Many central banks, including the Federal Reserve, have implemented loose monetary policies to bolster liquidity while governments have opened their checkbooks to fund copious fiscal measures, further stabilizing global equity markets and fueling the quick rebound in stocks. However, the supportive monetary policies have weighed on global rates, and fixed-income investors now face a lower-for-longer yield environment.
Plus, NUSI is a lower-risk alternative to high-yield bonds, which have come under pressure at various stages in 2020.
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.
“Covered calls are an old investing methodology, but one that does not get much attention. That said, employing covered calls can be a great income strategy,” according to Nasdaq. “So what is a covered call? Simply put, it is the process of selling call options while simultaneously holding the underlying shares.”
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.