Finding the combination of strong yield, some participation in equity market upside and downside protection is increasingly difficult these days, but the Nationwide Risk-Managed Income ETF (NYSEArca: NUSI) is an example of an ETF that checks all those boxes.
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.
NUSI’s exposure to the NASDA-100 is relevant for multiple reasons. First, that index has nearly doubled since the end of 2018. Second, it has a low yield, making NUSI an attractive way of gaining exposure to that high-flying benchmark.
NUSI Is Worth It
“Since the market low in March, times have been terrific for growth investors, but not so much for income seekers,” according to Seeking Alpha. “Outside of riskier junk bonds, yields on the fixed income side are miserable. They’re not much better on the equity side, although dividend growth stocks have done a reasonable job of keeping up with the broader market.”
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.
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.
NUSI aims for 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.
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.
For more on income strategies, visit our Retirement Income Channel.