Some ETFs aren’t built for rocky market environments. The Nationwide Risk-Managed Income ETF (NYSEArca: NUSI) is proving it is as highlighted by a year-to-date gain of close to 7%.
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.
“In March when the market fell into a deep rout — its fastest bear market in history — because of the coronavirus, the Nasdaq 100 tumbled 20%, while the Nationwide ETF was only down about 5%,” reports CNBC.
Now For NUSI
NUSI avoids some of the current dividend risks with the S&P 500 because the Nationwide ETF is an income-generating spin on the Nasdaq-100 Index (NDX), an index lightly allocated dividend-offending sectors, such as energy and real estate.
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 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.
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.
“The make-up on the fund is completely transparent, it represents all the members of the Nasdaq 100, which contains the 100 largest stocks in the tech-heavy Nasdaq Composite,” according to CNBC. “Then on a monthly basis using Nasdaq 100 index options, the managers will sell an upside call option and use the proceeds from the option’s premium to fully finance the purchase of a downside put, or protective put. An option is a contract that gives a market participant the option to buy or sell a stock at a specific price on, or before a specific date.”
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.