Great Second Quarter and Year for Active Small-Cap Value Managers

Looking back over the second quarter and first half of the year, small-cap value active managers have outperformed their benchmarks by the widest margin of any active fund type, according to data obtained from Investment Metrics by Institutional Investor.

On average, active managers of small-cap value funds provided investors with 2% returns in the second quarter of 2022 and produced 2.1% excess returns as of July. That number grows even more significant when looking back at the trailing 12-month time period, rising to 5.4%.

Small-cap value actively managed funds offered the strongest performance as measured against the Russell indexes over the second quarter and the first half compared to all other peer groups.

Value remains a strong factor play in a volatile market impacted by high inflation and rising interest rates; according to Investment Metrics data, all value factor subcategories outperformed benchmarks in the second quarter. This includes large-cap value, though the returns were significantly reduced at 0.4% for the second quarter, 0.7% in the first seven months, and 1.2% for the trailing 12-month period.

It’s a sharp contrast to the underperformance of actively managed growth funds over the last 12 months, which came in -7.9% on average below their benchmarks.

“It’s one thing when the markets are all moving in the same direction — it’s sort of like a rising tide raises all ships — but when things get choppy… a little bit more defensive-tilted fundamental managers tend to be the ones that do add value,” Brendan Cooper, senior consultant at Investment Metrics, told Institutional Investor.

The Nationwide Russell 2000® Risk-Managed Income ETF (NTKI) is an actively managed fund that invests in a portfolio of securities that replicates the Russell 2000 Index. The Russell 2000 tracks approximately 2,000 U.S. small-cap companies.

NTKI has a distribution yield of 7.01% as of June 30, 2022. (Click this link to see the fact sheet that has standardized performance and 30-day SEC yield.)

The fund utilizes an options collar in seeking to generate monthly income; a collar strategy is a strategy that entails holding shares of underlying security while simultaneously buying protective put options as well as writing calls for the same security. A put option gives its owner the right but not the obligation to sell the underlying asset at a specific price on a specific day. In contrast, a call option gives its owner the right but not the obligation to buy the asset instead.

The options collar is intended to reduce the fund’s volatility and provide a measure of downside protection.

For more news, information, and strategy, visit our Retirement Income Channel.


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

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The NTKI Prospectus may be accessed at: https://nationwidefunds.onlineprospectus.net/nationwidefunds/NTKI/index.php

Call 1-800-617-0004 to request a summary prospectus and/or a prospectus, or download prospectuses at etf.nationwidefinancial.com. These prospectuses outline investment objectives, risks, fees, charges and expenses, and other information that you should read and consider carefully before investing.

The results shown represent past performance; past performance does not guarantee future results. Current performance may be lower or higher than the past performance shown, which does not guarantee future results. Share price, principal value and return will vary, and you may have a gain or a loss when you sell your shares. Returns for periods less than one year are not annualized. Short-term performance, in particular, is not a good indication of the fund’s future performance, and an investment should not be made based solely on returns. To obtain the most recent month-end performance, go to etf.nationwidefinancial.com or call 1-877-893-1830.

Click this link for the funds’ Standardized performance and 30-day SEC yield.

KEY RISKS: The Nationwide Nasdaq-100® Risk-Managed Income ETF, Nationwide S&P 500® Risk-Managed Income ETF, Nationwide Dow Jones® Risk-Managed Income ETF, and Nationwide Russell 2000® Risk-Managed Income ETF (collectively, the “Risk-Managed Income ETFs”) are 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 Risk-Managed Income ETFs are 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 Risk-Managed Income ETFs may invest in more-aggressive investments such as derivatives (which create investment leverage and illiquidity and are highly volatile). The Risk-Managed Income ETFs employ 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 Risk-Managed Income ETFs’ investment strategy may depend on the effectiveness of the subadviser’s quantitative tools for screening securities and on data provided by third parties. The Risk-Managed Income ETFs expect to invest a portion of their 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 Risk-Managed Income ETFs 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 Risk-Managed Income ETFs and greater tax liabilities for shareholders. The Risk-Managed Income ETFs may concentrate on specific sectors or industries, subjecting them to greater volatility than that of other ETFs. The Risk-Managed Income ETFs 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 Funds’ value and total return. Although the Risk-Managed Income ETFs intend to invest in a variety of securities and instruments, the Risk-Managed Income ETFs will be considered non-diversified.

Additional risks include: Collared options strategy risk, correlation risk, derivatives risk, foreign investment risk, and industry concentration risk.

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 non-diversified. Additional Fund risk includes: Collared options strategy risk, correlation risk, derivatives risk, foreign investment risk, and industry concentration risk.

Russell 2000® Index: An unmanaged index that measures the performance of the small-capitalization segment of the U.S. equity universe.

FTSE Russell (“Russell”) is the Index Provider for the Russell 2000® Index (“Russell 2000®” or the “Index”). Russell is not affiliated with the Fund, Nationwide Fund Advisors, the Distributor nor any of their respective affiliates. Nationwide Fund Advisors has entered into a license agreement with Russell to use the Russell 2000®.

The Nationwide Russell 2000® Risk-Managed Income ETF (“NTKI”) has been developed solely by Nationwide Fund Advisors. NTKI is not in any way connected to nor sponsored, endorsed, sold or promoted by the London Stock Exchange Group plc and its group undertakings (collectively, the “LSE Group”). FTSE Russell is a trading name of certain of the LSE Group companies. All rights in the Russell 2000® vest in the relevant LSE Group company which owns the Index. “Russell®” is a trademark of the relevant LSE Group company and is used by any other LSE Group company under license. The Index is calculated by or on behalf of FTSE International Limited or its affiliate, agent or partner. The LSE Group does not accept any liability whatsoever to any person arising out of (a) the use of reliance on or any error in the Index or (b) investment in or operation of NTKI. The LSE Group makes no claim, prediction, warranty nor representation either as to the results to be obtained from NTKI or the suitability of the Index for the purpose to which it is being put by Nationwide Fund Advisors.

Market index performance is provided by a third-party source Nationwide Funds Group deems to be reliable (Morningstar and U.S. Bank). 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.

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