Interest rates are low and are likely to remain that way for some time. Traditional retirement income vehicles just won’t cut it. The Nationwide Risk-Managed Income ETF (NYSEArca: NUSI) can.
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.
“Lower interest rates are helpful in getting the business world back on its feet, as a lower cost of capital allows companies to operate more cost-effectively. However, it is less helpful to those dependent on an income in their retirement years. It makes funding existing liabilities tougher for defined benefit scheme sponsors and results in lower returns on investments for defined contribution savers (the lion’s share of employees today),” according to Financial Reporter.
Fight Low Rates with the NUSI ETF
Another reason investors may want to embrace the steady income and large yield offered by NUSI is what low bond yields imply when it comes to future returns.
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.
As has been frequently noted this year, declining interest rates are boosting the relevancy of NUSI.
“Income requirements are obviously unique to every client, but rule of thumb calculations have shown that an income of 4% per annum is potentially a sustainable expectation. With the investment markets of the last few years, investors have generally not struggled to reach and in many cases exceed this expectation,” adds Financial Reporter.
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.