With a consistent level of uncertainty out there, having the means to counter potentially troubling areas is helpful. The Nationwide Risk-Managed Income ETF (NUSI) works as a way for someone nervous about the market to have some degree of participation from the outside.
As Mark Hackett, Chief of Investment Research, Nationwide Investment Management Group, explains, there’s uncertainty and nervousness in investors given the potential binary outcomes that are being seen. Still, the last month or so has been perfect for markets, which is encouraging. However, it’s hard to see this recovery being as straight-lined as it is.
Looking back to the beginning of the year, the bond market stocks, among other factors, had things pointing towards a recession, with the equity rates at an all-time high. Very quickly, though, it was becoming clear that the global pandemic was impacting the bond market.
“It just shows that the bond market when coming into this year was embedding a little more realism in terms of the outlook, compared to the equity market,” notes Hackett. “Fast-forward to now, and what’s being seen now is a different type of dichotomy. We’re seeing the equity and the bond market actually both embedding pretty optimistically. A lot of the stress indicators for the bond market are less than they were before the outbreak.”
While the economy is still pretty lousy, there is optimism in these markets. Interestingly, the most recent data points seen show that the equity market may have been right. They were forecasting an improving economy, which may be what is the early stages of starting that.
That in mind, there is worry concerning embedded expectations, given the rising cases in the larger states. A difficult situation could arise, and America can’t afford to shut down the economy again. So what is there to do?
From Hackett’s perspective, there’s so much uncertainty out there, the question of what the trajectory of the rebound looks like, what’s the timing, and what obstacles are there. As it stands, equity and bond markets aren’t adding too much to ensure a completely stable position.
Where NUSI Comes In
Another big question – has this disruption caused people’s asset allocations to be permanently adjusted. This is where the NUSI comes in. Having something that has both yield and upside from equity markets for sure is attractive, given how the traditional 60/40 split is less desirable.
“Having a non-traditional fund, I feel, brings some appeal in this case,” says Hackett.
Echoing Hackett’s thoughts, Jon Molchan, Executive Director and Lead Portfolio Manager for Nationwide, feels people are looking for more solution-based products for the market. In a low yield environment and periods of uncertainty and elevated volatility, NUSI is allowing people to go to sleep knowing that measure of downside protection is there.
As Molchan states, “It’s also alleviating the concerns that people have, where if you take a conservative approach, you are giving up far too much on the upside, and you’re never going to get to where you need to be for your end investment objective, which is to build a real nest egg for retirement.”
Looking at what NUSI has done to the March lows, it’s been able to perform and capture a lot of the upside, given its rules-based dynamic nature. This brings investors the best of both worlds. There’s more saving and protection on the way down. And there’s a manner of staying relevant on the way back up.
“NUSI is a blend of varied solutions trying to tackle all of the needs you may have in this new type of market with low yields and volatility rearing its head again,” Molchan notes.
As it stands, people on the younger and older ends of the spectrum are woefully underexposed to the market, currently. In a recent blog post by Hackett, “Will younger generations start to invest,” there’s a stat in their indicating how, “Millennial and Generation Z workers have been the slowest to commit to saving for retirement, and this year’s volatility may act as a further deterrent. Nearly a quarter of all Americans have no retirement savings at all, but this share is higher among 18-29 year-olds (38%).”
NUSI is the kind of product that works as a perfect counter, as it achieves some participation, working as a way for someone who is nervous about the market to have some degree of involvement from the outside. It also limits the downside to allow an investor a yield product. So there’s a great combination of those things that address some of the stresses that have caused younger and older people to get out of the market.
As Molchan explains, “The best aspect of NUSI is the fact that it’s moving that human discretion from the entire investment process allows investors to remain involved and participate regardless of the market environment. It’s removing the emotion from the investment process so that you don’t sell on the lows and then get back in on the highs. You can ride it out and still meet your objectives as an investor.”
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