Traditional retirement vehicles may not provide all the income retirees need and with interest rates historically low, the income equation becomes all the more vexing, but the Nationwide Risk-Managed Income ETF (NYSEArca: NUSI) can fill in some of the important blanks.
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.
“As part of the SECURE Act passed last December, the legislation requires employers to provide employees with a statement that has an estimate of monthly income,” reports Forbes. “The basic idea is that using assumptions set forth in the U.S. Department of Labor (DOL) rule, plan administrators must provide plan participants with equivalents of their retirement savings as monthly income.”
NUSI Equals Income
In this backdrop of increased uncertainty and economic weakness due to the coronavirus outbreak, world governments have shown they are willing to do whatever it takes to support growth. Many central banks, including the Federal Reserve, have implemented loose monetary policies to bolster liquidity while governments have opened their checkbooks to fund copious fiscal measures, further stabilizing global equity markets and fueling the quick rebound in stocks. However, the supportive monetary policies have weighed on global rates, and fixed-income investors now face a lower-for-longer yield environment.
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.
The Nationwide Risk-Managed Income ETF uses 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.
“Typically, when you retire your 401(k) account is simply a lump sum. Converting this lump sum into a monthly lifetime income for illustration purposes is highly dependent on the assumptions that will be used,” according to Forbes.
With its own monthly income stream, NUSI can bolster investors’ income and supplement dollars received from traditional retirement vehicles.
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.