In any environment, the Nationwide Risk-Managed Income ETF (NYSEArca: NUSI) would stand out on the basis of yield, but that’s even more true today. Moreover, with interest rates so low in the U.S., NUSI is all the more relevant for long-term investors seeking income.
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.
“We expect that rates will likely remain at zero for years, as was signaled at the last FOMC meeting. We are leaving our current rate forecasts within our bank models unchanged, which currently project that the first-rate hike will occur in 2023,” writes Morningstar analyst Eric Compton.
Stars Align for NUSI
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.
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.
“Again, there really is no debate that rates ought to be at zero for now, unless you’re in the negative-rate camp, and the Fed has consistently said it is not seriously considering negative rates as a policy tool,” according to Compton. “The rate decision was not surprising, and there really wasn’t much else of note in the latest release. After a series of highly anticipated FOMC meetings and statements, this release certainly felt much less dramatic and appeared to simply be a continuation of a holding pattern.”
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