The first months of 2022 have seen pronounced market volatility as markets grapple with a confluence of pressures, from inflation to geopolitical risk and turmoil. There has been a rotation for some advisors and investors from some of the largest growth stocks, resulting in sharp price declines at several points for these often tech-heavy companies.
As volatility continues, seeking income has become a more challenging task for advisors, particularly for retirement clients. A strategy for advisors looking for investment opportunities for their retirement clients is the Nationwide Nasdaq-100 Risk-Managed Income ETF (NUSI), which seeks current income while offering downside protection.
NUSI is an actively managed ETF that follows a rules-based options trading strategy that seeks to generate high current income every month and invests in stocks included in the Nasdaq-100 Index. The Nasdaq-100 Index consists of 100 of the largest non-finance securities that trade on the Nasdaq exchange and is a rules-based, market capitalization-weighted index. The fund carries an expense ratio of 0.68%.
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.
The Nasdaq-100 Index has been an index that has experienced pronounced volatility in 2022. The effects of the options collar and loss minimization it seeks to offer can be seen in the overall performance of NUSI between January 3, 2022, the highest point of performance for the Nasdaq-100 Index in 2022, and March 14, 2022, the date of the lowest performance for the Nasdaq-100 Index so far this year. Between those two dates, NUSI’s stock price was down a total of 15.67%, while the broader index was down 20.94% in total.
Narrowing the scope on one of the larger single drawdowns that occurred at the beginning of the year, between January 14, 2022, and January 21, 2022, NUSI declined 4.26% in price while the Nasdaq-100 Index was down 7.51%.
NUSI offers the potential for reduced volatility for portfolios by seeking to provide a degree of downside protection and mitigation of sharp volatility movements.
For more news, information, and strategy, visit our Retirement Income Channel.
This article was prepared as part of Nationwide’s paid sponsorship of ETF Trends.
ETFs, hedge funds, equities, bonds, and other asset classes have different risk profiles, which should be considered when investing. All investments contain risk and may lose value. Investing involves risk, including the possible loss of principal. Shares of any ETF are bought and sold at market price (not NAV), may trade at a discount or premium to NAV and are not individually redeemed from the Fund. Brokerage commissions will reduce returns. The Fund’s return may not match or achieve a high degree of correlation with the return of the underlying index.
Call 1-800-617-0004 to request a summary prospectus and/or a prospectus. You may also download the prospectus at the link above or by visiting etf.nationwide.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. To obtain the most recent month-end performance, go to etf.nationwide.com or call 800-617-0004.
Click this link for the funds’ Standardized performance and 30-day SEC yield.
KEY RISKS: The Fund is 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 Fund is 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 Fund may invest in more-aggressive investments such as derivatives (which create investment leverage and illiquidity and are highly volatile). The Fund employs 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 Fund’s investment strategy may depend on the effectiveness of the subadviser’s quantitative tools for screening securities and on data provided by third parties.
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 nondiversified. Additional Fund risk includes: Collared options strategy risk, correlation risk, derivatives risk, foreign investment risk, and industry concentration risk.
Nasdaq-100® Index: A rules-based, market capitalization-weighted index of the 100 largest, most actively traded U.S companies listed on the Nasdaq stock exchange. The Index includes companies from various industries except for the financial industry, like commercial and investment banks. These non-financial sectors include retail, biotechnology, industrial, technology, health care, and others.
Nasdaq® and the Nasdaq-100® are registered trademarks of Nasdaq, Inc. (which with its affiliates is referred to as the “Corporations”) and are licensed for use by Nationwide Fund Advisors. The Nationwide Nasdaq-100® Risk-Managed Income ETF (“NUSI”) has not been passed on by the Corporations as to their legality or suitability. NUSI is not issued, endorsed, sold, or promoted by the Corporations. THE CORPORATIONS MAKE NO WARRANTIES AND BEAR NO LIABILITY WITH RESPECT TO THE PRODUCT.
Call options are financial contracts that give the option buyer the right, but not the obligation, to buy a stock, bond, commodity or other asset or instrument at a specified price within a specific time period.
A put is an options contract that gives the owner the right, but not the obligation, to sell a certain amount of the underlying asset, at a set price within a specific time.
Collar – an options trading strategy that is constructed by holding shares of the underlying stock while simultaneously buying protective puts and selling call options against that holding.
Nationwide Fund Advisors (NFA) is the registered investment advisor to Nationwide ETFs, which are distributed by Quasar Distributors LLC. NFA is not affiliated with any distributor, subadviser, or index provider contracted by NFA for the Nationwide ETFs.
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