As many investors get closer to retirement, they reconfigure portfolios to reduce growth exposure while boosting their income profiles. However, too much income and not enough growth can pressure returns. The Nationwide Risk-Managed Income ETF (NYSEArca: NUSI) is an avenue for establishing this delicate balance.
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.
“Historically, retirees could maintain their lifestyle in retirement by implementing an income-focused asset allocation strategy and spending only income generated by their portfolios – which was often higher than their safe withdrawal rate,” reports Dylan Huang for TheStreet.com. “In a low-interest rate environment like the one we have been experiencing, yields on dividends and interest-bearing.” investments have declined.”
NUSI Income And Growth
By providing exposure to the widely followed Nasdaq-100 Index, NUSI’s growth profile is more substantial than that of many income-focused funds. However, its income sleeve is far more compelling than those of many growth strategies.
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.
A covered call refers to an options strategy where an investor writes or sells a call option on an asset which they already own or buy on a share-for-share basis to generate income via premiums derived from the sale of the call options. However, the covered call strategy caps upside potential and provides limited downside protection, so it is ideal for investors with a neutral-to-bullish outlook.
NUSI provided steady, lower risk returns last year while yielding close to 8% for much of the year.
For more on income strategies, visit our Retirement Income Channel.