The Nationwide Risk-Managed Income ETF (NYSEArca: NUSI) is coming into focus for income investors amid 2020’s dividend duress, but plenty of signs point to NUSI being relevant for some time.
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.
Data confirm the utility of the NUSI strategy this year.
“There is actually a dividend futures market for the S&P 500. The Street anticipates that about $6 will be lopped off this year, bringing 2020 dividends to $54.70,” according to WisdomTree.
Stay With NUSI For Awhile
The Nationwide Risk-Managed Income ETF incorporates options exposure to help generate income and mitigate risk as a way to enhance total returns. Investors have long capitalized on covered call options strategies for income generation or protective put options strategies to protect against and limit losses. There are some inklings that the NUSI foundation will prove beneficial to investors beyond 2020.
“The damage—as far as market expectations are concerned—continues into 2021. The worst-case scenario in 2021, if dividends bottom at $50.90, is a 16% total contraction. If that plays out, the effect of the Covid-19 crisis on Corporate America will be about half the pain of the 27% dividend slashing during the Lehman experience,” notes WisdomTree.
Covered call strategies can potentially augment a portfolio during periods of heightened volatility. The covered-call options allow an investor to hold a long position in an asset while simultaneously writing, or selling, call options on the same asset.
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.
“If we catch a second wave of Covid-19 or the virus becomes deadlier, the thesis may break. Also, the starting point is a dividend yield that is barely 2%, so it appears scant chance that riches beckon,” notes WisdomTree.
For its part, NUSI yields 7.81%.
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.