Coming off a stellar second-quarter performance, the Nasdaq-100 Index could be primed for more upside in the back half of 2020. Investors can get exposure to that trend while grabbing income and downside protection with the Nationwide Risk-Managed Income ETF (NYSEArca: NUSI).
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.
Some historical data points confirm why NUSI is worth considering over the near-term.
Since 1972, “there are a few instances where the Nasdaq was at least 10% higher than the S&P 500 during the first half of the year. The table below shows those years and how the indexes did in the following months,” according to Schaeffer’s Investment Research. “In the last four instances, stocks did well. The Nasdaq did especially well, with three of four returns right around 23%. Another example was 1999, just before the last leg of the tech-boom. The Nasdaq gained over 50% in the second half of that year.”
Plenty of Perks With NUSI
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.
History confirms that “that when the Nasdaq easily beats the S&P 500 in the first half of the year, it tends to do extremely well during the second half of the year. This trend will hopefully continue, though 2020 has a slew of varying factors thrown into the mix,” notes Schaeffer’s.
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.
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.