With Election Day just weeks away, some advisors and investors are using exchange traded funds to position for various electoral outcomes while still considering income and yield. One idea that should be immune to post-election volatility is 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.
That methodology keeps NUSI away from political pitfalls, but with changes to the tax code likely regardless of who captures the White House, the fund’s sturdy income stream is notable today.
“Passing new tax legislation depends on whether Republicans can maintain control of the Senate — a toss-up as of now,” according to Matthew Bartolini, head of SPDR Americas Research. “Currently, the probability of the House remaining under Democratic control is 85%. So, a split Congress leaves little room to get a tax deal done. However, if the Senate goes to the Democrats and Biden wins, his tax policy plans are likely to be implemented.”
Politics Won’t Pinch NUSI’s Progress
While the markets continue to process the impact of Covid-19, time doesn’t stop for advisors focused on retirement planning. Fixed-income investors may need to turn to alternative strategies that can better manage downside risk, while still generating the income investors need in retirement. But how can you generate additional yield without taking an outsized risk? NUSI answers that question
Former Vice President Joe Biden’s “policies suggest that investors focus on low tax-sensitive sectors, such as Real Estate,” says Bartolini. “That sector’s earnings may be less affected if tax rates rise, given that its average effective tax rate in 2019 was just 4%. Tax-exempt bonds may be another Biden play, as those securities would likely become more attractive sources of returns, considering that the interest paid to investors is not subject to federal taxes.”
However, NUSI offers up higher income and better return potential than tax-exempt bonds and its income stream is steadier than the real estate sector’s, which is a dividend offender this year.
For more on income strategies, visit our Retirement Income Channel.