At a time dialing back risk and elevating income are atop many investors’ lists, the Nationwide Risk-Managed Income ETF (NYSEArca: NUSI) is coming of age.
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.
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.
Right Place, Right Time
With its income purview and monthly dividend, NUSI is an alternative to other high-income strategies that are under stress in the current market setting, including master limited partnerships (MLPs) and real estate investment trusts (REITs).
“In developing NUSI, Nationwide’s aim was to provide a more thoughtful alternative to some of the more popular income-oriented strategies in the marketplace – strategies like REITs, MLPs, fixed-rate preferred stocks, high-yields and emerging-market debt,” said Margaret Farquharson, senior director with the Nationwide Funds Group, in an interview with Advisor Perspectives earlier this year.
Integral to the NUSI thesis is that it’s income stream isn’t primarily derived from individual stocks. Rather, the fund’s covered call strategy generates the bulk of income investors receive.
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 is a solution that seeks to simultaneously harness the income-generating potential of a dynamic protective collar and the enhanced downside protection benefit of active risk management,” said Farquharson. “What you get is a product that seeks to generate high income, while providing a measure of downside protection and upside participation potential.”
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.