For the most part, money markets are low risk “investments” and they sport the paltry yields commensurate with that low risk status.
Investors willing to take on a bit more risk can significantly enhance their income profiles wit the Nationwide Risk-Managed Income ETF (NYSEArca: NUSI). 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.
“With the average money market fund yielding a paltry 0.1% today, it’s time to find alternative places to park your cash. If you’re willing to be creative, there are some,” reports Lewis Braham for Barron’s.
“The most obvious alternatives are ultrashort-term and short-term bond funds. But which one?”
Problem is some short term bond funds, including ETFs, yield close to 0%. Few others exceeded yields of 3%. For its part, NUSI has a distribution yield of 7.81%.
Better Yield Idea
Conservative investors could try online savings instead of money market funds, but NUSI drubs those accounts when it comes to yield.
“Unlike certificates of deposit, which must mature over a specified time to avoid investor penalties, online savings accounts are generally as liquid as money market funds. Moreover, some brokers allow you to link your savings account with them so transferring money to a brokerage account when you’re ready to get out of cash should be fairly seamless,” according to Barron’s.
Because the Federal Reserve pushed rates to near 0%, savings accounts yield around 1% with few exceeding that low bar.
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.
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.
For more on income strategies, visit our Retirement Income Channel.