One of the primary advantages of the Nationwide Risk-Managed Income ETF (NYSEArca: NUSI) is that the exchange traded fund can complement an array of other traditional sources of retirement income, including insurance products.
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. The fund is a “rules-based options trading strategy that seeks to produce high income using the Nasdaq-100 Index,” according to Nationwide.
“Retirees can’t depend upon bonds for income because yields are so low. But if they bet too big on equities, their savings could get savaged in a market downturn, crimping their retirement,” reports Neal Semplin for Barron’s. “Enter whole life insurance. Whole life insurance has been derided for years because of high premiums and complexities. Buy cheaper term insurance and invest the rest, the conventional wisdom goes.”
NUSI Effective Way to Boost Income
With a steady, monthly distribution and a yield well in excess of traditional equity benchmarks and 10-year Treasuries, NUSI can help retirees augment income streams.
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.
Additionally, NUSI can bring another income stream to what investors get from insurance products.
“But a number of academics say that whole life, a form of permanent life insurance that builds cash value, can buttress investment portfolios and even boost retirement income if used correctly. They say that its stable growth allows consumers to pursue higher-risk, higher-return strategies with their other investments while leaving more money to their heirs through the policy’s death benefit,” according to Barron’s.
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.
For more on income strategies, visit our Retirement Income Channel.