Inflation and its effects on retirement income are primary concerns for retirees and those close to retirement. The Nationwide Risk-Managed Income ETF (NYSEArca: NUSI) can help ward off the ill impact of rising consumer prices.
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.
A covered call refers to an options strategy where an investor writes or sells a call option on an asset which they already own or buy on a share-for-share basis to generate income via premiums derived from the sale of the call options.
“The present value of an inflation-adjusted stream of cash flows equal to USD 1 per year – or USD 1/12 per month – starting in 2065 and ending 25 years later, rose 19.07% since March. This increase nearly matched the S&P Composite 1500’s 20.8% quarterly gain,” according to S&P Global Market Intelligence. “Even more striking was the fact that the cost of retirement income rose above USD 25 for most vintages, the first time any such measure recorded a quarter-end reading above USD 25 (based on data since January 2016).”
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.
“Inflation may not rise as expected: people made similar predictions following central bank intervention during the Financial Crisis. Nonetheless, since one of the main risks for retirees is not having enough inflation-adjusted retirement income to support their desired standard of living, investors may wish to consider retirement strategies that have an explicit focus on reducing the volatility of retirement income,” according to S&P Global Market Intelligence.
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.
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.