High dividend assets and sectors are often viewed as defensive groups, but in the coronavirus slump of 2020, plenty of previously steady asset classes are betraying historical reputations. This conundrum is putting the spotlight on strategies with strong yields that are also holding up well in a trying environment, including the Nationwide Risk-Managed Income ETF (NYSEArca: NUSI).
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. The result is a distribution yield of 7.76%, according to issuer data.
In fact, NUSI can act as the perfect compliment for income-oriented portfolios or for those looking to generate higher yields from growth investments because the tech-heavy Nasdaq-100 Index serves as the fund’s benchmark with covered call and put buying integrated into the approach.
On the recent webcast, Generating Income and Managing Risk in Today’s Market, Mark Hackett, Chief of Investment Research, Nationwide, highlighted NUSI’s real-time out-performance of some other well-known income-generating strategies in 2020.
What Say The Data
“Year-to-date, NUSI has significantly outperformed other income-focused asset classes, extending this outperformance in the wake of an uptick in volatility and a market sell-off,” according to Nationwide.
Currently, NUSI’s yield is more than double that of a broad basket of high dividend stocks while being 321 basis points higher than a popular real estate investment trust (REIT) benchmark. Additionally, those assets are down an average of 25% since NUSI debuted late last year while the Nationwide ETF is lower by just 2.18%.
NUSI’s 7.76% distribution yield also far exceeds the 5.40% average on emerging markets debt and preferred stocks. Again, the Nationwide fund is trouncing those groups as those asset classes are down an average of 12.60% since NUSI came to market.
For the covered call component, a near-at-the-money to out-of-the-money Nasdaq-100 Index call option is sold, with the intent of generating options premium. For the protective put component, the fund uses a portion of the options premium received to purchase an out-of-the-money Nasdaq-100 Index put option, which seeks to hedge the portfolio below the current market price fully and to protect against potential losses in the equity portfolio.
NUSI also yields about 175 basis points more than a broad gauge of junk bonds, but again, the Nationwide fund is outperforming that group. The only high-yield group with bigger yield than NUSI is master limiter partnerships (MLPs), but due to oil’s bear market, MLPs are seeing surging volatility with a performance that has been more than 25 times worse than NUSI’s over the past four months.
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.