Investors could be waiting a while for S&P 500 dividends to return to pre-pandemic levels. However, there’s no need to endure that testing of patience as the Nationwide Risk-Managed Income ETF (NYSEArca: NUSI) provides a strong level of current income.
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.
S&P 500 “forward declarations for Q3 2020 show a decline. With 84% declared for July 2020, the month is poised to post a 4% payment decline (year over year),” said S&P Dow Jones senior index analyst Howard Silverblatt in a recent note. “Based on the current public statements (and expected schedules), August is expected to post a 10% decline, with September showing a slight tick up (0.1%), leaving Q3 down 5% compared with Q3 2019.”
Wait No More
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.
“The reality of Q3 2020 should start hitting market participants soon as companies declare their Q3 dividends (almost 70% of the issues are scheduled to report earnings in July 2020, with dividends typically around the release date),” notes Silverblatt. “Big banks are expected to continue paying their rate (helped by the additional liquidity from suspending buybacks), with the exception of Wells Fargo, which decreased its rate, following the Federal Reserve’s stress test results.”
Predictably, NUSI also offers favorable volatility traits relative to common dividend stocks.
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.
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