When considering if exchange traded funds make sense for a long term portfolio, let alone investing in multiple ETFs, there are certainly plenty of options out there, even in a time of uncertainty. During the TD Ameritrade Network’s “Market Overtime,” host Nicole Petallides was joined by ETF Trends CIO and Director of Research, Dave Nadig, to discuss the market place’s volatility, as well as what ETFs are out there that investors can rely on.
First up, Nadig discusses a recent launch from Simplify ETFs, the Simplify US Equity PLUS Convexity ETF (SPYC). This fund actually solves a very specific portfolio problem.
As Nadig states, “I hear, almost every day, the same story from investors and advisors — ‘I don’t trust this market. I want to stay invested. What can I do to thread that needle?'”
Well, with traditional answers not really applying, since things are yielding zero, this fund starts with a simple investment in the S&P 500, for 98% of the fund as a baseline, and uses the remaining 2% for something Nadig refers to as “Pattern Molding.”
Basically, SPYC can mold the pattern of returns by buying both calls and puts. As a result, the pattern of returns is “S&P Lite,” but with a “smile,” as Nadig puts it. If the market melts up, investors do way better than the S&P, and if the market has another big gut check like March, investors also profit from the puts.
Nadig adds, “What’s unique about SPYC is that it’s putting this in a very simple package. It’s very easy to understand, and it does a lot of the work that options can do in a portfolio, without you having to do all that work yourself.”
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More Than Just That SPYC Flavor
Additionally, Nationwide’s NUSI uses more of a risk control approach to provide something similar but not based on the Nasdaq 100. NUSI uses options around the Nasdaq 100 to generate income and calm returns — it’s not looking to outperform; it’s looking to stabilize and turn volatility into income.
“That’s sort of the second trend — the desperate reach to generate income. This is particularly the case for investors closer to retirement and trying to find some income stream to get out of their investments. NUSI is a really interesting way of generating that income.”
Similarly, and sort of at the extreme edge of income chasing, the StrategyShares NASDAQ 7HANDL ETF (HNDL) is actually a balanced fund investing in stock and bond ETFs with the explicit strategy of generating a 7% yield. There’s no guarantee the fund won’t have to cut into capital to do it. However, so far, it’s actually generating the performance needed to throw off that much cash.
For more market trends, visit ETF Trends.