Market uncertainty from trade wars, inflation, and economic unpredictability are keeping investors from maximizing their full capital resources. Rather than stay in cash, fixed income investors can access an options-made-easy strategy with an active ETF option from Neuberger Berman.
Of course, given the aforementioned reasons, investors are wary of deploying their capital in the market. BlackRock CEO Larry Fink noted that trade war concerns are causing investors to stay idle with cash.
“There is 12 trillion euros sitting in bank accounts in Europe. In the United States, there’s $11 trillion sitting in money markets funds. When there is uncertainty, you are going to keep more and more money in cash and that is what we witnessed,” said Fink at a Saudi/U.S. Investment Forum.
In the current economic environment, volatility isn’t relegated to just stocks. Bonds are also exhibiting market fluctuations, putting the traditional 60/40 portfolio strategy at risk. As mentioned by the I/O Fund, stocks as well as bonds went down in 2022. But the current inflationary environment challenges the use of bonds as a shock absorber when the equities market gets rough.
The same can be said for bonds as an income strategy. While yields are still relatively high, the Fed’s plans to ease monetary policy could put bond yield income at risk, supporting the need for diversified income sources. As the I/O Fund also noted, the high yields now are offset by the still-high inflation.
Staying on the fence might appear to be the optimal choice. But fixed income investors risk the opportunity cost of missing out on alternative income opportunities. This is where a fund like the Neuberger Berman Option Strategy ETF (NBOS ) can be beneficial.
Demystifying Options as Income
Because of reasons relating to complexity and their nuances as an income strategy, investors might be steering clear of options. However, NBOS demystifies options as an income source all in the convenience of an ETF wrapper.
Exactly how does NBOS create yield? Via option premiums from the fund’s underlying holdings. As the core of its strategy, NBOS writes put options on the S&P 500, other market indexes, as well as even other ETFs. Put options have the ability to create income by selling the option or writing a put. When the put option is sold, the investor collects a premium irrespective of whether the option is exercised.
Additionally, NBOS adds short-term Treasury holdings, which currently comprises the majority of the portfolio as of May 15. Fixed income investors wary of the volatility in the stock market will appreciate this exposure to safe haven Treasuries. When the stock market starts to exhibit upside, this is where the active management can be beneficial as the portfolio managers can tailor the holdings of the fund to capture the upside.
As mentioned, the current market environment is one that warrants an alternative income strategy that simply staying in bonds cannot provide. NBOS is just one of the active income ETFs that can complement a portfolio.
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