Markets clawed back some of their recent losses on a better-than-expected February CPI print. However, concerns of longer-term tariff impacts on inflation and consumer resilience still weigh heavily. The Neuberger Berman Option Strategy ETF (NBOS ) is a fund worth consideration for those advisors and investors with a neutral to bearish outlook for equities.
Inflation in February came in below expectations, rising 2.8% year-over-year on an expected 2.9% gain, reported WSJ. Core inflation (excludes food and energy) proved even better last month, rising 3.1% YoY on expectations of 3.2%. The gain is the smallest YoY rise in four years.
The print came in on the same day new U.S. tariffs on steel and aluminum began. Both Canada and Europe announced retaliatory tariffs in response. While markets gained on the CPI print, worries over the inflationary impact of tariffs loom large.
Concerns regarding consumer resilience are also on the rise. While consumers carried the economy through many of the challenging periods of the last two years, tariff impacts could challenge that status quo.
Consumer sentiment in February plummeted almost 10%, according to the February survey released by the University of Michigan. That drop followed on the heels of the largest four-year decline in sentiment in January. Alongside worries of tariff impacts to the price of goods, consumers took an increasingly grim stance on the economy. Short-term economic outlooks dropped 10% while long-term economic outlooks fell 6% — the lowest since November 2023.
Invest for Challenging Markets With NBOS
Advisors and investors looking to hedge for potential economic hardship or flat market performance would do well to consider the Neuberger Berman Option Strategy ETF (NBOS ). The fund has outperformed the S&P 500 year-to-date, measured using the SPDR S&P 500 ETF Trust (SPY ) as proxy.
NBOS writes put options on the S&P 500 and other indexes within the family of S&P 500 indexes, and on ETFs. Put options protect the buyer from loss should the underlying asset’s price fall below the strike price of the put. As a put writer, the fund benefits when the put option expires with the underlying price above or at the strike price. When it expires below and the put is exercised, the fund still benefits from the premiums earned.
The strategy seeks to underwrite equity risk in markets, generating yield from option premiums and underlying collateral holdings. It’s expected to outperform in flat or declining markets, while lagging but still capturing some upside in rising markets. The strategy seeks to increase income potential through options premiums while also benefiting from market volatility. The fund also invests in short-term Treasuries as a source of income.
The ETF managers consider overall market volatility, underlying valuations, and risks when writing put options. The aggregative investment exposure of the options written will typically equal 100% of NBOS’ assets. Sometimes that may be greater, but won’t exceed 125%.
NBOS collateralizes its options using a portfolio of laddered, investment-grade bonds, mostly short-term. The fund invests primarily in Treasuries. However, it can invest in government agency bonds, corporate bonds, mortgage- and asset-backed securities, structured notes, and cash or cash equivalents.
In addition to purchasing put options, the fund may invest in or write call options. NBOS carries a net expense ratio of 0.56%.
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