Some market observers believe long-term Treasury yields are ready to rise, punishing investors holding long-duration fixed income investments. Rising bond yields highlights the allure of the Nationwide Risk-Managed Income ETF (NUSI).
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.
NUSI isn’t a fixed income instrument. Therefore it’s not rate sensitive.
“Long-term Treasury yields have paused their four-month climb. But the break may not last long, according to BCA Research,” reports Alexandra Scaggs for Barron’s.
NUSI Fights Higher Yields
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.
NUSI is relevant for another reason: Federal Reserve policy.
“One investor concern is that the central bank could start slowing the pace of its bond purchases as soon as this year, BCA wrote. A premature move could push yields higher briefly, but would eventually suppress long-term yields by reducing inflation expectations,” according to Barron’s.
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.
NUSI 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.
For more on income strategies, visit our Retirement ETF Channel.