The Federal Reserve and a variety of dividend offenders are making life hard on income investors this year, but investors have avenues to turn to mitigate the pain. Those include the Nationwide Risk-Managed Income ETF (NUSI).
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.
Not only is NUSI a top income-generating idea, it’s a solid volatility reduction tool, a trait investors should consider today.
“The volatility is expected to continue in the weeks ahead. This is especially true as the CBOE Volatility Index (VIX) is hovering around 26.6, well above the last year’s level of 14.91 at this point of time and the 15.8 average seen over the last five years. This suggests that market worries have started to set in,” according to Zack’s Research.
NUSI's Superior Income Idea
Importantly, NUSI’s covered call strategy largely insulates the fund from the negative payout action income investors are dealing with this year, making it an ideal way to augment equity-heavy income streams.
Covered call strategies can potentially augment a portfolio during periods of heightened volatility. The covered-call options allow an investor to hold a long position in an asset while simultaneously writing, or selling, call options on the same asset.
“Buy-write is an option strategy that involves buying a stock or a basket of stocks and then selling or writing call options on those assets. With this process, the portfolio aims to generate additional monthly income from the call option (premiums collected). If the product stays flat or declines slightly, investors keep the premium and their stock,” according to Zack’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.
