The Nationwide Risk-Managed Income ETF (NUSI) checks a lot of boxes for investors planning for retirement and those already there. One of those boxes is bolstering cash flow.
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.
The Nationwide Risk-Managed Income ETF 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. NUSI’s cash flow-generating capability is increasingly relevant in today’s low-yield climate.
“A decade and another (still unfolding) economic crisis later, conditions are more challenging than ever for income-minded investors. As of early June, the yield on 10-year Treasuries is only 0.66%, while Bloomberg Barclays Aggregate tracking index funds are yielding just over 1%,” writes Christine Benz for Morningstar.
Steady Cash With 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.
In this backdrop of increased uncertainty and economic weakness due to the coronavirus outbreak, world governments have shown they are willing to do whatever it takes to support growth. Many central banks, including the Federal Reserve, have implemented loose monetary policies to bolster liquidity while governments have opened their checkbooks to fund copious fiscal measures, further stabilizing global equity markets and fueling the quick rebound in stocks. However, the supportive monetary policies have weighed on global rates, and fixed-income investors now face a lower-for-longer yield environment.
Plus, NUSI is a lower-risk alternative to high-yield bonds, which have come under pressure at various stages in 2020.
“Meanwhile, many high-yielding equities, as well as mutual funds and exchange-traded funds that invest in them, sport attractive yields of nearly 4% or even higher. But with the higher yields of all of those investments comes the potential for higher risk, especially if the economy doesn’t recover quickly and/or stocks take another nosedive,” according to Benz.