The Nationwide Risk-Managed Income ETF (NUSI) isn’t a dedicated dividend exchange traded fund, but it’s proving to be one of the more reliable income generators this year, benefiting as the Nasdaq-100 Index shoots higher.
Moreover, NUSI, due to its relationship with the Nasdaq-100, avoids some of the worst sector-level dividend offenders.
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.
“Three sectors have borne the brunt of dividend cuts and suspensions this year in the wake of the coronavirus pandemic: energy, consumer discretionary, and industrials,” reports Lawrence Strauss for Barron’s. “They remain among the most perilous for income investors.”
Good News With NUSI
NUSI avoids some of the current dividend risks with the S&P 500 because the Nationwide ETF is an income-generating spin on the Nasdaq-100 Index (NDX), an index lightly allocated dividend-offending sectors, such as energy and real estate.
To the point, NDX has no energy exposure and it allocates just 2.22% of its weight to the industrial sector. Yes, the index allocates over 16% of its weight to consumer discretionary stocks, but over 11% goes to Amazon and Tesla – stocks that aren’t dividend payers in the first place so they can’t qualify to be payout offenders.
Energy, industrials and consumer cyclicals “accounted for 60% of cuts and suspensions among companies in the Russell 1000 Index, according to a May 20 Goldman Sachs research note,” reports Barron’s. “A common thread among the energy, consumer-discretionary, and industrial sectors is the cyclicality of their businesses.”
Fortunately, the dividend payers in NUSI’s largest sector weight – technology – are either growing payouts or holding them steady.
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.
