It seems like the Nasdaq Composite Index and its more focused peer, the popular Nasdaq 100 Index, can do no wrong these days. Strength in those benchmarks is trickling down to the Nationwide Risk-Managed Income ETF (NUSI), an ETF that takes some of the edge off the Nasdaq 100 while adding higher levels of income.
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 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.
Nasdaq V-Bottom Matters
Nasdaq Composite charts confirm the index made a “V” bottom off the March lows and there is some favorable history on the side of the benchmark and perhaps NUSI, too.
“We have data on the Nasdaq Composite going back to 1971. I looked at each time the index reached an all-time high, then fell by at least 10%, and then finally reached a subsequent all-time-high within the year. As it turns out, it has happened 15 other times,” according to Schaeffer’s Investment Research. “Historically, it has been a bullish signal. Six months after these 15 signals, the index averaged a gain of over 16%, with positive returns each time. The typical six-month return for the index is around 6%. Every time frame below shows a higher average return and percent positive than what is typical for the index. This means it is a good time to buy stocks.”
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.