Rampant dividend cutting by S&P 500 member firms this year has some retirees rethinking income and the Nationwide Risk-Managed Income ETF (NUSI) stands as an ideal alternative to common equity dividends.
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.
“Dividend-yielding stocks generally reward long-term investors, typically paying them quarterly from the company’s profits. For retirees fearful of depleting their savings, this can offer a regular income stream without having to sell assets,” reports Sarah O’Brien for CNBC. “While not all stocks have slashed or suspended dividends — at least 972 either increased or initiated them this year — relying solely on those payments for income may be missing the bigger picture.”
NUSI: Ideal for Retirement Portfolios
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.
“It also may be worthwhile upgrading your dividend stock holdings by replacing companies with weaker balance sheets — and more at risk of cutting dividends — with those whose financials suggest they are in better shape to continue paying, said Shon Anderson, a CFP and president of Anderson Financial Strategies in Dayton, Ohio,” according to CNBC.
Evaluating balance sheets isn’t a chore NUSI investors have to take on because the ETF doesn’t rely on common stocks to source 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.