This year, it’s fair to say the dividend waters are muddied, but the Nationwide Risk-Managed Income ETF (NUSI) brings clarity to that outlook because the income it generates isn’t dependent on traditional common stock payouts.
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.
“Recent dividend announcements from large companies have been mixed, underscoring the continued uncertainty caused by the coronavirus crisis reports Lawrence Strauss for Barron’s.
As an income-generating answer to the tech-heavy Nasdaq 100, NUSI’s exposure to the technology sector is meaningful because that group isn’t cutting dividends, broadly speaking. In fact, dividend growth is steady this year.
Last week, Microsoft “said it will pay a quarterly dividend of 51 cents a share, in line with its previous payout. The stock, which yields 1%, is up about 25% this year. The tech giant has paid a dividend since 2003,” according to Barron’s.
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 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.
With income stemming from covered calls, downside protection, and a distribution yield of 7.81%, NUSI is a strong alternative to traditional dividend income in this market climate.