Interest rates are still low, but Treasury yields are on the rise, presenting fixed income investors with a vexing scenario. The Nationwide Risk-Managed Income ETF (NUSI) is an ideal way to thrive during tricky bond climates.
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.
Rather than relying on dividend stocks or interest from bonds, NUSI generates income from covered calls. Covered call strategies such as NUSI can augment a portfolio during periods of heightened volatility. The options allow an investor to hold a long position in an asset while simultaneously writing or selling call options on the same asset.
“The current environment of expensive equity valuations and high implied volatility is particularly attractive for covered call funds relative to outright equity exposure,” writes Seeking Alpha.
A Perfect Time to Consider NUSI
A covered call refers to an options strategy where an investor writes or sells a call option on an asset which they already own or bought on a share-for-share basis to generate income via premiums derived from the sale of the call options. The covered call strategy caps upside potential and provides limited downside protection, so it is ideal for investors with a neutral-to-bullish outlook.
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 is an actively managed portfolio of stocks included in the Nasdaq-100 Index. 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.
“Expensive valuations are correlated with muted long-term equity performance and high implied volatility raises the call premiums that the funds receive both of which support covered call funds over outright equity holdings,” adds Seeking Alpha.
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