It’s difficult to replace all of your previous employment income in retirement, but investors can help shore up their funds with the Nationwide Risk-Managed Income ETF (NUSI).
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.
“While the level of resources that an individual needs in retirement will vary based on many factors, the replacement income ratio helps assess how well career workers—those who spend the majority of their work lives with the same employer—are set up for retirement,” according to Pew Charitable Trust.
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.
An Options Overlay, Explained
What makes NUSI unique and safer compared to some other income strategies is that it uses an options overlay to generate income, which features downside equity market protection.
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.
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’s options-based strategy can generate steadier, higher levels of incomes with comparable or less risk than some fixed income instruments. Additionally, NUSI can be a better inflation fighter than what investors may be accustomed to with employer-sponsored retirement plans.
“Most plans offer a post-retirement benefit increase or cost-of-living adjustment (COLA) to mitigate inflation in retirement, but the adjustments usually aren’t sufficient to completely offset it. The adjustments are typically either a fixed percentage increase or tied to the consumer price index (CPI) with a cap. In certain cases, these provisions also include a variable benefit component, which links the adjustment to plan investment returns or funding levels,” according to Pew.
For more on income strategies, visit our Retirement Income Channel.