With the arrival of a new year comes an ideal time for retirement planners and retirees to update portfolios and assess income streams. The Nationwide Risk-Managed Income ETF (NUSI) should be part of those conversations.
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.
Issues pertaining to required minimum distributions changed and that could enhance the allure of NUSI in taxable accounts.
“The RMD age has changed. It used to be 70.5 but is now age 72. So, you don’t have to take a distribution until you turn 72. In the year you turn 72, you are required to take that distribution by April 1 of the following year. So, there’s a little bit of flexibility in that first year,” notes Morningstar analyst Maria Bruno. “The other thing I would probably just reinforce is the cost of not taking the distribution is pretty significant. There is a 50% excise tax for the amount that you should have taken. So, it is very important to make sure that if you are mandated to take the distribution, and again the distributions are from traditional IRAs, 401(k)s and Roth 401(k)s, although they are not taxed, still mandated to take withdrawals on an annual basis.”
Good Timing for NUSI
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.
By providing exposure to the widely followed Nasdaq-100 Index, NUSI’s growth profile is more substantial than that of many income-focused funds. However, its income sleeve is far more compelling than those of many growth strategies.
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.
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 buy on a share-for-share basis to generate income via premiums derived from the sale of the call options. However, the covered call strategy caps upside potential and provides limited downside protection, so it is ideal for investors with a neutral-to-bullish outlook.