With the Nasdaq-100 Index on fire, the Nationwide Risk-Managed Income ETF (NUSI) stands out as an ETF to consider in the third quarter as investors look to hedge long equity positions following one of the best quarters for stocks in years.
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.
NUSI’s combination of covered calls and downside puts could make the Nationwide ETF a compelling choice if macro headwinds linger.
“Looking towards July, we are starting to see some macro headwinds and technical implications pop up that could spur some volatility going forward. COVID-19 cases and hospitalization rates have continued to climb rapidly as the U.S. has reopened the economy, with nine states pulling back and delaying some of their phased reopening measures,” according to Schaeffer’s Investment Research.
NUSI: A Rising Star
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. There are some inklings that the NUSI foundation will prove beneficial to investors beyond 2020.
“Moreover, the Nasdaq-100 Index (NDX – 9,849.36) failed near the round 10,000 millennium level for the second week in a row, which coincidentally, is also at the top of the price channel that started way back in 2011,” notes Schaeffer’s. “As we head through summer, I would keep my eye on the NDX as it might be a better barometer of overall market health as we work our way through this bifurcated recession. Consolidation should be expected here, and as we mentioned last week, the first support level to watch is the 9,600 level.”
Should that scenario come to pass, NUSI’s downside protection could support investors and keep risk to a minimum.