Some income strategies leave investors wanting more income and others are more trouble than they’re worth owing to high risks, poor credit ratings, and vulnerable dividends, among other flaws. The Nationwide Risk-Managed Income ETF (NUSI) doesn’t check any of those boxes and that’s a positive in today’s low-yield environment.
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. The fund is a “rules-based options trading strategy that seeks to produce high income using the Nasdaq-100 Index,” according to Nationwide.
“Dividends are an indicator of quality. Purchasing higher quality (e.g., increasing) dividends at attractive prices (i.e., higher dividend yields) is a form of quality-based value investing – a highly respected and historically successful strategy. Strategies that ignore dividends or treat them as an ancillary concern may be actively straying from quality and/or value. As such, they leave the door wide open for volatile income streams and underperformance,” according to Aaron Brask Capital.
On that note, it’s worth remembering many of the stocks in the Nasdaq-100 Index, which NUSI writes covered calls on, fit the bill as quality and fare possess low yields.
Another Point in NUSI's Favor
It’s also worth pointing out that NUSI’s income isn’t derived from traditional sources, such as equity dividends or fixed income interest.
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.
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.
“Bigger problems occur when one’s income stream is less reliable – especially for those relying on investment income for their budget (e.g., retirees). Anyone relying on dividends for income will naturally prefer a steady and growing trend versus a more volatile stream of cash flows,” notes Brask.
NUSI solves for that by providing dependable income with downside protection.