Recession risk looms ever larger on the horizon for the U.S. as the Fed continues to raise interest rates and the banking sector wobbles. For advisors looking for income opportunities and exposure to growth companies that will benefit on the other side of economic drawdown while applying a risk-managed lens, the Nationwide Nasdaq-100® Risk-Managed Income ETF (NUSI) is worth consideration.
Tech companies continue to reduce their workforce and slim their margins as grim outlooks for the U.S. economy takes outsized tolls on forward earnings-based companies. The Nasdaq remains home to some of the largest growth giants and innovators likely to bounce back strong on the other side of economic slowing and a potential recession. They are also currently priced at an attractive entry point. By investing in NUSI, advisors can take the guesswork out of timing exposure to growth companies while seeking to earn monthly income through a risk-mitigation lens.
NUSI is an actively managed fund that follows a proprietary, systematic, rules-based options trading model that seeks to generate high current monthly income and utilizes a replication strategy to invest in stocks included in the Nasdaq-100® Index. The Nasdaq-100® Index consists of 100 of the largest non-finance securities that trade on the Nasdaq exchange and is a rules-based, market capitalization-weighted index.
In 2022, NUSI had an average annual total return of -28.26% at NAV for the year compared to the Nasdaq-100® Index’s average annual total return of -32.38% at NAV over the same period.
NUSI utilizes a collar strategy to seek to provide monthly income while reducing volatility and offering a measure of downside protection. A collar strategy entails holding shares of underlying securities while simultaneously buying protective put options and writing calls for the same security. A put option gives its owner the right but not the obligation to sell the underlying asset at a specific price on a particular day. In contrast, a call option gives its owner the right but not the obligation to buy the asset instead at a specific price on a particular day until the put expires.
The monthly income that the Fund seeks to generate comes from a combination of dividends on the equity holdings and the premiums earned from the options collar. NUSI had a distribution yield of 7.81%, a 30-day SEC yield of 0.23%, and a trailing 12-month yield of 8.36%, all as of 02/28/2023. (Click this link to see the factsheet that has standardized performance and 30-day SEC yield.)
The model that NUSI employs sometimes signals that the written call options should be closed early; such signals can be generated when the market is moving upwards and exiting the call position would allow for more upside potential to be captured or if markets are falling and most of the premium has been captured already from the call.
The options collar is intended to reduce the Fund’s volatility and provide a measure of downside protection, or hedge, via the protective puts while seeking to generate income from the premiums earned from selling covered calls. Options that the Fund buys and sells generally expire one month from when they were bought or sold, and options are rolled the day before expiration on the third Friday of each month.
NUSI has an expense ratio of 0.68%.
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This article was prepared as part of Nationwide’s paid sponsorship of ETF Trends.
ETFs, hedge funds, equities, bonds, and other asset classes have different risk profiles, which should be considered when investing. All investments contain risk and may lose value. Investing involves risk, including the possible loss of principal. Shares of any ETF are bought and sold at market price (not NAV), may trade at a discount or premium to NAV, and are not individually redeemed from the Fund. Brokerage commissions will reduce returns. The Fund’s return may not match or achieve a high degree of correlation with the return of the underlying index.
Click here for Fund Details, including the top 10 holdings – https://nationwidefinancial.com/products/investments/etfs/fund-details/NUSI
The NUSI Prospectus may be accessed at: https://nationwidefunds.onlineprospectus.net/nationwidefunds/NUSI/index.html
Call 800-617-0004 to request a summary prospectus and/or a prospectus, or download prospectuses at etf.nationwidefinancial.com. These prospectuses outline investment objectives, risks, fees, charges and expenses, and other information that you should read and consider carefully before investing.
KEY RISKS: The Fund is subject to the risks of investing in equity securities, including tracking stock (a class of common stock that “tracks” the performance of a unit or division within a larger company). A tracking stock’s value may decline even if the larger company’s stock increases in value. The Fund is subject to the risks of investing in foreign securities (currency fluctuations, political risks, differences in accounting and limited availability of information, all of which are magnified in emerging markets). The Fund may invest in more-aggressive investments such as derivatives (which create investment leverage and illiquidity and are highly volatile). The Fund employs a collared options strategy (using call and put options is speculative and can lead to losses because of adverse movements in the price or value of the reference asset). The success of the Fund’s investment strategy may depend on the effectiveness of the subadviser’s quantitative tools for screening securities and on data provided by third parties.
The Fund expects to invest a portion of its assets to replicate the holdings of an index. Correlation between Fund performance and index performance may be affected by Fund expenses and because the Fund may not be invested fully in the securities of the index or may hold securities not included in the index. The Fund frequently may buy and sell portfolio securities and other assets to rebalance its exposure to various market sectors. Higher portfolio turnover may result in higher levels of transaction costs paid by the Fund and greater tax liabilities for shareholders. The Fund may concentrate on specific sectors or industries, subjecting it to greater volatility than that of other ETFs. The Fund may hold large positions in a small number of securities, and an increase or decrease in the value of such securities may have a disproportionate impact on the Fund’s value and total return. Although the Fund intends to invest in a variety of securities and instruments, the Fund will be considered nondiversified. Additional Fund risk includes: Collared options strategy risk, correlation risk, derivatives risk, foreign investment risk, and industry concentration risk.
Nasdaq-100® Index: A rules-based, market capitalization-weighted index of the 100 largest, most actively traded U.S companies listed on the Nasdaq stock exchange. The Index includes companies from various industries except for the financial industry, like commercial and investment banks. These non-financial sectors include retail, biotechnology, industrial, technology, health care, and others.
Nasdaq® and the Nasdaq-100® are registered trademarks of Nasdaq, Inc. (which with its affiliates is referred to as the “Corporations”) and are licensed for use by Nationwide Fund Advisors. The Nationwide Nasdaq-100® Risk-Managed Income ETF (“NUSI”) has not been passed on by the Corporations as to their legality or suitability. NUSI is not issued, endorsed, sold, or promoted by the Corporations. THE CORPORATIONS MAKE NO WARRANTIES AND BEAR NO LIABILITY WITH RESPECT TO THE PRODUCT.
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