Following a stellar run by equities in the second quarter, it could be time for investors to consider hedging strategies, meaning the Nationwide Risk-Managed Income ETF (NUSI) could come into the spotlight.
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.
“Also evident in the rebound has been the surge in speculative trading by the public, says Julian Emanuel, Chief Equity and Derivatives Strategist at BTIG,” reports Randall Forsyth for Barron’s. “That trend, a subject of recent columns, might not be obvious in fund flows but is reflected in the record number of account openings—with online brokers offering zero commissions and fractional-share transactions—and record odd-lot trading of options.”
With its downside protective put strategy, NUSI can take some the edge off a speculation-filled market.
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.
“Historically low interest rates—with the Fed officially pegging its federal funds target near zero, and de facto yield-curve control keeping Treasury note yields in tight ranges, with the 10-year benchmark hovering near 0.70%—is offered as a justification for high stock price/earnings multiples. But low interest rates are warning that something is wrong, avers Peter Cecchini, former chief market strategist at Cantor Fitzgerald,” according to Barron’s.
Those low interest rates speak to the benefits of NUSI’s covered call, income-generating strategy. Covered call strategies can potentially augment a portfolio during periods of heightened volatility. The covered-call options allow an investor to hold a long position in an asset while simultaneously writing, or selling, call options on the same asset.