The Nationwide Risk-Managed Income ETF (NYSEArca: NUSI) is fast becoming a reliable options for income-starved investors and the Federal Reserve is proving as much.
Just look at commentary from the most recent Federal Open Market Committee (FOMC) meeting earlier this week. Interest rates are going to be lower for longer, meaning several more years, crimping income investors in the process.
“The Federal Open Market Committee issued its latest statement on Sept. 16 and, unsurprisingly, held the federal-funds rate at 0.0%-0.25%,” writes Morningstar analyst Eric Compton. “The vote was technically not unanimous, with Robert Kaplan (Dallas Fed) and Neel Kashkari (Minneapolis Fed) voting against the action, however, their votes weren’t against holding the federal funds rate at the current level but rather were votes for slightly different nuances to the overall statement.”
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. NUSI is becoming all the more important in today’s climate.
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.
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.
There’s ample room for the FOMC “to maintain rates at zero for some time, and the committee will not be likely to preemptively raise rates to combat inflation, which had been a strategy in the past,” according to Compton. “This also gives the committee plenty of room to define ‘maximum employment’ in ways that again allow for rates to stay lower for longer.”
By: Josh Silva
Partner, Portfolio Manager
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