Liquid Alternatives: NUSI – A Safe-Haven ETF for Risk Managed Income

The ETF helps investors target high current income with less risk.

Nationwide’s recently launched Nationwide Risk-Managed Income ETF (NYSEARCA: NUSI) helps investors find safe-haven fixed-income assets in the face of steadily declining Treasury yields. In the relentless rush to earn yield, investors may be turning to alternatives such as high dividend stocks, REITs, emerging market debt, high-yield bonds, preferred stock, and MLPs. (

However, investors may not be considering the attendant risks of such investments, according to Jonathan Molchan, Executive Director and Portfolio Manager, Harvest Volatility Management. He warns that these could come with risks attached such as interest rate, duration, inflation, commodity exposure, and leverage.

Harvest Volatility Management is an experienced derivative asset management firm highly experienced in advising, structuring, and managing option-related strategies. Founded in 2008, it managed more than $4.5 billion in assets as of end-December 2019.

NUSI: Downside protection, upside participation

According to Molchan, the Nationwide Risk-Managed Income ETF (NUSI) may offer a way out. “NUSI targets high monthly income with less risk relative to traditional income-focused investments,” he suggests. “It seeks to provide investors with a measure of downside protection with potential upside participation.”

NUSI was launched in January and provides the following benefits for investors:

  • High monthly income generation
  • Portfolio volatility reduction
  • Reduced duration risk and interest rate sensitivity
  • Capital appreciation from equity participation
  • Downside risk mitigation
  • The enhanced tax efficiency of index options

Moreover, the ETF has an expense ratio of only 0.68%.

How options protect from risk and enhance return

The ETF generates investment income using an options trading strategy called a protective net-credit collar.

In a three-step process, the ETF invests in the constituents of the Nasdaq-100 Index.

It then deploys the collar strategy.

For the covered call component, the fund sells a near-at-the-money to out-of-the-money Nasdaq-100 Index call option, with the intent of generating options premium. However, for the protective put component, the strategy uses a portion of the options premium received to purchase an out-of-the-money Nasdaq-100 Index put option, which seeks to fully hedge the portfolio below the current market price and protect against potential losses in the equity portfolio.

The ETF pays out a monthly distribution using a portion of the net credit earned from the collar strategy.

Use a [60:40] allocation and still tilt towards bonds

“It’s a solution that can complement a traditional 60/40 allocation and can be used as a bond alternative that can afford investors flexibility across varying market cycles,” said Molchan. “In addition, NUSI can be a volatility dampener that may augment existing allocations as well as a tool that may aid in supplementing current income.”

Related Story:  Liquid Alternatives: New CP ETF Is a Defensive High Yield Fixed Income Diversifier

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