Nationwide has rolled out a further three risk-managed ETFs.
Nationwide has rolled out a further three risk-managed ETFs on NYSE Arca.
Listed on NYSE Arca, they are the Nationwide S&P 500 Risk-Managed Income ETF (NSPI US), the Nationwide Dow Jones Risk-Managed Income ETF (NDJI US) and the Nationwide Russell 2000 Risk-Managed Income ETF (NTKI US).
The funds complement the existing Nationwide Nasdaq-100 Risk-Managed Income ETF (NUSI US), which launched in December 2019 and has accumulated approximately $900 million in assets under management.
Managed by Harvest Volatility Management, the funds’ sub-adviser, the ETFs seek high current income with downside protection and are designed for income-focused investors looking to lower exposure to market volatility and minimize the potential for losses during down markets.
The funds are actively managed and aim to achieve their objective by investing in a portfolio of stocks reflective of each fund’s underlying reference index (with respect to the new funds, these are the S&P 500, Dow Jones Industrial Average and Russell 2000 indices) and an options collar.
The funds’ income is generated from a combination of dividends received from the equity holdings and the premiums earned from the options collar.
Each fund’s options collar typically consists of two components: selling call options on the index (or another comparable reference asset representing US equity securities) on up to 100% of the value of the equity securities held by the fund, while simultaneously reinvesting a portion of such premiums to buy put options on the same reference index to mitigate the downside risk associated with owning equity securities.
The options collar is structured so as to earn a net premium, meaning that the premiums received from the sale of the call options are greater than the cost of buying the protective put options.
The funds generally deploy a full replication strategy to invest in the reference index but may use a representative sampling strategy when the managers consider this to be in the interests of the fund.
And whilst the funds are actively managed, the managers utilize a proprietary, systematic model to manage options positions in an objective, rules-based manner.
The funds have a multitude of potential uses.
It is likely that investors will use the funds as a supplement to current income strategies during cycles of low or falling yields, or as a lower volatility equity strategy during volatile market periods, or as a strategy for managing the risk of rising interest rates and the possibility of economic recession as an alternative to traditional bond investments.
Similarly, the funds can act as a complement to a traditional 60% equity/40% bond portfolio, potentially enhancing the yield while reducing potential volatility.
Each of the funds comes with a total annual fund operating expense of 0.68%.