Nationwide launches Nasdaq 100 ETF with options collar overlay

Jan 27th, 2020 | By | Category: Alternatives / Multi-Asset

Nationwide Financial has launched an actively managed US equity ETF that seeks to provide enhanced income and downside protection through the use of options.

Nationwide launches Nasdaq 100 ETF with options collar overlay

The fund provides risk-managed exposure to the Nasdaq 100 Index.

The Nationwide Risk-Managed Income ETF (NUSI US) has listed on NYSE Arca with seed capital of $20 million.

The fund consists of two parts: a long equity portfolio that tracks the Nasdaq 100 and an options collar strategy overlay.

The Nasdaq 100 is a large-cap growth index that consists of 100 of the largest US and international non-financial companies listed on Nasdaq Exchange. It is one of the most widely followed benchmarks for the health of the US equity market.

The index is known for being ‘tech-heavy’ (technology is the largest sector exposure at 47.3%) but it also includes communication services, consumer, industrial, biotechnology, health care, transportation, and media companies. The largest constituents are currently Apple, Microsoft, Amazon, Alphabet, and Facebook.

The collar strategy overlay involves buying out-of-the-money put options and selling out-of-the-money call options on either the Nasdaq 100 or S&P 500. Both the long put and short call option positions are each expected to represent approximately 100% of the fund’s assets.

The options collar is set to generate a net credit, meaning that the premium received from the sale of the call options will be greater than the cost of buying the protective put options.

According to the fund’s prospectus, the ETF targets an annualized yield of 6–10% from a combination of dividends received from equity holdings and premiums earned from the options collar.

Additionally, the put option provides downside protection; however, the main disadvantage of the strategy is that profits are capped if the underlying index increases.

The ETF will suit equity investors looking for high regular income and are willing to sacrifice potential growth for more robust risk management.

It has been listed with an expense ratio of 0.68%.

“The persistent low interest rate environment has made it exceedingly more difficult for investors to generate reliable streams of income without taking on additional risk,” said Michael Spangler, senior vice president of Nationwide Financial. “The Nationwide Risk-Managed Income ETF adds to Nationwide’s differentiated lineup of solutions that seeks to deliver better investor outcomes while managing the short- and long-term risks inherent to retirement planning, with a targeted focus on income generation.”

The ETF is an extension of Nationwide’s suite of risk-management solutions which currently includes four index-linked ETFs. Two of the funds offer equal-risk-weighted exposure to US or international equities, while the remaining two target US or emerging market stocks through portfolios that have been optimized to produce maximum diversification.

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