How Nationwide’s Risk-Managed ETFs Perform in Down Markets


Markets plummeted again in mid-September as volatility persists and the major indexes look to continue their bearish trends. For advisors seeking income opportunities for their clients, the Nationwide Risk-Managed suite of ETFs can be a smart play to help mitigate volatility and provide a measure of downside protection.

Harvest Volatility Management, the sub-advisor of the fund, provides a detailed breakdown on its website of how the collar strategy that it utilizes to provide income while also reducing volatility and offering a measure of downside protection performs in different market environments. A collar strategy entails holding shares of underlying security while simultaneously buying protective put options and writing calls for the same security. A put option gives its owner the right but not the obligation to sell the underlying asset at a specific price on a specific day. In contrast, a call option gives its owner the right but not the obligation to buy the asset instead.

With the major indexes hitting bear market territory this year, it’s worth analyzing how the strategy is designed to perform in both a moderately declining market and one that is precipitously declining.

Moderately Declining Market Environment

When the market is in a moderate decline, the potential downside protections can be obtained either from the income generated by the premiums of the short call or the long put that increases in value the more the market falls before the option expires. Both the call and the put that makes up the net-credit collar are reset on a monthly basis.

Image source: Harvest Volatility Management

Limitations of the collar strategy in this kind of moderate capitulation of markets include if equities fail to fall below the put strike price, making them obsolete, but the short call options premiums will still contribute to the total return of the funds.

Steeply Declining Market Environment

The Nationwide risk-managed ETF suite is designed to outperform other covered call strategies and the broader market at times of sharp market decline. Should the underlying equity index fall below the strike price of the protective put, the losses will be limited to the price of the put.

Image source: Harvest Volatility Management

The funds capture total returns from the short call option premiums and the value preservation for the underlying equities when the market drops below the level of protection that the funds offer.

Risk-Managed Strategies Within the Major Indexes

The ETF suite from Nationwide seeks high current income. The funds carry a measure of downside protection, each with a different type of exposure depending on the assets and strategy investors are looking for.

The Nationwide Nasdaq-100® Risk-Managed Income ETF (NUSI) is an actively managed fund that follows a rules-based options trading strategy that seeks to generate high current income every month and invests in stocks included in the Nasdaq-100 Index. The Nasdaq-100 Index consists of 100 of the largest non-finance securities that trade on the Nasdaq exchange and is a rules-based, market capitalization-weighted index.

The Nationwide S&P 500® Risk-Managed ETF (NSPI) is an actively managed fund that follows a rules-based options trading strategy that seeks to generate high current income every month and invests in stocks included in the S&P 500 Index. The S&P 500 Index is weighted by market capitalization and comprises approximately 500 of the top U.S.-listed companies that make up the majority of the U.S. equity market cap (80%).

The Nationwide Dow Jones® Risk-Managed Income ETF (NDJI) is an actively managed fund that follows a rules-based options trading strategy that seeks to generate high current income every month and invests in stocks included in the Dow Jones Industrial Average. The Dow Jones is weighted by price and comprises 30 well-established U.S. companies, referred to as blue-chip companies.

The Nationwide Russell 2000® Risk-Managed Income ETF (NTKI) is an actively managed fund that follows a rules-based options trading strategy that seeks to generate high current income every month and invests in stocks included in the Russell 2000 Index. The Russell 2000 tracks approximately 2,000 U.S. small-cap companies.

For more news, information, and strategy, visit the Retirement Income Channel.


This article was prepared as part of Nationwide’s paid sponsorship of ETF Trends.

ETFs, hedge funds, equities, bonds, and other asset classes have different risk profiles, which should be considered when investing. All investments contain risk and may lose value. Investing involves risk, including the possible loss of principal. Shares of any ETF are bought and sold at market price (not NAV), may trade at a discount or premium to NAV and are not individually redeemed from the Fund. Brokerage commissions will reduce returns. The Fund’s return may not match or achieve a high degree of correlation with the return of the underlying index.

The NUSI Prospectus may be accessed at: https://nationwidefunds.onlineprospectus.net/nationwidefunds/NUSI/index.html

The NDJI Prospectus may be accessed at: https://nationwidefunds.onlineprospectus.net/nationwidefunds/NDJI/index.php

The NSPI Prospectus may be accessed at: https://nationwidefunds.onlineprospectus.net/nationwidefunds/NSPI/index.php

The NTKI Prospectus may be accessed at: https://nationwidefunds.onlineprospectus.net/nationwidefunds/NTKI/index.php

Call 1-800-617-0004 to request a summary prospectus and/or a prospectus, or download prospectuses at etf.nationwidefinancial.com. These prospectuses outline investment objectives, risks, fees, charges and expenses, and other information that you should read and consider carefully before investing.

The results shown represent past performance; past performance does not guarantee future results. Current performance may be lower or higher than the past performance shown, which does not guarantee future results. Share price, principal value and return will vary, and you may have a gain or a loss when you sell your shares. Returns for periods less than one year are not annualized. Short-term performance, in particular, is not a good indication of the fund’s future performance, and an investment should not be made based solely on returns. To obtain the most recent month-end performance, go to etf.nationwidefinancial.com or call 1-877-893-1830.

KEY RISKS: The Nationwide Nasdaq-100® Risk-Managed Income ETF, Nationwide S&P 500® Risk-Managed Income ETF, Nationwide Dow Jones® Risk-Managed Income ETF, and Nationwide Russell 2000® Risk-Managed Income ETF (collectively, the “Risk-Managed Income ETFs”) are subject to the risks of investing in equity securities, including tracking stock (a class of common stock that “tracks” the performance of a unit or division within a larger company). A tracking stock’s value may decline even if the larger company’s stock increases in value. The Risk-Managed Income ETFs are subject to the risks of investing in foreign securities (currency fluctuations, political risks, differences in accounting and limited availability of information, all of which are magnified in emerging markets).

The Risk-Managed Income ETFs may invest in more-aggressive investments such as derivatives (which create investment leverage and illiquidity and are highly volatile). The Risk-Managed Income ETFs employ a collared options strategy (using call and put options is speculative and can lead to losses because of adverse movements in the price or value of the reference asset). The success of the Risk-Managed Income ETFs’ investment strategy may depend on the effectiveness of the subadviser’s quantitative tools for screening securities and on data provided by third parties. The Risk-Managed Income ETFs expect to invest a portion of their assets to replicate the holdings of an index. Correlation between Fund performance and index performance may be affected by Fund expenses and because the Fund may not be invested fully in the securities of the index or may hold securities not included in the index.

The Risk-Managed Income ETFs frequently may buy and sell portfolio securities and other assets to rebalance its exposure to various market sectors. Higher portfolio turnover may result in higher levels of transaction costs paid by the Risk-Managed Income ETFs and greater tax liabilities for shareholders. The Risk-Managed Income ETFs may concentrate on specific sectors or industries, subjecting them to greater volatility than that of other ETFs. The Risk-Managed Income ETFs may hold large positions in a small number of securities, and an increase or decrease in the value of such securities may have a disproportionate impact on the Funds’ value and total return. Although the Risk-Managed Income ETFs intend to invest in a variety of securities and instruments, the Risk-Managed Income ETFs will be considered non-diversified.

Additional risks include: Collared options strategy risk, correlation risk, derivatives risk, foreign investment risk, and industry concentration risk.

The Fund expects to invest a portion of its assets to replicate the holdings of an index. Correlation between Fund performance and index performance may be affected by Fund expenses and because the Fund may not be invested fully in the securities of the index or may hold securities not included in the index. The Fund frequently may buy and sell portfolio securities and other assets to rebalance its exposure to various market sectors. Higher portfolio turnover may result in higher levels of transaction costs paid by the Fund and greater tax liabilities for shareholders. The Fund may concentrate on specific sectors or industries, subjecting it to greater volatility than that of other ETFs. The Fund may hold large positions in a small number of securities, and an increase or decrease in the value of such securities may have a disproportionate impact on…



Read More: How Nationwide’s Risk-Managed ETFs Perform in Down Markets

2022-11-03 05:27:09

Subscribe
Notify of
guest
0 Comments
Inline Feedbacks
View all comments

This website uses cookies to improve your experience. We'll assume you're ok with this, but you can opt-out if you wish. Accept Read More