Looking at the current environment of yields, higher volatility, and potentially where investors can turn, investors seeking yield may need to ask themselves what risks are they onboarding to secure a consistent flow of income, and if that yield is real.
During a recent webinar focused on the Nationwide Risk-Managed Income ETF (NUSI), ETF Trends CEO Tom Lydon discussed how NUSI has functioned in recent times and how that plays into income-oriented asset classes.
Looking at the safety and dependability of the current income used by investors, there's a broader view of the market to take. A few things stand out. For example, MLPs have a dedicated yield of up to 15% and are down nearly 50% since the end of December 2019. On the other side of this, REITs have seen their dedicated yields decline, while they've also participated in the market sell-off.
High yield bonds are still negative on the year. Looking at equity dividends in 2020, companies have been seen completely disintegrating their dividends, while others have reduced them. In contrast, some companies saw their dividends double or triple as their stock prices plummeted. What may have caused this volatility, the indicated yield of NUSI remains stable at just under 8%, and the ETF is up roughly 10% since its inception through the end of September.
Initially launching in December 2019, NUSI is a recent addition to these income-generating strategies. Thanks to a systematic rules-based options strategy, one can minimize market volatility's negative effects and minimize downside risk. This was accomplished through the constant ownership of a fully-financed market hedge. As a result, NUSI saw its volatility decline. This allows for an allocation for this type of alternative to lower the volatility in an investor's portfolio while delivering a consistent stream of income, regardless of market volatility.
Due to a combination of income generation and downside protection, NUSI can benefit investors and advisors as a solution that can complement the traditional 60/40 allocation, and it can be used as a bond enhancement. In addition, NUSI can be a volatility dampener that may augment existing allocations, as well as a tool that may aid any supplementing current income.
With that in mind, one can see how a small allocation to NUSI can enhance asset allocation. Variations show the benefits of diversification. However, when looking at extremes, NUSI's lower volatility profile and the measure of downside protection can enhance the return profile, in addition to leading to an uptick in the annualized yield.
Learn more by registering for "Income Redefined: Positioning Your Portfolio for the 'Known Unknowns'" to playback through the webinar, complete with more info, charts, and Q&A discussion.Read more on ETFtrends.com.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.