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NUSI: Building A Sustainable Income Portfolio With Downside Protection And 7.9% Yield

Left Banker profile picture
Left Banker


  • NUSI employs a collar strategy on the NASDAQ 100 index.
  • This strategy limits downside losses while allowing some participation in upside gains.
  • The fund pays just short of 8% dividends.
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Photo by John M Lund Photography Inc/DigitalVision via Getty Images

In recent weeks, I’ve been reviewing income investments with the goal of selecting assets for a portfolio that will produce current income in the 7% to 8% range and have a high degree of capital preservation over time. The portfolio is intended for a

This article was written by

Left Banker profile picture
I'm a retired individual investor.

Analyst’s Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

This article does not constitute investment or tax-planning advice. I am passing along the results of my research on the subject. Any investor who finds these results intriguing will certainly want to do all due diligence to determine if any fund mentioned here is suitable for his or her portfolio. And, any investor who has concerns about the tax status of an investment will want to consult with a tax professional on that topic.

Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

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Comments (131)

kjseagle1 profile picture
is NUSI In a wave 3 from Jul 19 low ? anybody see that?
Certainly enjoyed your article. This collar strategy has worked very well in this bull market; would it be as effective in a prolonged bear market? Would you then reverse the strategy by going long calls and selling puts? And would as much income be generated in a bear market? THANKS!
Alternative Investing profile picture
@Left Banker did you ever finalize or land on the constituents for the Sustainable Income Portfolio for your friend?
Does the article above take into account the higher expense ratio of NUSI ?
Left Banker profile picture
As always, every metric used is net of expenses.
@Left Banker good to know. Nice analysis. thanks.
airlarr profile picture
NUSI makes sense for me. Is there a link where I can find daily holdings of options? larry
airlarr profile picture
@Douglas Albo I looked hard, maybe they dropped holdings.
Douglas Albo profile picture
@airlarr Go to the link above and hit the 'Holdings' along the right side. You will get a download of an Excel spreadsheet, which you will need to open to view the holdings. But you will need Microsoft Office or Excel to open the spreadsheet.
@Left Banker do you have any insight when the may dividend will be paid? I can't find any info on several platforms or even on the nasdaq.
Pogo321 profile picture
@Marco G According to Fidelity it's 5/28. Was ex-div today; probably why price is down while TQQQ is up. Maybe I'll add.
@Fero. You are awesome brother. I couldn't find the info anywhere and i even called nation wide to ask haha.
2live4divs profile picture
thank you! I have been accumulating nusi over the past week or so!
@2live4divs , good entry.
Thanks for the article. Added some shares of NUSI today.
Douglas Albo profile picture
Why is NUSI down so much with the NASDAQ-100 (QQQ) today, both -1.7%? Because Harvest Investment Management (HVM), which runs the option portion of the portfolio, bought back the Call options last week and since the Put options are still well out of the money (12,600 strike on NDX), NUSI is going to move virtually 1-for-1 with the QQQ's until the May 21st expiration when the June collar goes on.

This can be one of the problems with NUSI and something I have spoken to HVM about. Monthly options expirations rely too much on timing and sometimes taking the options off early works and sometimes it doesn't. I believe NUSI would have a much more effective option strategy if HVM could employ a rolling weekly expiration collar option going out two months in which there is always a Friday expiration (which can be closed out) while a new sell Call, buy Put collar is put in place 2-months out. This would take away the timing problem for NUSI.

This rolling weekly collar option strategy is essentially what the Eaton Vance Risk Managed fund (ETJ) does, except on the S&P 500.
Alternative Investing profile picture
@Douglas Albo looks like an opportunity to add to ones position!
Left Banker profile picture
@Douglas Albo

Thanks for that info, Doug.

Agree completely that ETJ has a better implementation of the collar but it is more management intensive and, I'm guessing, NUSI is not eager to add management effort to the fund.

It's great that you have a line to HVM and I appreciate your passing on your opinions on this to them. This can be a much better fund if someone there pays attention and starts implementing some of your input.

OTOH, I do appreciate the the fund is willing to close the option positions early when it's clear that they are not needed for the remaining weeks of the option month. I don't believe ETJ does that.
iirc, most of EV CEFs which use cover calls rolls. That said, QYLD rolls as well. The latter sell cover calls against NDX, its European base options so assignments happen on the day of expiry. They roll the Thursday before expiry. Its almost idiot proof in terms of writing an algo to implement this.
D.Graves profile picture
My GTC was processed @12.93 today for a starter watch position in NUSI

I have also extended my positions in DIVO and FOF and am looking to keep building these positions.

Have been investing more in income producing investments, retirement about 1 year away, growth stocks have done so well, hard to sell them, but have been and buying more ETF'S and Closed End Funds.

Keep up the articles, always looking for more ideas to diversify for the future

RichardB99 profile picture
Thanks for the extra analysis of this fund LB. After you first took a quick look in the comment thread for QYLD I have examined it for my portfolio and pretty much decided to add some. After this article I went ahead and swapped my small amount of QQQX (and its cap. gain) for NUSI and gained a few dollars in extra income as well.
Left Banker profile picture
That's what I concluded with today's look at QQQX also.
Been using NUSI for over a year as part of a diversified "income strategy". Used TLT & ZROZ to hedge equity last year... crushed it, but had to unwind, and have used 80% NUSI & 20% QYLD. Looking at other alternatives to "left tail" risks.
Open to ideas here, as I have a few in the "kitchen"... I fully expect a 15% correction 2H.21, but the "big one" is a few quarters off as the PPT is ready to take 10yrd back to 50bps, if needed. Ton of interesting "risk managed" ETFs and the MPT crowd will continue to get their collective $sses handed to them... Good report LB and comments herein. The most material issue not covered so far is having a professional risk manager- Harvest - as the sub-advisor for NUSI. Prudent structure, and worth the "extra fee"...
Greg Hudson profile picture
@BaAuH2O "Looking at other alternatives to "left tail" risks."

I mean, depending on your confidence in timing of the "big one," there's always VIXY as a hedge. In the meantime it just loses 50% per year.
Left Banker profile picture
I like TLT (or UBT which ties up half the cash for the same portfolio impact). Negative correlation to equity. Has been a bit off YTD but over the long haul it works well. Risk managed equity ETF are still equity.
Greg Hudson profile picture
@Left Banker "Risk managed equity ETF are still equity." Indeed. Over the last 40 years, no better diversifier than treasuries that I can find.

The nightmare scenario for the stocks/bonds portfolio is if rising rates is what tanks the stock market. I've been building up my inflation exposure as the third leg of the stool in case this happens, although I'll still get mostly destroyed if the nightmare scenario happens at my current allocations.
Steven Bavaria profile picture
Great article, LB!
NUSI fund documents confirm that the ROC component of its distribution is in the 97-99% range. So these are attractive holdings for taxable accounts, as well as IRAs and other tax deferred accounts. I am considering adding NUSI to my Income Factory taxable portfolio. nationwidefinancial.com/...
Thanks for the article. NUSI is a strong candidate for my IRA, but please correct me if I'm wrong but the funds like NUSI and JEPI have distributions that are taxed as 100% ordinary income right? Contrast that with a typical covered call fund like QYLD or QQQX that see distributions mostly as ROC. That is the one thing keeping me from using NUSI in my taxable account.
Alternative Investing profile picture
@Douglas Albo is the high 90% roc for nusi fairly consistent yar in and out? or vary yr to yr if you know off the top of your head?
@Douglas Albo - thank you Mr Albo for correcting my misunderstanding. This is really good news!
Left Banker. Always enjoy reading your SA articles. I was a biopharma and technology executive in my career. Retired over 10 years now. I bought a 1% of retirement portfolio position in NUSI right after the Cv19 market plunge. I liked the structure model of the ETF. NUSI had less than $100 million in total assets back then and very poor correspondence and investor information. Later on in 2020 I doubled our NUSI position for the income which raised it to about 1.67% of portfolio currently as it did not keep track with other winners. I decided recently to add to NUSI to bring it over 2% of portfolio. Getting an 8% yield and still making a gain with downside protection and having daily trading volume growing is attractive to me. To get around the upside limitations of NUSI I pair it with a half sized position in QQQX which has grown fast than NUSI with a nice but quarterly yield. QQQX is at 1% of portfolio (as is BST).
FWIW I have 10% of our retirement portfolio in 3 big pharma (ABBV, JNJ and PFE) companies I did business with over many years. I helped develop the leading selling drug of one of these companies and years ago the former leading selling drug of another of these companies.
Left Banker profile picture
So, let's see. 8% with downside protection, 12% with pretty much nothing else, 6% with good growth prospects. Sounds like the NDX trifecta to me.
Been selling options for a while, full time now as I transition away from my W2 job. A collar is not premium efficient since the long put drags the profits away as compare to a cover call. Even for institutional traders, the long put or call positions are used to protect margin accounts. The thinking is margin can get you more buying power, hence more premiums. The drawback is lenders now require long positions for that protection. That said, for a passive income strategy, draws downs are usually a non factor if the dividends are generating the income one desires. During the March 2020 liquidity crash, QYLD had a double digit drawdown and recovered within months. Those holding QYLD where it was generating enough income did not have to harvest their shares. I see no need for "sustainability" in this case.

Further, NUSI has a yield of 7.85% while QYLD has a yield of 11.7%, a 3.85% difference where the protective put is typically used in margin accounts or if one needed to stay liquid in a crash or a draw down. IMO, this difference is too much to give up for unneeded protection or if the liquidity requirement can be forgone.
@jack01 from MA , good point, thanks. However it means you can't sell your protected investment and buy something much cheaper during such an event. Like say you sold your NUSI and bought QYLD during the March crash. It's reasonable to have a NUSI position for just such an event.
Left Banker profile picture
@jack01 from MA
Excellent points.
I like call and put spreads for steady, reasonably safe income. No long positions required and only a modest amount of cash is needed. Never going to be blow-out gain, but averaging 1.5-2% a month is 18-24% a month, better income than any safe fund. Basically the same as the collar without the long position. Of course there will be dry spells. There is something to be said for a regular monthly check you can count on.

Any of these requires daily attention. Holding NUSI, QYLD, EOS, BST etc. requires little to no attention. But like everything else in life, letting someone else do it for you can be costly. Depends on your priorities.
@Fero. If you are thinking about trading for such a draw down event. I would do it with de-correlated funds, using CEF, ETFs and mReits. I built up my passive income positions, now mainly consisting of QYLD at an avg cost basis of $21.05, I would use CEFs and mReits, then use the dividends to buy CEFs at discount or buy QYLD if it was below $21.5.

Alternatively, you can use the long option position, meaning buy puts as a way to hedge for a drawdown. Some including myself use the VIX as a volatility indicator. Profits made from the puts can be used to buy stocks at a discount.
pwise934 profile picture
Thanks LB....Great article.
I've had NUSI in my portfolio for quite some time. It is
one of my largest holdings along with QYLD and IEP.
I am very pleased with this fund. Adding more today!
@pwise934 , DNP is on sale today as well.
As a relative new retiree and new to CEF's I'm enjoying and learning a lot from this series. Thanks for the work you are putting in . One suggestion would be a table in each article or a link to a table with the CEF, the result (Yay, Nay, to expensive) and possible a discount to NAV (I think that's the correct metric to use) that you would be a buyer (for the portfolio in question) for Yay or to expensive.
Interesting ETF. I think I will wait until there is a bit more history before I pull the trigger. A 19% return last year looks pretty enticing until you consider what QQQ did last year.
Merrill Edge has this as a restricted ,non tradeable security , need to sign special letter / asset level to get permission , due to its newness ??
Left Banker profile picture

Probably because it uses an option strategy.
@hingroyield I own NUSI in IRAs since after the Covid plunge. I reinvest the dividends every month. Yesterday I decided to add and Fidelity also made me sign the special letter basically saying I was a sophisticated investor with a certain asset level and aware of the risks.
Left Banker profile picture
Yeah. Lots of brokers do that if you anything to do with options or leverage. Classic CYA. Enough truly unsophisticated investors out there that I think it's a wise move on their part.
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