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NUSI- Dress Up Dividends With Collars

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  • Interest rates are near Zero, income investors and retirees an must seek alternative opportunities to grow cash.
  • NUSI is an actively managed ETF employing an options strategy called collars to generate income.
  • The ETF is new and it held up relatively well during the 2020 crash as a pointer to managements capability to manage risk under volatile market conditons.
  • NUSI is currently yielding 7.5%, with fees <1% presenting an interesting option to generate income.

We are currently watching NUSI (NationWide Risk Managed Income ETF). This is a relatively new player employing an interesting options strategy to generate income. NUSI is an actively managed ETF with an acceptable .68% fee.NUSI invests in a portfolio of the stocks included in the Nasdaq-100® and an options collar. A Collar is a mix of written (sold) call options and long (bought) put options) on the Nasdaq-100.

NUSI generates high current income on a monthly basis from a combination of the dividends received from the equity holdings and the premiums earned from the options collar which are structured such that the premium received from the sale of the call options is more than the cost of buying the put options. This strategy is designed to reduce volatility and provide downside protection.

Writing and buying options are highly speculative activities. The Fund’s use of call and put options can lead to losses because of adverse movements in the price of the underlying securities. It did surprise us that NUSI performed relatively well during the 2020 market meltdown limiting losses to sub 10%. As expected the strategy also limited upside in the extraordinary recovery that followed as we can see from this 3 year chart.

Data by YCharts

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NUSI payouts are not considered as dividends. The distribution is almost entirely a return of capital, i.e. giving your money back to you. This is excellent for holding in taxable accounts as the income received will not be taxed.

Overall we think given the strong performance during the Covid Crash, modest expense ratios and high income distributions currently around 8% this fund deserves a closer look for yield hungry investors. What do you think

Analyst's Disclosure: I/we have no stock, option or similar derivative position in any of the companies mentioned, and no plans to initiate any such positions within the next 72 hours.

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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