Home ETF News As Stocks Decline, Consider This Risk-Managed ETF

As Stocks Decline, Consider This Risk-Managed ETF

by Karrie Gordon
As Stocks Decline, Consider This Risk-Managed ETF

Inflation appears to be more broadly entrenched than previously thought, and rising interest rates, domestic inflation fears, an aggressively tightening Fed, and global inflation fears have created an environment of prolonged investor uncertainty, with U.S. markets officially ending their third consecutive quarter on the decline.

Core CPI, the measure of inflation without the more volatile influence of food and energy, rose in August by 0.6%. The CPI is one of the primary data points upon which  the Fed bases its monetary policy; it has risen every single month this year. The personal consumption expenditures price index was also up in August, with core PCE (minus food and energy) up 0.6% as well. Core PCE is the primary gauge the Fed relies on to place the directionality of prices for consumers.

All measures of inflation for August beat analyst expectations to the upside, and there are strong indicators that it is broadening across the economy. The Fed remains steadfast in its commitment to driving down inflation and curtailing the labor market, even at the cost of the economy.

“Monetary policy will need to be restrictive for some time to have confidence that inflation is moving back to target,” cautioned Fed Vice Chair Lael Brainard in a speech after the release of August’s PCE. “Inflation is very high in the United States and abroad, and the risk of additional inflationary shocks cannot be ruled out.”

The S&P 500® Index has had a difficult first three quarters this year and the worst first nine months in a calendar year since 2002. The third quarter began with a rally in June, but aggressive Fed action and talk alongside consistent price pressures eventually led to market declines to close out the quarter at its lowest since 2020.

A strategy for advisors looking for investment opportunities within equities for their clients is the Nationwide S&P 500® Risk-Managed Income ETF (NSPI), which seeks current income with a measure of downside protection.

NSPI is an actively managed ETF 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 consists of approximately 500 leading U.S.-listed companies representing about 80% of the U.S. equity market capitalization.

NSPI currently has a distribution yield of 7.01% as of June 30, 2022, offering investors income within equities during a challenging time for the economy and markets. (Click this link for the fact sheet with standardized performance and 30-day SEC yield.)

The fund also utilizes an options collar in seeking to generate monthly income. A collar strategy is a strategy that entails holding shares of underlying security while simultaneously buying protective put options as well as 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 particular day, while a call option gives its owner the right but not the obligation to buy the asset instead.

The options collar is intended to reduce the fund’s volatility and provide a measure of downside protection while also providing the opportunity for the underlying holdings to participate in any upward price action that happens as markets rise.

NSPI carries an expense ratio of 0.68%.

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

Call 1-800-617-0004 to request a summary prospectus and/or a prospectus. You may also download the prospectus at the link above or by visiting etf.nationwide.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: Nationwide S&P 500® Risk-Managed Income ETF is 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 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 their 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 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 the Fund’s value and total return. Although the Fund intends to invest in a variety of securities and instruments, the Fund will be considered non-diversified. Additional Fund risk includes: Collared options strategy risk, correlation risk, derivatives risk, foreign investment risk, and industry concentration risk.

S&P 500® Index: An unmanaged, market capitalization-weighted index of 500 stocks of leading large-cap U.S. companies in leading industries; gives a broad look at the U.S. equities market and those companies’ stock price performance.

The S&P 500® index is a product of S&P Dow Jones Indices LLC or its affiliates (“SPDJI”), and has been licensed for use by Nationwide Fund Advisors. Standard & Poor’s®, S&P®, and S&P 500® are registered trademarks of Standard & Poor’s Financial Services LLC (“S&P”); Dow Jones® is a registered trademark of Dow Jones Trademark Holdings LLC (“Dow Jones”); and these trademarks have been licensed for use by SPDJI and sublicensed for certain purposes by Nationwide Fund Advisors. The Nationwide S&P 500® Risk-Managed Income ETF (“NSPI”) is not sponsored, endorsed, sold or promoted by SPDJI, Dow Jones, S&P, or their respective affiliates, and none of such parties make any representation regarding the advisability of investing in such product(s) nor do they have any liability for any errors, omissions, or interruptions of the S&P 500® Index.

Nationwide Fund Advisors (NFA) is the registered investment advisor to Nationwide ETFs, which are distributed by Quasar Distributors LLC. NFA is not affiliated with any distributor, subadviser, or index provider contracted by NFA for the Nationwide ETFs.

Nationwide, the Nationwide N and Eagle and Nationwide is on your side are service marks of Nationwide Mutual Insurance Company. ©2022 Nationwide.

Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.

MFM-4880AO; Q-20221005-0484



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