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NUSI ETF Review - Is NUSI a Good Investment? (Option Collar ETF) - YouTube
Channel: Optimized Portfolio
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in USI is an option collar strategy ETF
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for the NASDAQ 100 index designed to
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manage risk and generate income I review
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it here Nationwide makes ETFs this one
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is called the Nationwide risk managed
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income ETF in USI or nusi is an option
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caller strategy on the NASDAQ 100 index
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which is comprised of the 100 largest
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non-financial stocks that trade on the
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NASDAQ exchange this fund launched in
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2019 and has over 500 million dollars in
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assets it has an expense ratio of 0.68
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percent as a brief refresher covered
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call Riders own the underlying and
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collector premium on the option and the
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buyer of the call option has the right
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to buy the underlying at the strike
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price at or before expiration for
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example if I own a fund like QQQ for the
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NASDAQ 100 and I think it's going to be
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relatively flat for the next 30 days or
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so I might sell a call option on it for
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which I receive cash immediately called
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the premium the buyer of that call
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option is hoping QQQ goes up as the
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seller I'm hoping it stays flat call
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options are usually sold to generate
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income in a flat or mild bear Market an
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investor buys put options as a direct
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insurance policy to protect against a
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crash of the underlying in the near
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future in this same example if I'm
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bullish on QQQ for the long term but I
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think it's going to experience a crash
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in the next 30 days or so I might buy a
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put option in this case called a
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protective put to protect the downside
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in the short term if QQQ goes down the
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value of that put option goes up it also
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gives me the right to sell my shares at
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the strike price at which I bought the
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option which may be attractive if the
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share price Falls below that level doing
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both of these at the same time is known
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as a collar or protective collar this is
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what nusi does it's generating immediate
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income from the premium received for the
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covered call option and using some of
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that to fund the purchase of the
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protective put option all while holding
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the underlying NASDAQ 100 index the rest
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of the premium is passed on onto the
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investor as a distribution in a nutshell
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we're intentionally capping the upside
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potential to provide downside protection
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thus theoretically keeping things a lot
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smoother I.E lower volatility than the
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underlying index in order to pay income
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Nationwide also launched in SPI for the
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S P 500 ndji for the Dow and ntki for
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the Russell 2000 in December 2021. to
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talk about nusi let's first briefly talk
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about the odor qyld from Global X I
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covered this fund pun intended in a
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separate video here I raked qild over
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the Kohl's for looking pretty awful from
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every angle in my humble opinion qild or
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Q yield is just covered calls on the
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NASDAQ 100 new C takes qyld's covered
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call strategy and adds the purchase of a
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protective put because of this Nucci's
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distribution yield is roughly half that
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of qyld bad news if you're purely
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chasing yield but probably good news if
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you need that income to be stable I
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noted with qyld that novice investors
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seemed to be buying it while erroneously
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thinking it is safe or that it protects
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the downside neither of those things is
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true at least here nusi offers a direct
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hedge against a crash in the form of the
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protective put option its put options
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are out of the money meaning the strike
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price is lower than the share price of
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the underlying nusi has beaten qyld in
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its short life span thus far but both
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have also severely underperformed the
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underlying index even on a risk-adjusted
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basis which will be the best choice for
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the future it's impossible to say given
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the choice between the two I'd take in
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USI for its direct downside protection
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which proved particularly helpful in
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March 2020 instead of wearing Rose
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tinted glasses and buying qyld just for
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its astronomical likely unsustainable
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yield someone on Reddit mentioned
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holding both of these funds that doesn't
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make too much sense to me so is nusi a
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good investment maybe even though nusi
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is all about the options in the the
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income remember we still own the NASDAQ
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100 at the end of the day we'd expect to
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get a higher option premium from this
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more volatile index compared to say the
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S P 500 but it is still poorly
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Diversified and is basically a tech
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index at this point it is purely large
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cap growth stocks investors have been
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chasing recent performance by flocking
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to NASDAQ 100 funds like QQQ and qqqm
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simply because the index has beaten the
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market over the past decade thanks
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largely to Big Tech this recent Stellar
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performance should be irrelevant to
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nusi's future income strategy moreover
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the U.S stock market as a whole is
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already over a quarter Tech at market
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cap weights and large cap growth stocks
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are looking extremely expensive relative
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to history furthermore while the
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valuation spread between value and
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growth has been narrowing over the past
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couple years it is still huge because of
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all this we've got concentration risk
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and lower future expected returns with
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large cap growth stocks only time will
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tell and I neither employ nor can Dome
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Market timing but now may actually be
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the worst time to by growth and the best
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time to buy value large value spreads
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have historically preceded its Market
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outperformance my time machine is broken
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but I'd argue that's a good reason not
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to be concentrated in the NASDAQ 100
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Index right now zooming out even further
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it's probably a good idea to diversify
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geographically as well with
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International stocks just like with qyld
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we have to acknowledge the fact that you
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still may very well come out ahead using
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a plain old 60 40 portfolio which has
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beaten noosi on every metric since its
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Inception volatility drawdown and
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general and risk adjusted returns as
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usual it all comes down to your
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financial objective again if you're
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concerned about steady income these risk
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metrics like volatility and drawdown
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should be more important to you than
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absolute returns this fund is called the
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risk managed income ETF those are
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exactly the two things it does those two
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things are its entire purpose but more
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importantly do you really need that
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income every month if so is there really
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that much more logistical headache in
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selling shares as needed versus using
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the funds distribution for that income
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I'd say probably not but I'm also not a
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yield Chaser if you think there is I
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also designed a dividend portfolio for
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income investors here that may appeal to
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you if you plan on reinvesting Newsies
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distributions and not using them for
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your regular expenses you should
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probably avoid this fund this case is
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exacerbated for noosi in a taxable
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account because you're taxed on every
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taxable distribution even if you
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reinvest them I'm a fan of Simply
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selling shares as needed for any income
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necessary which should be mathematically
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preferable anyway if you don't actually
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need that income on a monthly basis as
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it allows you to leave more money in the
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market longer remember too that covered
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calls cap the upside at the strike price
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they're not a free lunch if the
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underlying rallies you don't get to
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fully participate in that growth a young
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long-term investor is investing in the
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market because he or she expects it to
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go up more than it goes down in USI is
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basically a muted version of the
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underlying if QQQ skyrockets newsy will
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rise but not as much if QQQ crashes new
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C will fall but not as much in a flat
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Market nusi's lower premium may not be
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able to cover its intended yield the
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fund may even pay more for the put
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options than it receives for the call
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options don't forget the funds yield can
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change it may prove unsustainable just
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like I suspect qylds is a long-term
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gradual bear Market would also be bad
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for this fund so nusi provides downside
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protection from put options great but
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there's a simpler cheaper more tax
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efficient solution for volatility and
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risk reduction that existed long before
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these options strategy funds came about
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add bonds the main Pro for noosi is that
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it doesn't rely on a favorable interest
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rate environment the last 40 years or so
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since 1982 have been very kind to bonds
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the future may not look the same I think
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bonds will remain a useful diversifier
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but at the time of this video we're
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looking at historically low bond yields
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and low expect returns for the asset
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class going forward and this is
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precisely what makes nusi much more
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attractive right now we're also seeing
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some above average inflation maybe the
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classic 60 40 won't beat nusi in the
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future only time will tell but remember
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that Ultra short bonds called t-bills
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and known as a cash equivalent and
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literally the risk-free asset are still
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a decent inflation hedge because they
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can be rolled so quickly so we can do
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what nusi is trying to do with 50 NASDAQ
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100 via qqqm and 50 cash or t-bills
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here's how that has worked out since
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newsy's Inception once again we've
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easily beaten the complex expensive
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option fund with a cheaper simpler more
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tax efficient solution notice the lower
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volatility smaller drawdown and much
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higher General and risk-adjusted returns
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of the 50 50 mix I've created that pie
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for M1 finance that I'll provide in the
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description if you're interested if you
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need regular monthly income for expenses
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hate diversification hate bonds and like
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concentration risk you'll probably enjoy
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nusi but if if you're young with a long
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time Horizon and a high risk tolerance
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if you don't need regular income for
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expenses and or if you plan to just
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reinvest nuc's monthly distributions
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this fund is almost certainly not a
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great choice I fear that too many young
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inexperienced investors are not looking
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much further past the high monthly
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distribution yield before diving into
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these expensive exotic option strategy
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funds that they likely don't even
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understand but if income is the concern
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then again a more Diversified
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combination of dividend stocks and
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high-yield bonds may be just as suitable
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and would be cheaper I think income is
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overrated anyway I'd be more likely to
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go with something like Swan or SPD and
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just set up an automatic monthly
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transfer from the brokerage account that
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sells shares for me there's my income
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but once again in the interest of full
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disclosure I'm not a dividend investor
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anyway and I'd rather just sell shares
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as needed so these types of yield
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focused strategies don't really appeal
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to me regardless I'd rather create my
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own own dividend when I want to that
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said I definitely take newsie over qyld
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but you can do the same thing and what I
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think is a superior way with 50 in the
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NASDAQ 150 in t bills if you're
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indecisive the good news is you don't
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have to go all in on either path you
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could use the classic 60 40 or the 50 50
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mix here for half of the portfolio and
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nusi for the other half which is
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probably a better strategy than going
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100 new C anyway remember that there's
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no free lunch outside of diversification
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if you are reducing risk with expensive
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option hedging strategies you are also
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accepting lower expected returns and
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that may be a perfectly sensible
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trade-off for you what do you think of
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in USI let me know in the comments
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thanks for watching some of the links
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