Home etftrends.com NTKI Generates Better Small Cap Returns in Market Drawdown

NTKI Generates Better Small Cap Returns in Market Drawdown

Small caps face a challenging outlook with further economic slowing forecast in 2024. However, they’re an asset class that historically outperforms as economic recovery begins and remains a closely watched space by advisors and investors. The Nationwide Russell 2000® Risk-Managed Income ETF (NTKI) is worth consideration for second-half performance during a prolonged market drawdown.

August brought an end to first-half equity outperformance. Major indexes such as the S&P 500® Index and Nasdaq-100 declined beginning in August amidst much volatility. Small caps were the hardest hit as economic and labor market resilience, persistent inflation, and news of higher rates for longer rocked markets.

Small-cap companies often feel the squeeze of economic slowing first. With the U.S. forecast for further slowing in 2024, the Russell 2000® Index reflects the challenging outlook for next year. The Index tracks approximately 2,000 U.S. small-cap companies and fell 17.60% on a total return basis between August 1 and October 27, 2023.

In comparison, the Nationwide Russell 2000® Risk-Managed Income ETF (NTKI) dropped just 12.38%. It’s a fund worth consideration for those wanting exposure to small caps, given their historical performance when economic recovery begins.

Gain Small-Cap Exposure With Risk Mitigation in Market Drawdown

NTKI is an actively managed ETF seeking monthly income designed to track the constituents of the Russell 2000® Index by principally investing in the Vanguard Russell 2000 Index Fund ETF Shares (“VTWO”), an exchange-traded fund that employs an indexing investment approach that is designed to track the performance of the Russell 2000® Index.

Given the performance potential of small caps coming out of economic downturns, they remain a closely watched space. Investing in NTKI now may help alleviate the guesswork of trying to time the space while harnessing monthly income potential.

The Fund’s risk-managed strategy seeks to reduce volatility and generate monthly income. It also seeks to provide a measure of downside protection should markets slide precipitously. NTKI creates an opportunity for advisors to gain access to small caps while they trade at lower valuations through a risk-managed lens.

The ETF utilizes an options collar in seeking to generate monthly income. A collar strategy is a strategy that entails holding shares of the Vanguard Russell 2000® Index Fund ETF. At the same time, the Fund buys protective put options and writes 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 specific day for the life of the put. In contrast, 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, generate monthly income, and provide a measure of downside protection.

NTKI has an expense ratio of 0.68%.

For more news, information, and analysis, visit our Retirement Income Channel.

This article was prepared as part of Nationwide’s paid sponsorship of VettaFi.

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 underlying Index’s return.

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

Call 1-800-617-0004 to request a summary prospectus and/or a prospectus, or download prospectuses at etf.nationwidefinancial.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.

Click this link for the funds’ Standardized performance and 30-day SEC yield.

KEY RISKS: The Nationwide Nasdaq-100® Risk-Managed Income ETF, Nationwide S&P 500® Risk-Managed Income ETF, Nationwide Dow Jones® Risk-Managed Income ETF, and Nationwide Russell 2000® Risk-Managed Income ETF (collectively, the “Risk-Managed Income ETFs”) are 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. NTKI 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 and 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 its 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.

Distribution Yield: A distribution yield is the measurement of cash flow paid by an exchange-traded fund (ETF), real estate investment trust, or another type of income-paying vehicle. Rather than calculating the yield based on an aggregate of distributions, the most recent distribution is annualized and divided by the net asset value (NAV) of the security at the time of the payment.

30-Day Volatility Measure: Volatility is used as a measure of a security’s riskiness. Typically investors view a high volatility as high risk. 30-Day Rolling Volatility equals the Standard Deviation of the last 30 percentage changes in Total Return Price multiplied by the Square-root of 252

Price-Earnings Ratio (P/E Ratio) – The ratio of a company’s share price to the company’s earnings per share. The ratio is used for valuing companies and to find out whether they are overvalued or undervalued. 

Russell 2000® Index: An unmanaged index that measures the performance of the small-capitalization segment of the U.S. equity universe.

FTSE Russell (“Russell”) is the Index Provider for the Russell 2000® Index (“Russell 2000®” or the “Index”). Russell is not affiliated with the Fund, Nationwide Fund Advisors, the Distributor nor any of their respective affiliates. Nationwide Fund Advisors has entered into a license agreement with Russell to use the Russell 2000®.

The Nationwide Russell 2000® Risk-Managed Income ETF (“NTKI”) has been developed solely by Nationwide Fund Advisors. NTKI is not in any way connected to nor sponsored, endorsed, sold or promoted by the London Stock Exchange Group plc and its group undertakings (collectively, the “LSE Group”). FTSE Russell is a trading name of certain of the LSE Group companies. All rights in the Russell 2000® vest in the relevant LSE Group company which owns the Index. “Russell®” is a trademark of the relevant LSE Group company and is used by any other LSE Group company under license. The Index is calculated by or on behalf of FTSE International Limited or its affiliate, agent or partner. The LSE Group does not accept any liability whatsoever to any person arising out of (a) the use of reliance on or any error in the Index or (b) investment in or operation of NTKI. The LSE Group makes no claim, prediction, warranty nor representation either as to the results to be obtained from NTKI or the suitability of the Index for the purpose to which it is being put by Nationwide Fund Advisors.

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.

Market index performance is provided by a third-party source Nationwide Funds Advisors deem to be reliable (Morningstar and U.S. Bank). Indexes are unmanaged and have been provided for comparison purposes only. No fees or expenses have been reflected. Individuals cannot invest directly in an 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. Representatives of the Nationwide
ETF Sales Desk are registered with Nationwide Investment Services Corporation, member FINRA, Columbus, Ohio.

Nationwide, the Nationwide N and Eagle, and Nationwide is on your side are service marks of Nationwide Mutual Insurance Company. © 2023 Nationwide.

MFM-5336A0, NFA-453710-2023-11-07

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