Jonathan Molchan, Managing Director & Portfolio Manager, Harvest Volatility Management (subadvisor to Nationwide ETFs)
ETF.com: What's your investment philosophy?
Molchan: I come from a quantitative background, with a key focus on risk management. It’s all about quantifying the risk being taken to hopefully secure a positive outcome. The way I look at things is, the market doesn’t always go up, but if you can protect on the way down, you can even out your return distribution over time while participating in markets, meeting key objectives and—most importantly today—being able to sleep at night.
ETF.com: What's unique about your value proposition?
Molchan: Our product was born over the course of years of conversations with advisors and platforms. In this space, some ETFs offer high income and no downside protection; others offer a buffer or a market hedge in times of turmoil, but little to no income. We are combining both of those worlds.
You can generate high dividends, but also have full downside protection, and you’re not incurring cost of carry for that downside protection thanks to an options strategy that combines covered calls and protective puts.
We sell near- to out-of-the-money call options for options premium, and a portion of that is used to purchase out-of-the-money downside puts to protect the portfolio. It all resets monthly to make sure the downside protection is relevant.
ETF.com: How do you start your day?
Molchan: Coming from a quant background, data is key. Reading the news, understanding the latest economic indicators, any shifts in indices, as well as looking at which trends are strengthening and weakening, and how it all comes down to the market price action and volatility—these are the key indicators and inputs I look at every day to manage an options-based strategy. These signals allow me to best navigate market environment.
Quick description of the ETF:
Nationwide Risk-Managed Income ETF (NUSI) – $110 million in AUM, 0.68% ER. NUSI is a full replication of the Nasdaq-100, but with an options overlay, which is the active part, since it can be closed depending on the market environment. In a market that’s flat, NUSI can close out the call options and lock in premium, avoiding the risks linked to a market rise.
In a low-yield world, NUSI is a bond enhancement vehicle from an income perspective. If you’re an equity investor, NUSI also offers you equity exposure with less volatility in the downside. It’s a hybrid ETF that can complement any investor’s asset allocation model.
The ETF is rules-based active, taking out the fear of falling markets, but also taking out the exuberance of rising markets, focusing on the key objectives of income generation and equity participation.
Contact Cinthia Murphy at [email protected]