Investors facing retirement seek income and downside protection

Garrett Paolella, Harvest

Times they are a changing as fear of inflation and nerves around the all-time equity market highs are driving investors to seek a little protection from potential volatility ahead. Garrett Paolella (pictured) of the US’s Harvest Volatility Management, which sub-advises the Nationwide Risk-Managed Income ETF, NUSI, explains that the ETF has seen USD87 million in inflows year to date on the back of just such concerns.  

This is an actively managed ETF that launched in December 2019 and which has gathered close to USD250 million in assets. Its investment focus includes owning the equities that make up the Nasdaq 100, combined with an options collar that’s designed to generate current income and provide downside protection.  

Paolella explains that two things lie behind the product’s current growth. “One is that ever-increasing need for income and clients trying to find the best ways to source additional yield in their portfolio without taking on extra risks.”  

The ETF is an income play first and foremost, he says. “But with markets at all-time highs and significant outperformance relative to value, people want long-term growth exposure but also want to limit possible drawdown risks in the market.”  

Paolella has been in the ETF industry for some years, having initially launched a covered call NASDAQ ETF called QYLD in 2013 which is now under the Global X brand. He ran the US business for Horizons ETFs (US) which was eventually merged into Global X after Mirae Asset Financial Group’s acquisition.  

Paolella had known the founders of Harvest for some time, who were largely focused on separately managed accounts, and became their COO. Later on the firm connected with Nationwide and saw an opportunity to get back into ETFs.  

“Clients had been asking for a product that had less equity risk and was more defensive and conservative for the income investor,” he says. “It’s been steady since launch with USD20 million in the first month.  

“The core buyers are financial advisers and planners looking to complement the income allocations in their portfolios with less risk than overweighting bonds or taking additional credit and duration risk.”  

Paolella says that investors are looking for diversification but want to avoid the market and equity risk of REITs and MLPs.  

“NUSI’s underlying exposure of equities and the ownership of an out of the money option can reduce market risk,” he says. “It’s a great complement to an investors asset allocation to gain more income rather than just allocating to credit, especially with rates on the rise.”  

More ETFs are planned. “Our capabilities have always been about being a solutions provider. Our intentions have always been to expand the suite   working with advisers on their clients need and enabling investors to achieve retirement readiness.” 

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