On this episode of the “ETF of the Week” podcast, VettaFi’s Head of Research Todd Rosenbluth discussed the Neuberger Berman Option Strategy ETF (NBOS A-) with Chuck Jaffe of Money Life. The pair discussed several topics related to the fund to give investors a deeper understanding of the ETF overall.Chuck Jaffe: One fund, on point for today. The expert to talk about it. Yes, this is the ETF of the Week, where we get the latest take from Todd Rosenbluth, head of research at VettaFi. And if you go to VettaFi.com, you’ll find all the tools you need to be a savvier, smarter ETF investor.
Plus, get more details on the new newsworthy trending and timely ETFs that we talk about here. Todd Rosenbluth, It’s great to chat with you again.
Todd Rosenbluth: It’s great to be back, Chuck.
Chuck Jaffe: Your ETF of the Week is…
Todd Rosenbluth: The Neuberger Berman Option Strategy ETF. NBOS.
Chuck Jaffe: The Neuberger Berman Option Strategy ETF. Ticker NBOS. Now, this is a fairly new fund. Opened early this year. And it’s funny, because so often we’re talking about what’s in a name. And there are so many key words in a fund’s name. But this one — it’s minimal. Neuberger Berman option strategy. And yet, there’s a lot of different options strategies and a lot of new ones that have been coming to market, which we’re going to talk about here.
But why this fund right now?
Todd Rosenbluth: So, you’re right, this fund converted into an ETF in the beginning of this year. But it actually has a quite long track record. And this is an alternative strategy. They sell put options, and they invest in very short-term fixed income instruments. So, we think many advisors, many investors are looking to move beyond cash and rotate in and to take on a little bit more risk to get a little bit more reward.
They’ve looked at stocks. They’ve looked at bonds. We think an alternative strategy like NBOS can help to serve some of that purpose by moving out of cash, earning a little bit of income, and getting some exposure to the equity markets.
Chuck Jaffe: Because if you’re using an option strategy, you own the securities. At least in this particular strategy as I understand it, they’re selling put options. You own the securities and you sell options against them. Options then make extra income, which increases the profit potential and provides a steadier stream of income.
But does this fit into the equity side of your portfolio because they own the securities? Or is it on the income side of your portfolio? Because even with an alternative, you want to know where something fits from an asset allocation perspective.
Todd Rosenbluth: I think this fits into the income portion of a portfolio. And, the first few months of the year, it’s actually performed well. It’s up over 8%. As of the first I think eight months with the fact sheet that I’m looking at right now.
Obviously, we’re now through the third quarter, and we have more up-to-date information. This fund has a distribution yield of over 8%. You’re getting income. And you’re getting income through the put options. You’re getting income through the short-term fixed income instruments. But instead of in cash, where we’ve seen since the Fed cut interest rates, the yields have come down.
We’re finding more investors are looking for an alternative.
Chuck Jaffe: In terms of where you qualify then, as income. Is this replacing your corporate bond funds? Is this going where the junk would, because the yield is so high? How do you fit this into that fixed income portion?
Todd Rosenbluth: I think of this as a cash alternative. Now of course, it’s not going to be stable and flat the way that cash is.
And it benefits as-is market volatility. More market volatility entices people to take on more equity risk. And selling the puts is a way of getting rewarded. It’s a way of offering essentially insurance for many folks being the insurance issuer. If the stock market declines, you get to benefit as well. Obviously, from that, we think this is more like a cash alternative replacement. Or for some folks that have been hiding out in short-term Treasuries, you can use some of your money for short-term Treasuries.
So you still have some of that, but also the options connected with this Neuberger team. And I just want to highlight: This is a new fund but a very experienced team. There’s a five-plus-year track record on this fund. This was a Morningstar-rated mutual fund that’s now an ETF. So there’s a lot of history to tap into.
Chuck Jaffe: There’s also been a lot of pushback in the fund industry, and the financial advisor community, about options strategies. Because Wall Street, over the last few years, has convinced investors to put billions of dollars into funds that use options to goose yields.
That has brought out the critics. I guess the most notable of these critics was Bank of America. Back at the start of May, it came said that products like this sometimes fare worse than simpler alternatives. Now, they weren’t talking about any specific fund, and certainly not the one you made ETF of the Week. But they were saying you could make a vanilla bet about dividend-focused ETFs. And that will serve you as well or better as some of these options strategies.
Given that level of criticism out there, if someone greeted your pick this week, again, Neuberger Berman Option Strategy, with a little skepticism, would you tell them, “OK, follow your skepticism. This is one of the ones you don’t buy,” would you say, “Watch this and compare this?” Or would you counter the research that says you’re making the portfolio complex without necessarily being rewarded for taking on extra complexity?
Todd Rosenbluth: So, there are a lot of options-based strategies out there. There are some that give you long equity exposure and then use the option as a downside protection for partial protection. And there are some that actually protect the whole downside. There are some that are offering you call options to generate additional income. There are a lot of different options-based strategies.
And if we lump these into the alternatives bucket, which is, actually, I think the way that Morningstar classifies this fund, it gets even more complicated. You really need to look inside the fund. You need to look at the track record. Thankfully, there’s a long track record to go off of. You need to look at the research the firm has put out to support it. And of course, use some skepticism.
But there’s real-world information. This is not a theoretical on how this strategy has performed in up, down, and flat markets. And do your homework. We’re suggesting this is an ETF to take a closer look at and see how it can fit into your broader portfolio. NBOS is a new strategy for many ETF investors, but has a long history.
We think folks should take a closer look.
Chuck Jaffe: It’s interesting, because, of course, when you start talking about all the different types of options, strategies, and everything that’s out there, we start talking options and the audience, they kind of glaze over.
“This is what makes you confused. Don’t you get it? This is confusing you right now, isn’t it?”
So you wind up with that level of potential confusion. For an investor who digs in, and again, you’re looking at funds. The strategy on this one not only has a track record, but if we wanted to spend a few minutes and get into jargon, it’s actually a pretty easily understandable fund. But is this one of those cases that if you dig in on this or any option strategy and you can’t explain it back to your spouse, your kid, your mom, that’s a sign that you don’t really need this? That it might round out your portfolio, but it’s not a necessary thing?
Todd Rosenbluth: I mean, we’re not obviously going to get in the weeds on this for the sake of a video. And I don’t have visuals to support me on this. But if you can’t fully appreciate what it is you’re investing in and you can’t communicate the benefits that it provides to your portfolio, it doesn’t make sense.
We think NBOS, because it’s selling put options on the broader stock market, invests in short-term fixed income instruments and it’s offering an 8% yield with very low volatility, can fit into a broadly diversified portfolio as a cash alternative. But you have to appreciate that yourself, and determine how, when, and where it can fit into your portfolio.
Chuck Jaffe: So yes, there’s a lot to like about NBOS, the Neuberger Berman Option Strategy ETF. But at the same time, “Buyer beware!” Understand what you’re getting into, because options ETFs… Well, like I said, they’ve got their fans. Obviously, Todd Rosenbluth is one, but they’ve got their critics too. Todd, really interesting pick. Thanks as always for joining me.
Todd Rosenbluth: I’ll see you next time. Chuck.
Chuck Jaffe: The ETF of the Week is a joint production of VettaFi and Money Life with Chuck Jaffe. And yes, that’s me. And you can learn all about my hour-long weekday podcast by going to MoneyLifeShow.com. Or you can search for it wherever you find your favorite podcasts. And if you’re searching for more information on your favorite exchange traded funds, look no further than VettaFi.com. They’ve got all the tools you need to make yourself a better investor.
They’re on X at @Vetta_Fi. and Todd Rosenbluth, their head of research, my guest here on ETF of the Week, is there too, at @ToddRosenbluth. The ETF of the Week is here for you every Thursday. Make sure you don’t miss an episode by following along on your favorite podcast app. We’ll introduce you to another great ETF next week.
Until then, happy investing, everybody!
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