Looking at NUGO’s performance and risks
Still, for growth-oriented investors who pay relatively less attention to quarterly dividends, two key factors remain performance and risks. For this purpose, I analyzed the three-month performance of SPY and NUGO and found that the latter lived up to “growth” wording in its name by delivering better performance, at 7.76% compared to 7.38% for the SPDR ETF. Now, some may affirm that this 0.38% underperformance is not much given SPY’s much lower fees.
However, as seen by NUGO’s chart in orange below, it delivered intermediary performances of up to 11%-12% on two occasions in November whereas SPY was mostly stuck around the 7% mark. More importantly, this performance has been delivered at a lower degree of volatility with the orange chart not descending below SPY’s green chart during abrupt market fluctuations as was the case in mid-November and the beginning of December.
This is explained by the fact that NUGO charges higher fees and seeks long-term capital appreciation through a concentrated growth portfolio primarily investing in U.S. stocks with market capitalizations of at least $1 billion. The investment team also looks for metrics like attractive earnings growth, strong relative valuation, attractive cash flows, and significant long-term returns.
Furthermore, unlike traditional ETFs NUGO makes use of a “proxy portfolio”, instead of publishing its portfolio holdings on a daily basis. Instead, it discloses the daily holdings of a portfolio transparency substitute (which the fund managers refer to as the “Proxy Portfolio”). This is designed to reflect the economic exposure and risk characteristics of the actual portfolio on any given trading day, allows for the efficient trading of Fund shares, and shields the identity of the Fund’s full daily portfolio holdings.
Looking ahead, the volatility grappling the market is likely to continue in the first quarter of 2022 due to inflationary pressures becoming more evident. To this end, one of NUGO’s constituents, payment processor MasterCard (MA) has taken a hit recently on concerns of rising COVID cases causing a dent in travel and related services. This is due to people tending to swipe their cards more often when changing destinations, thus generating transaction income for MasterCard. Now, the fact that many flights have been canceled on both sides of the Atlantic as Omicron spreads rapidly means less transaction revenue.
Still, I see the exposure to semiconductor names like NVIDIA (NVDA) to be a huge positive for NUGO due to the usage of chips in everything from datacenters, solar panels, electric vehicles, 5G, and crypto mining activities. Along the same lines, that 12% exposure to Microsoft (MSFT), on which most Wall Street analysts are very bullish and forecasting a 10% upside is another positive for the Nuveen ETF which should make it to the $29-30 level by the third quarter of 2022 as inflation fears subside gradually. Finally, I am also bullish because of the massive reallocation of assets being directed towards NUGO from Nuveen’s parent company I evoked earlier.