{"id":98656,"date":"2025-08-27T03:01:10","date_gmt":"2025-08-27T03:01:10","guid":{"rendered":"https:\/\/www.newsbeep.com\/au\/98656\/"},"modified":"2025-08-27T03:01:10","modified_gmt":"2025-08-27T03:01:10","slug":"nicholas-wealth-plays-it-safe-with-a-twist","status":"publish","type":"post","link":"https:\/\/www.newsbeep.com\/au\/98656\/","title":{"rendered":"Nicholas Wealth Plays It Safe, with a Twist"},"content":{"rendered":"

While Nicholas Wealth Management has been on the leading edge in its use of ETFs\u2014it has launched several of its own funds<\/a> since 2021\u2014the firm\u2019s core clientele tends to be on the risk-averse side of the spectrum. The Atlanta-based firm, with $254 million in pure RIA AUM (it has another $421 million in AUM through its ETFs, securities and annuity holdings), serves primarily Fortune 500 employees in or nearing retirement. For them, current income is a far more important goal than future outsized returns, according to David Nicholas, founder and president of Nicholas Wealth Management.<\/p>\n

Still, Nicholas prefers to deliver that higher yield when it\u2019s possible. WealthManagement.com recently spoke with him about the strategies the firm uses to do so.<\/p>\n

This Q&A has been edited for length, style and clarity.<\/p>\n

WM: Can you describe your average client?<\/p>\n

DN: We have a niche in the retirement market. We are generally working with clients who are 55 years old on the younger end and into their 70s. So many Americans have 401Ks. We are in Atlanta, so we have a lot of big Fortune 500 companies, like Coca-Cola, Home Depot, and private companies like Chick-fil-A that are still very large. [Our clients] may have been investing in their 401K for all their working career, and now they have to make these big decisions on retirement\u2014”Who do I work with? How do I manage it?\u201d That\u2019s where we provide value. I would say our average [client net worth] is somewhere between $800,000 investable to $5 million.<\/p>\n

Related:11 Investment Must Reads for This Week (Aug. 26, 2025)<\/a><\/p>\n

WM: What\u2019s your overall investment philosophy?<\/p>\n

DN: Given the nature of who our clients are, this is not a 25-year-old who has high risk tolerance and 30 to 40 years before they\u2019ll need the money. Our clients are at a point where they are either about to retire or in retirement. Income is a primary goal of theirs. So, we generally start at a 60\/40 benchmark, and over- or underweight that for our clients. It\u2019s 60% fixed income\/40% growth equities. Depending on needs, goals and risk tolerance, we\u2019ll treat that, but our typical client is going to have somewhere around 40% to 60% fixed income, 40% to 60% equities.<\/p>\n

WM: If you can break down your model portfolio on a more granular level? What\u2019s in it right now?<\/p>\n

DN: On our equity piece of the portfolio, we really try to keep it simple. We have publicly-traded ETFs that are separate, but our SMA business, the largest allocations go to two strategies\u2014Nicholas Large Cap Strategy and Nicholas Dividend Growth Strategy.<\/p>\n

In our Nicholas Large Cap Strategy, we take 50 of what we feel are the best stocks out of the S&P 500, and we over- or underweight based on the 11 sectors. Every quarter, we are going to rebalance based on those sectors. S&P is up 9.5% year-to-date; our Nicholas Large Cap Strategy is up 21% year-to-date. Over the last year, S&P is up 15%; our Large Cap Strategy is up 33%. There are 500 companies in the S&P 500, but a lot of the returns are driven by the top 10% of those names, which is why we try to find that top 10% and overweight there.<\/p>\n

Related:Zephyr’s Adjusted for Risk: Return to Normal – Understanding Bonds in Today’s Market<\/a><\/p>\n

Sector-wise, we are underweight in IT, technology. We are overweight in financials, consumer staples, materials. And we really underweight a lot of other areas\u2014consumer discretionary, communication services, industrials, healthcare, utilities, energy, real estate. Some of this is interest rate-driven. Some of this we may be slightly underweighted. For example, IT\u2014there\u2019s a 35% weight in the S&P 500. We have a 33% weighting in the Nicholas Large Cap. We still have a healthy weighting; it\u2019s just that we are slightly underweighting. For financials, the S&P has a 13% weighting; we\u2019ve got a 21% weighting. In terms of the names, we have some private equity like Ares, but we have Bank of America, we have some of the insurers, like Chubb. We have Goldman, Robinhood, JP Morgan, Morgan Stanley, SoFi, Visa and XYZ.<\/p>\n

Related:Zephyr’s Adjusted for Risk: From Cash to Fixed Income – Strategies for Financial Advisors<\/a><\/p>\n

Consumer staples is overweight. We\u2019ve added Celsius Holdings recently, we\u2019ve got Costco, we\u2019ve added Dollar Tree to the portfolio. Some of [what\u2019s driving that] is the slowing employment, we see job revisions coming down. We have Coca-Cola and Walmart.<\/p>\n

All of the other sectors, we are underweighting anywhere between 0.2% to 3.0%. The highest underweight that we have is in healthcare at 3.12%. If we were going to change somewhere, it would probably be healthcare going into the fall, where we probably will overweight a little bit.<\/p>\n

WM: Can you give us more details on the Nicholas Dividend Growth Strategy?<\/p>\n

DN: Our Nicholas Dividend Growth is really driven by yield, but we also do something a little bit unique in our dividend growth strategies. We own equities that are paying dividends, like British American Tobacco. It\u2019s a very stable cigarette tobacco company with a 5% yield. We own Lincoln National, an insurance company that\u2019s got a 4.5% yield. Global Ship Lease has a 7% yield. So, we typically are going to own 20 to 30 names of dividend growers that are paying quality, steady dividends.<\/p>\n

But there\u2019s a whole new asset class emerging\u2014it\u2019s the high-income ETF asset class. And I really think this is going to be a whole new asset class. Wall Street has been a little slow to this, but retail has just eaten this up in droves. So, we have an allocation\u2014two of them are our funds. GIAX is our Global Equity and Income ETF, but it has a 25% yield because of the options overlay. We also have a 2.5% allocation to MSTY, but the yield on MSTY is 90%.<\/p>\n

Here\u2019s what\u2019s interesting about that. We have a 2% weighting to an ETF that has a 90% yield. What that essentially does to our entire dividend portfolio is it adds almost 2% of additional yield. We have a 20% weighting to GIAX, which has a 24% yield, so that weighting equates to about 5% average yield to the portfolio. When you just add GIAX and MSTY together, about 27% of the fund is accounting for 7% yield just from those two positions. It allows our Nicholas Dividend Portfolio to have a yield close to 12% because we are almost leveraging, using options income in this fund, to generate a high yield. I look at it as a risk-managed way to increase yield without taking on a lot of additional risk.<\/p>\n

How do you get higher yield typically? You\u2019ve got to go either into lower-valued stocks or high yield, which carries more risk. But we are using options to leverage some yield without taking on a lot of extra risk.<\/p>\n

WM: Can you talk about your holdings on the fixed-income side?<\/p>\n

DN: In the fixed-income bucket, we are generally looking at two different areas. We\u2019ve seen a lot of success in what are called fixed-index annuities. One of the reasons I like these contracts is they fit the fixed-income sleeve nicely, but they offer something called trigger rates. Right now, you can get trigger rates of about 8% on a 10-year fixed-income annuity. If the S&P is up at all, the investor would earn the trigger rate, which is 8%. If the S&P is up 4%, they earn 8%. If the S&P is up 20% in a year, they earn 8%. So, if the market is positive at all, they get 8%; and if the market is negative, they don\u2019t lose principle and they don\u2019t lose any of the interest they\u2019ve earned in prior years.<\/p>\n

It\u2019s a unique structure that clients really like. We would normally balance that with our fixed-income ETF, which is FIAX. It\u2019s predominantly Treasuries, about 98% Treasuries, and then we do an options overlay to generate higher income. We are able to get exposure to higher-yielding sectors of the market, but do it in a risk-defined way. We have a trade on right now on HYG, which is a high-yield ETF, but we\u2019ve limited our loss to 1%. So, whenever interest rates go the other way or we have a contraction in the economy, high yield spreads increase, we are protected on the downside.<\/p>\n

But we can also do unique stuff there\u2014we are long on volatility. A lot of the time, fixed income is looked at as a hedge to equity markets. If we see volatility on the equity side, we\u2019ll benefit from that by our long volatility trade in FIAX. It\u2019s really a way that we can get income from the Treasuries, but that\u2019s yielding 4% to 4.5%. The fund is distributing 8%, so we are getting that additional yield through the options overlay. I like the safety of Treasuries, but I want to juice the yield a little bit, and we do that in a risk-defying way.<\/p>\n

WM: It doesn\u2019t sound like it, but do you have any allocations to alternatives in the portfolio?<\/p>\n

DN: Depending on how you define alternatives. We don\u2019t have any private equity. Our fixed-income fund is the Fixed Income Alternative ETF, so it\u2019s technically in the alternative category just because of the options overlay, but no. The only alternatives that we use are crypto and real estate. We do have a small crypto allocation in BLOX, in our Nicholas Dividend portfolio.<\/p>\n

Generally, we try to have a 10% allocation to real estate for clients. We historically use hospitality REITs because post-COVID, we saw a boom in hospitality, and then also multifamily REITs. We use the preferred shares, not the common shares. But we don\u2019t have any private equity allocations, we don\u2019t have any hedge fund allocations.<\/p>\n

WM: Do you keep any cash on hand?<\/p>\n

DN: We keep a minimum amount of cash on hand, just to cover management fees. But we don\u2019t necessarily keep it on hand as part of a strategy. We just got burned in the past. We\u2019ve gotten away from all types of tactical strategies.<\/p>\n

We saw it recently, during the tariff sell-off, that when the market can go up 10% in a day, we don\u2019t want to be holding cash. During COVID, the market went up 20% in two days! And we had some strategies that were on the sidelines in cash. You\u2019ve got inflation, you\u2019ve got the dollar declining, and cash is just too much of a drag.<\/p>\n

WM: You mentioned that you rebalance the portfolio every quarter. Did you make a lot of changes during the previous quarter?<\/p>\n

DN: This was not a full rebalance. We probably made three to four name changes during the quarter. A lot of it will be if we had a lot of profits, we\u2019ll take some profit. One of the names that we added is O\u2019Reilly Automotive. It\u2019s a name that you don\u2019t hear a lot, but in the last month, O\u2019Reilly Automotive is up 9%. In the last three months, it\u2019s up 13%. S&P is flat for the last month. Whenever the market is trading at a high multiple, like it is now, we want to own businesses that have a solid track record of creating a profit and having a high margin. You\u2019d be hard-pressed to find a business that has a higher profit margin than an auto parts store. They are very profitable, and they trade at a reasonable valuation. There are a few more stories like that.<\/p>\n

We are not traders. If we put money to work in a company, we are typically looking to hold that for a minimum of 12 months. We\u2019ve now owned Palantir for about four years, and we are up 1,000% on that. That name has been in a portfolio for a while, it\u2019s done well, and we don\u2019t have any plans to sell it.<\/p>\n

WM: Do you work with outside fund managers?<\/p>\n

DN: It\u2019s very limited. Most of our strategies are done in-house, except for the outside ETFs that we use in our actively managed strategies.<\/p>\n

WM: On those, how do you determine which funds\/asset managers you want to invest with?<\/p>\n

DN: On the SMAs, it really comes down to\u2014are we bullish on the stock? Some of these are single stocks. NVDY is a single-stock ETF that they do covered calls on. We have to believe in the growth story of the underlying, and then we balance that with the volatility and the yield that the fund kicks off. I would not buy an income fund just because it has a high yield if I thought the underlying was not going to perform well. The underlying drives it, and the yield is secondary, but it\u2019s a parity equation.<\/p>\n

On GIAX, we primarily use Vanguard funds for all of our general index exposure. Inside it, we\u2019ve got VOO, VIG, VB. Why would I choose Vanguard for those? When I just want broad market exposure, I am going to go for the lowest cost.<\/p>\n

We have Freedom, which is an emerging markets ETF. It\u2019s called the Freedom 100. We like that because it owns emerging markets, but eliminates nations that have strong state ownership in the fund. It\u2019s truly a free market emerging market ETF.<\/p>\n

And then we use iShares to give us exposure to regions that there are not a lot of other options for. So, iShares gives us exposure to Spain, Germany and Sweden.<\/p>\n

We also use Global X. They have defense, so we have SHLD, which is a defense tech fund and then their Argentina fund, mainly because they are a little bit more active. But they had the best offering for defense and, also, for South America.<\/p>\n

For index funds, it\u2019s mainly cost. For the other funds that are active, it\u2019s more what\u2019s available, and iShares and Global X are two of the best [managers] to do it.<\/p>\n

WM: Broadly speaking, where do you see risk on and risk off at this point in the cycle?<\/p>\n

DN: We are on the front end of what is hopefully going to be a Fed that\u2019s lowering interest rates. It\u2019s an anticipated event; in many ways, the market has run up in anticipation of it. But we are also balancing it\u2014we are going into September, which is generally one of the top two worst months in terms of returns for the market. So, we\u2019ve tried to derisk our strategies\u2014add a little bit more consumer staples, remove some of the higher beta names in the portfolio, which are typically technology and communication services. It\u2019s not that we are going to go fully risk-off, but we just want to lower the beta in the center deviation of the portfolio going into September.<\/p>\n

But we are fully expecting that even though we may see some volatility, for the fourth quarter of this year, we feel bullish on the upside potential for the market. S&P hitting 7000 or above is still intact.<\/p>\n

We are never going to fully go risk-off. But when you have a market that\u2019s trading right now with S&P multiple at 25 times the earnings, it\u2019s not like markets are cheap. So, for example, that move to O\u2019Reilly Auto Parts\u2014I want to find some of the names that are great businesses that are very profitable that are trading at a reasonable multiple.<\/p>\n

Then, if we do get a sell-off and things get more reasonable, we can go back and buy more of those higher beta names.<\/p>\n

WM: Is there anything else that you feel is important to note about your approach to investment strategy?<\/p>\n

DN: The U.S. market has been an absolute powerhouse for growth, which is why we\u2019ve predominantly stayed with the U.S. International has had its year, which is why we have international exposure in GIAX. But as the dollar stabilizes, I think U.S. domestic large cap stocks are going to outperform. Strong balance sheet, high-growth names that we are seeing are going to outperform going into the fourth quarter.<\/p>\n","protected":false},"excerpt":{"rendered":"While Nicholas Wealth Management has been on the leading edge in its use of ETFs\u2014it has launched several…\n","protected":false},"author":2,"featured_media":98657,"comment_status":"","ping_status":"","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[14],"tags":[64,63,99,186,184,185],"class_list":{"0":"post-98656","1":"post","2":"type-post","3":"status-publish","4":"format-standard","5":"has-post-thumbnail","7":"category-personal-finance","8":"tag-au","9":"tag-australia","10":"tag-business","11":"tag-finance","12":"tag-personal-finance","13":"tag-personalfinance"},"_links":{"self":[{"href":"https:\/\/www.newsbeep.com\/au\/wp-json\/wp\/v2\/posts\/98656","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.newsbeep.com\/au\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.newsbeep.com\/au\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/au\/wp-json\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/au\/wp-json\/wp\/v2\/comments?post=98656"}],"version-history":[{"count":0,"href":"https:\/\/www.newsbeep.com\/au\/wp-json\/wp\/v2\/posts\/98656\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/au\/wp-json\/wp\/v2\/media\/98657"}],"wp:attachment":[{"href":"https:\/\/www.newsbeep.com\/au\/wp-json\/wp\/v2\/media?parent=98656"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.newsbeep.com\/au\/wp-json\/wp\/v2\/categories?post=98656"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.newsbeep.com\/au\/wp-json\/wp\/v2\/tags?post=98656"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}