In a market of muddled sentiment, the NEOS S&P 500 High Income ETF (SPYI) continues to prove popular with investors. The fund recently crossed over $1.5 billion in AUM with ongoing, consistent inflows.
SPYI capitalizes on broad equity exposure by offering both high income potential and tax efficiency. The ETF seeks to provide exposure to the S&P 500 while generating high monthly income for investors through call options.
With a distribution yield of 12.11% as of 5/31/24, the fund remains an attractive option for investors in a challenging macro environment. Distribution yield is calculated by annualizing the last distribution and dividing it by the fund’s most recent NAV at the time of distribution.
See also: Looking for an Equity Alternative? Consider Covered Call ETFs
SPYI: A Look Under the Hood
SPYI uses money earned from written calls to buy long, out-of-the-money call options on the S&P 500 Index. An out-of-the-money call option has no intrinsic value. That’s because the current price of the underlying asset is below the strike price of the call. Should equities rise or fall, NEOS can actively manage the call options to capture gains in the underlying assets or minimize losses.
The options that the fund uses are index options, taxed favorably as Section 1256 Contracts under IRS rules. Options held at year’s end are treated as if sold at fair market value on the last market day. Any capital gains or losses are taxed as 60% long term and 40% short term, no matter how long investors hold them. This can offer noteworthy tax advantages.
SPYI’s managers also engage in tax-loss harvesting opportunities throughout the year on the call options, equity holdings, or both.
Since SPYI’s launch in August 2022, NEOS Investments expanded the tax-efficient income strategy to cover several core asset classes. Within equities, NEOS also offers the NEOS Nasdaq-100 High Income ETF (QQQI) as well as the recently launched Russell 2000 High Income ETF (IWMI).
For those investors looking to enhance cash positions, the NEOS Enhanced Income 1-3 Month T-Bill ETF (CSHI) offers opportunity. The firm also offers the NEOS Enhanced Income Aggregate Bond ETF (BNDI) for fixed income investors.
SPYI has an expense ratio of 0.68%.
For more news, information, and analysis, visit the Tax-Efficient Income Channel.