Market volatility persists heading into the summer months as investors weigh the impact of a slowing economy. Investors looking to increase income in their tech exposures and benefit from volatility continue buying into the NEOS Nasdaq 100 High Income ETF (QQQI) since its launch in late January.
While NVIDIA celebrated another strong quarter for earnings in May, growing concerns of economic resilience increasingly weigh on growth stocks heading into the summer months. News of the U.S. manufacturing contraction sent equity indexes lower this week.
While markets have largely recovered, further indicators of economic slowing could lead to increased volatility. For growth stocks that rely on forward-earnings estimates for a portion of their valuations, economic slowing spells potential trouble.
In an environment of ongoing risks and prolonged uncertainty, income-generating ETFs continue to prove popular with investors, particularly covered-call ETFs. These funds benefit from increasing volatility that raises premium prices. These premiums generate additional income for the funds and prove beneficial across various market environments.
See also: “Looking for an Equity Alternative? Consider Covered Call ETFs”
QQQI a Popular Choice With Income, Tech Investors
With distribution yields of 14.56%, it’s no wonder investors continue to flock to the NEOS Nasdaq 100 High Income ETF (QQQI). Distribution yield is calculated by annualizing the last distribution and dividing it by the fund’s most recent NAV at the time of distribution.
QQQI employs an options strategy using covered calls to generate a premium. The premiums earned by the fund help provide a potential buffer should stocks decline and enhance monthly income. Premiums also benefit from increased volatility.
The fund offers layers of tax efficiency for investors seeking income, an added boon in a challenging market environment. The options that QQQI uses are call options on the NDX and qualify as section 1256 contracts. These receive favorable tax treatment under IRS rules. The 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 at 60% long-term and 40% short-term, no matter how long they were held.
Should equities rise or fall, NEOS can actively manage the call options to capture gains in the underlying assets or minimize losses. In addition, the fund’s managers also engage in tax-loss harvesting opportunities throughout the year on the call options, equity holdings, or both.
Image source: ETF Database
QQQI currently has $216 million in AUM as of 06/03/2024 and continues growing at a steady pace. It follows similar growth to the NEOS S&P 500 High Income ETF (SPYI), launched 08/30/2022 and with nearly $1.4 billion in AUM currently.
QQQI has an expense ratio of 0.68%.
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