Gold is one of this year’s best-performing assets. As of Sept. 18, the largest ETF backed by physical holdings of the commodity was beating the S&P 500 by a margin of nearly 3-to-1. The gap between equities and the S&P 500 was even wider at roughly 8-to-1.
Impressive showings, to be sure. It’s arguably enough to make market participants ignore the fact that gold is essentially a no-income asset. Traditional gold ETFs offer no income streams, while the largest miners ETF sports a small dividend yield of 0.56%. However, some investors would like to have their cake – gold exposure – and eat it, too – income. The NEOS Gold High Income ETF (IAUI) brings that scenario to life.
IAUI debuted in June; it appears to be an excellent example of a new ETF at the right place at the right time. The ETF returned 6% over the past month. Although it’s a covered call fund, it does offer some exposure to upside in the underlying asset. Advisors and investors seem to like the IAUI proposition, as highlighted by the fund raking in nearly $100 million in assets in barely more than three months on the market.
Investigating IAUI
As noted above, IAUI adds to the NEOS stable of covered call ETFs. Like many of the issuer’s legacy funds, IAUI is an easy-to-understand product. Its income stream is sourced by selling call options on the Goldman Sachs Physical Gold ETF (AAAU), which is a physical gold ETF.
IAUI’s simplicity is an advantage, not a detraction. These days, the universe of options-selling ETFs is loaded with complex products sporting eye-popping yields. Some investors are seduced by those whopping levels of income, but they don’t realize some of the funds checking that box are complex and deliver that big income via return of capital (investor money), which leads to, in some cases, significant net asset value (NAV) erosion.
“It really comes down to income. People love income,” noted Jason Kephart of Morningsstar. “They love seeing big yields and these funds deliver that in a way that your classic dividend ETFs really can’t match, just because they don’t have that kind of inherent leverage of the call options, which lets you really set how much income you’re getting and so you can get much bigger yields and payouts from these derivative income funds.”
For its part, IAUI delivers income in impressive fashion without a massive cap on gold upside and without subjecting investors to substantial NAV erosion. There’s a lot to like with this new ETF.
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