Investors do not lack choices when it comes to income strategies, but one recently launched tech-focused income fund continues to draw interest. Launched earlier this year, the NEOS Nasdaq 100 High Income ETF (QQQI ) passed $250 million in AUM this month.
QQQI combines Nasdaq-100 exposure with a covered call option strategy. The premiums earned from the options contribute to income as well as capitalize on tech volatility.
Whether it’s the chance to harness volatility within the Nasdaq-100 or the notable distribution yields of 14.56% as of 5/31/24, investors continue to flock to the fund. 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 Offers Tax Efficient Income Within Nasdaq-100
The NEOS Nasdaq 100 High Income ETF (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.
What’s more, the fund managers use a call spread in their option strategy. This allows for more of the underlying assets to participate in upward-moving markets, providing better potential upside capture.
The fund offers layers of tax efficiency for investors seeking income. 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.
See also: Capture More Nasdaq-100 Upside With Income ETF QQQI
For more news, information, and analysis, visit the Tax Efficient Income Channel.
