HYBI seeks total return from capital appreciation and income and to provide tax-efficient monthly income for investors. The fund recently converted from an open-end mutual fund, the WSTCM Credit Select Risk-Managed Fund. NEOS acquired the fund, and in the conversion process, also layered in a tax-efficient options income strategy.
It joins the firm’s two current bond ETFs, the NEOS Enhanced Income Aggregate Bond ETF (BNDI ) and the NEOS Enhanced Income 1-3 Month T-Bill ETF (CSHI ).
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HYBI Combines Credit Investing With Tax-Efficient Income
Actively managed, HYBI is a “fund of funds” in that it invests in other funds to gain exposure to the bonds it targets. The fund invests in both U.S. high yield bonds as well as U.S. investment-grade bonds. Securities are selected for their capital appreciation potential and/or interest income generation. The strategy has no restrictions regarding market cap, maturity, or credit quality.
Through the use of a proprietary, quantitative model, the fund invests in a mix of high yield and investment-grade bonds. The strategy uses short-, intermediate-, and long-term trend-following models to determine favorable and unfavorable periods of high yield bonds. The manager also takes into account duration, credit, current Federal Reserve policy, and interest rate outlook when selecting securities.
HYBI also generates income through its use of put options on the S&P 500 Index (SPX). The fund uses a put spread that sells short put options while buying long puts. The fund uses index options, which are 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.
The fund’s managers also engage in tax-loss harvesting opportunities throughout the year on the options as well as the bond allocations. HYBI carries a net expense ratio of 0.68%.
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