The NEOS Nasdaq 100 High Income ETF (QQQI ) hit six-months of trading at the end of last month. The fund offers both tax-efficient income and noteworthy upside capture since inception.
QQQI recently crossed its six-month milestone on 07/30/24. The ETF continues to experience steady inflows since launch, with $383 million in AUM as of 08/12/24.
The fund also boasts distribution yields of 14.96% as of the end of July. Distribution yield is calculated by annualizing the last distribution and dividing it by the fund’s most recent NAV at the time of distribution.
The fund provides exposure to the Nasdaq-100 Index alongside a data-driven options strategy designed to generate high income potential. QQQI employs a strategy using covered calls to generate a premium.
Covered calls entail buying an asset while also writing a call on the underlying asset. This generates a premium but also caps the upside potential when the underlying asset appreciates. However, since launch QQQI demonstrated notable upside capture, approximately 80% as of 07/31/24 measured using NAV.
Upside Capture and Tax Efficiency
The NEOS Nasdaq 100 High Income ETF (QQQI ) is actively managed and utilizes a call spread to achieve its income goals. This spread allows for more of the underlying to potentially participate in upside market movements when they occur compared to indexed covered call option strategies.
In addition to potential upside capture, the fund also 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.
QQQI has an expense ratio of 0.68%.
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