Investors looking to harness tax-efficient, high-income within broad equities continue turning to the NEOS S&P 500 High Income ETF (SPYI ). SPYI remains a notable performer amongst income-oriented peers with elevated distribution yields and total returns since inception.
SPYI currently offers a distribution yield of 12.08% as of 06/30/2024. Distribution yield is calculated by annualizing the last distribution and dividing it by the fund’s most recent NAV at the time of distribution. Launched in August 2022, the fund generated a total return of 25.9% since inception as of 06/30/2024.
The ETF offers exposure to the S&P 500 while generating high monthly income through call options. SPYI uses money earned from written calls to buy long, out-of-the-money call options on the S&P 500 Index. An out-of-the-money call option has no intrinsic value. That’s because the current price of the underlying asset is below the strike price of the call. Should equities rise or fall, NEOS can actively manage the call options to capture gains in the underlying assets or minimize losses.
Enhancing Equity Income for Tax-Efficiency
The fund recently crossed $1.5 billion in AUM and continues to draw steady inflows. In the last month, SPYI experienced approximately $177 million in net inflows as of 07/12/2024 according to FactSet data.
SPYI remains attractive not just for the high income it offers but also for the layers of tax efficiency. The options that the fund uses are index options, 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.
SPYI’s managers also engage in tax-loss harvesting opportunities throughout the year on the call options, equity holdings, or both.
SPYI has an expense ratio of 0.68%.
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