The Aug. 5 sell-off could prove to be a minor blip on the radar screen as equities are resuming their 2024 rally. This could be a prime opportunity to supplement fixed income exposure as the S&P 500 rallies with the NEOS S&P 500 High Income ETF (SPYI ).
Investors who were spooked during the heavy volatility in the first week of August are returning as the S&P 500 continues to recover and potentially push past its pre-Aug. 5 high. Renewed recession fears amid lackluster July employment figures appear to be dissipating and investors are slowly dialing the risk up again.
“There was this sell-off, people reassessed what was going on and we kind of came back to fundamentals of corporate America and the economy,” said Tom Hainlin, senior investment strategist at U.S. Bank Wealth Management. “Once we did so, you saw investors come back into the equity market.”
With the prospect of lower rates forthcoming, SPYI presents a compelling option as a fixed income option. Investors relying on bonds will see price appreciation. But with yields falling, they may need to offset their income. That said, as of July 31, the fund’s distribution yield is 12.34%.
SPYI derives that income via a data-driven call option strategy that uses SPX Index options classified as section 1256 contracts. Because of this, they are subject to lower 60/40 tax rates.
Flexibility in Volatile Markets
The Aug. 5 sell-off served as a reminder to investors that markets can indeed get volatile. That said, SPYI can allow investors to be flexible when volatility strikes due to its active management.
Having that flexibility will be beneficial as we get deeper into an election year. The active management feature also removes the guesswork and constant supervision of one’s own portfolio while maintaining pliability if market conditions change.
As the fund’s fact sheet points out, SPYI can be used as an alternative to existing core equity allocations to realize this tax-efficient monthly income stream. At the same time, SPYI is able to capture upside when the index trends higher. Under the hood, the fund is top heavy in “Magnificent Seven” names like Microsoft and Apple. The hype around artificial intelligence (AI) should continue to persist, allowing SPYI to capture upside alongside its tax-efficient income benefits.
Additionally that tax-efficient monthly income component is a prime feature of not only SPYI, but other NEOS funds. To see its full ETF product suite, click here.
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