Major equity indexes rallied in the opening weeks of November as bond yields fell. Despite the rally, advisors and investors face a challenging economic forecast next year. Given the economic outlook alongside the rocky performance of equities in the second half, investor flows remain steady to income-enhancing core exposures.
Flows into the income-focused equity fund gained momentum in the second half of the year as equity performance faltered. The fund has YTD net flows of over $406 million as of November 3, 2023, according to FactSet data.
The Conference Board estimates that U.S. GDP will drop to 0.8% next year. The International Monetary Fund is more optimistic, estimating a real GDP of 1.5% next year for the U.S. That is still well below trend, however.
Flows Continue into Tax-Efficient Income ETF SPYI
At a time when the 6-month outlook for equities and the economy is decidedly grim, investors are making their equity exposures count. The NEOS S&P 500 High Income ETF (SPYI ) capitalizes on core equity allocations while also providing a tax-efficient income stream for portfolios.
The fund seeks to provide higher income through call options the fund writes and earns premiums on. It then can use the money earned from the 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.
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.
The fund’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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