Launched at the end of January, the NEOS Nasdaq 100 High Income ETF (QQQI ) recently crossed $500 million in AUM. The fund remains a consistent performer within its category, offering high income and tax efficiency within the Nasdaq-100 Index.
QQQI Puts Nasdaq-100 Volatility To Work For Your Portfolio
QQQI is actively managed and provides exposure to the Nasdaq-100 Index, harnessing tech stock volatility for income. It uses a data-driven options strategy designed to generate high income potential.
The fund uses covered calls to generate a premium. Such strategies often benefit from volatility, earning higher premiums (and thereby income) when volatility spikes. This makes QQQI attractively positioned for investors looking to harness tech stock volatility. As of Sept. 30, 2024, QQQI generated a distribution rate of 14.14%. The distribution rate annualizes the most recent distribution and divides it by the fund’s NAV.
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 should the underlying asset appreciate. QQQI also uses 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 offers layers of tax efficiency for income-oriented investors. 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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