Fast-growing NEOS Investments added another ETF to its roster Wednesday with the debut of the NEOS Long/Short Equity Income ETF (NLSI).
Investors know NEOS for its suite of options-based income-generating ETFs. It is bringing those competencies to the world of long/short investing with NLSI, an income fund rooted in options. That’s a fresh approach to the long staid world of long/short ETFs.
NLSI “follows a propriety model to construct the long/short equity portfolio and seeks to provide equity appreciation,” according to NEOS. “The Fund seeks to take advantage of tax loss harvesting opportunities in addition to utilizing SPX Index options classified as section 1256 contracts, which are subject to lower 60/40 tax rates.”
NLSI Could Be Right for These Times
Professional investors, including hedge funds and some mutual fund managers, have long used long/short investing strategies. The ETF industry made those same strategies more accessible to a broader swath of investors. NLSI builds on that effort — the rookie ETF is likely to offer a higher level of income than many of its established rivals.
“As the name implies, long-short equity strategies make long and short investments in publicly traded stocks and equity-related derivatives. Long short equity investing strategies exhibit reduced beta, volatility, and drawdown sensitivity to stock market changes compared to long-only strategies,” according to Eqvista.
Said another way, many long/short funds aim to be market neutral. As it relates to NLSI, market neutrality could imply the new ETF isn’t overtly bullish or bearish and it certainly isn’t subjecting investors to futile market-timing efforts. There are other perks associated with market neutrality.
“The goal is to generate returns by profiting from the price movements of both undervalued and overvalued stocks, while minimizing overall market exposure. This strategy is market-neutral, aiming to reduce risk from broad market movements and generate profits regardless of whether the market goes up or down,” noted Ultima.
Indeed, NLSI is employing a market neutral as NEOS points out the typical composition of the fund will be 30 long positions and 30 short holdings. Additionally, the new ETF has the potential to follow in the footsteps of its stablemates by generating income that’s not highly correlated to traditional asset classes.
“The Fund may provide a way to seek high monthly income with the potential for equity appreciation that’s potentially less correlated to traditional equity and income-oriented investments,” said NEOS.
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