NEOS Investments launched its latest expansion to its growing line-up of options income ETFs, offering long-duration Treasury exposure. The NEOS Enhanced Income 20+ Year Treasury Bond ETF (TLTI ) began trading on Wednesday, December 11, on the Cboe.
TLTI applies the firm’s signature strategy to longer-duration bonds. The actively managed fund invests in 20+ year Treasury bonds while generating income from its tax-efficient options strategy. TLTI invests directly in bonds with a duration equal to or longer than 20 years. It also invests in ETFs that primarily invest in 20+ year Treasuries or ETFs that use forward, options, or futures based on 20+ year Treasuries.
At the same time, the fund also offers diversified income through its options strategy. The strategy writes put spreads on the S&P 500 Index on up to 100% of the notional value of the underlying assets. It also purchases SPX puts. Through the put spread, the strategy seeks to enhance monthly income while providing investors with a reduced risk profile.
The index options receive favorable taxation 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.
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The premiums earned from the written puts on the SPX generate a differentiated income stream for the fund. By combining bond exposures with equity options, the fund makes a compelling diversifier for portfolios. TLTI’s managers also engage in tax-loss harvesting opportunities throughout the year.
TLTI expands the coverage within bonds offered by NEOS ETFs. Within Treasuries, TLTI joins the ultra-short duration NEOS Enhanced Income 1-3 Month T-Bill ETF (CSHI ) and the broader focused NEOS Enhanced Income Aggregate Bond ETF (BNDI ). The firm also offers the NEOS Enhanced Income Credit Select ETF (HYBI ), which invests in high yield and investment-grade U.S. bonds. At launch, HYBI, a mutual fund conversion, received an option overlay using a similar put option strategy on the SPX.
TLTI carries an expense ratio of 0.58%.
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