The recently launched NEOS Nasdaq 100 High Income ETF (QQQI ) crossed $100 million in AUM. Given the fund’s distribution yields, it’s no wonder investors continue flocking to QQQI for targeted income within the tech-heavy Nasdaq.
Options income strategies remain a popular choice with investors amid ongoing market volatility. QQQI launched January 30 and has experienced steady inflows since then. In the last month, QQQI brought in nearly $70 million in flows, according to FactSet data, as of 04/16/24. The fund crossed the $100 million mark in AUM on April 17.
“We’ve been very pleased to see investors embrace QQQI in its first few months since inception,” Garrett Paolella, co-founder and managing partner of NEOS Investments and co-PM of QQQI, told VettaFi. “The Fund sits in our equity high income lineup alongside our largest ETF [SPYI] and aims to offer high monthly income, tax efficiency, and exposure to the innovators within the Nasdaq-100 Index.”
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Since launch, the fund continues to offer noteworthy yields for investors. QQQI generated a distribution yield of 14.28% as of 03/31/24. Distribution yield is calculated by annualizing the last distribution and dividing it by the fund’s most recent NAV at the time of distribution.
QQQI's Options and Tax Efficiency Explained
QQQI employs an options strategy using covered calls to generate a premium. The premiums earned by the fund help provide a potential buffer should stocks decline as well as enhance monthly income. Premiums also benefit from increased volatility.
The fund offers layers of tax efficiency for investors seeking income, an added boon in a challenging market environment. 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 follows in the footsteps of the NEOS S&P 500 High Income ETF (SPYI ), which recently surpassed $1 billion in AUM. QQQI has an expense ratio of 0.68%.
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