The Nasdaq-100 Index (NDX) is a lot of things. Home to many of the largest companies in the world? Check. A collection of some of the leading artificial intelligence stocks? Check. A prime destination for equity income? Not so much. A 12-month distribution rate of 0.48% confirms as much. Investors can earn many multiples of that on cash instruments and bond funds. That doesn’t mean it’s impossible to earn income from NDX. Deploying options-writing strategies, some ETFs do just that. That group includes the NEOS Nasdaq 100 High Income ETF (QQQI ).
Among covered call ETFs, QQQI is a star. As of September 12, this is a $4.6 billion ETF, despite only being around since January 2024. The industry has taken notice, as QQQI has taken home accolades for being one of the best new actively managed ETFs to come to market. Impressive feathers in QQQI’s cap to be sure, but what advisors and investors should care about is whether or not the ETF’s kudos are well-deserved. They are.
QQQI Struts Its Stuff
As of August 31, the NEOS ETF sported a distribution rate of 14.42%. Obviously, that’s miles ahead of NDX and well above what investors find with traditional equity income products and bond funds. It’s worth examining how QQQI’s robust income is sourced.
“Actively managed by NEOS, the Fund seeks to take advantage of tax loss harvesting opportunities in addition to utilizing NDX Index options classified as section 1256 contracts, which are subject to lower 60/40 tax rates,” according to the issuer.
QQQI is appealing for another reason: It dispels the notion that covered call ETFs subject investors to significantly capped upside — the trade-off usually required for accessing big yields. That’s usually the “warning label” attached to covered call ETFs. Limited upside in exchange for compelling income.
That’s true with many covered call ETFs, including QQQI’s competitors tethered to NDX, of which there are several sizable funds. However, this is where the NEOS ETF shines. From the time QQQI came to market through August 31, NDX gained 34.31%, while two of QQQI’s most direct competitors returned 14.09% and 26.64%, respectively. The latter performance is quite impressive for a covered call ETF, particularly when factoring in the allegedly capped upside, but QQQI did even better, returning 32.32% from inception through the end of last month.
Translation: QQQI delivered performance that compared quite favorably with NDX while delivering out-performance of its rivals with a yield that topped those competing ETFs, too.
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