In a sea of options-based ETFs, the NEOS S&P 500 High Income ETF (SPYI ) continues to prove popular with investors. Combining broad equity exposure with an income-generating options overlay, the fund recently surpassed $2 billion in AUM.
SPYI offers exposure to the S&P 500 while generating high monthly income through call options. The fund uses money earned from written calls to buy long, out-of-the-money call options on the S&P 500 Index.
An out-of-the-money call option has no intrinsic value. That’s because the underlying asset’s current price is below the call’s strike price. Should equities rise or fall, NEOS can actively manage the call options to capture gains in the underlying assets or minimize losses.
SPYI Provides Equity Exposure & High Income With Tax Efficiency
The fund is up 16.41% on a total return basis YTD and 34.16% since its inception in August 2022, according to Y-Charts data.
With a distribution rate of 12.11% as of 9/30/24, it’s little surprise the ETF remains popular with investors. Distribution rate takes the most recent distribution and annualizes it before dividing by the fund’s NAV. The fund surpassed $1 billion in AUM in March of this year and inflows continue to funnel into the options-based strategy.
SPYI offers not only high income but also layers of tax efficiency. The fund uses index options, which are taxed favorably 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.
SPYI’s managers also engage in tax-loss harvesting opportunities throughout the year on the call options, equity holdings, or both.
SPYI has an expense ratio of 0.68%.
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