Through the first four months of 2026, the Russell 2000 Index, one of the most widely observed small-cap equity gauges, jumped 13.1%, thoroughly outpacing the 5.7% returned by the S&P 500.
Small-cap strength, which dates back to last year, is a relief to investors that had long been wondering when this previously high-octane corner of the equity market was going to get in gear relative to large caps. However, if there’s a rub, it’s that basic small-cap ETFs don’t offer much in the way of income. For example, the largest plain vanilla ETFs tracking the Russell 2000 sport dividend yields of just 0.91%.
The NEOS Russell 2000 High Income ETF (IWMI ) dramatically alters the small-cap income proposition for the better. This $806 million options-based ETF sports a distribution rate of 14.58% — arguably jaw-dropping relative to the broader spectrum of small-cap ETFs. Fortunately, there are other reasons to consider IWMI, which turns two years old next month.
See more: Q2 Symposium: Navigating the Options Boom With NEOS Investments
IWMI: More Than Just Income
Obviously, IWMI’s income stream is appealing, but there’s more to the story with this NEOS ETF. Lost in the shuffle is the fact that IWMI is a backdoor play on a strengthening dollar.
“Roughly 77% of small-cap revenue is domestic, versus large caps at less than 60%. This helps provide more clarity on revenue visibility in times of geopolitical instability, but perhaps more importantly shields from global currency movements,” noted the Carson Group. “After a dramatic decline in early 2025, the U.S. dollar has been steadily appreciating, which can negatively affect global multi-nationals all the while stabilizing domestic importers.”
Adding to the allure of IWMI is that unlike so many of the highest-yielding options income ETFs, the NEOS fund doesn’t subject investors to excessive net asset value erosion nor does it come with the prospect of essentially no upside. Actually, IWMI is sitting on a pretty solid year-to-date gain in its own right.
The good news is that investors don’t have to pay up for the privilege of accessing this ETF’s advantages because even with the group’s recent strength, small caps remain attractively valued compared to their larger peers.
“Despite the significant outperformance of small caps in the recent period, small-cap stocks are still underperforming large caps by more than 7% annualized the past 5 years! Small-cap stocks also trade at least 20% cheaper than their large cap peers even when adjusting for the historical premium or discount small caps typically trade at,” added the Carson Group. “Typically when there is some type of market shakeup or volatility, investors tend to use that as an opportunity to rotate to other asset classes.”
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