NEOS Real Estate High Income ETF

IYRI

Market cap $256M

Durable retirement income investing comes with limits. One of the consequences is that specific asset classes are left unexplored. This is where covered call ETFs can come into play.

Neos is an investment manager with several strong, high-growth covered call ETFs. IYRI is one such ETF, focusing on REITs. It has similar characteristics to most covered call ETFs, namely a strong distribution yield, currently reaching 10.9%, but below-average potential capital gains. It's a young fund, with inception in early 2025, and has performed adequately since.

I advocate for value-oriented covered call ETFs with underlying holdings beyond AI-saturated large-cap growth indices like SPY and QQQ. The risks for NAV erosion and income declines are higher on this front. Despite these risks, including some QQQ/SPY-linked covered call ETFs could enhance diversification and capture higher yields from volatility and growth.

The current stock market is volatile due to escalating geopolitical and inflationary risks, which have triggered a correction. I am exploring assets that can deliver positive total returns despite these ongoing headwinds. IYRI and VNQ are two promising REIT ETFs that have outperformed stock market benchmarks like SPY and QQQ by up to 8% in 2026.

Covered call ETFs offer attractive monthly yields, often exceeding 10%, appealing to income-focused investors. Most top covered call ETFs are heavily concentrated in large-cap growth, specifically S&P 500 and Nasdaq-100 exposures. This concentration introduces significant risk, as these ETFs exhibit strong performance correlations and similar downside profiles.

NEOS Investments' high-income ETFs deliver monthly distributions with tax efficiency, leveraging section 1256 options for enhanced yields and lower tax burdens. QQQI, SPYI, and other NEOS equity funds offer yields up to 14.6%, with most distributions classified as return of capital, supporting both income and portfolio diversification. Recent NEOS launches in alternatives—BTCI, NEHI, IAUI, MLPI—expand high-yield, tax-advantaged opportunities, though volatility and distribution variability warrant careful allocation.

Market-wide risk-off sentiment is driving declines across major indices, high-growth stocks, REITs, small caps, BDCs, gold etc. Covered call ETFs present a potential hedge, offering defensive positioning and income amid elevated volatility and interest rates. Most covered call ETFs fail to deliver on their promise due to persistent losses, falling dividends, and opportunity costs during market rebounds.

Inflation has significantly eroded portfolio purchasing power, especially for conservative investors avoiding high-growth stocks. Traditional yield producers like Realty Income have failed to outpace inflation, worsening real income outcomes. I prioritize seeking high-yield, recession-resistant investments to generate durable monthly income amidst volatility.

Market uncertainty and elevated risks favor defensive positioning over growth-focused indices like the S&P 500 and Nasdaq-100. Because of all of this uncertainty, the overall volatility levels have increased, making option-based strategies more attractive. I see a huge merit in deploying capital into OTM covered calls, which strike the balance between defense and exposure to rich option premium income.

Today, NEOS Real Estate High Income ETF offers a high 10.9% distribution yield via a covered call strategy on U.S. REITs. IYRI's performance has outpaced passive REIT ETFs in a sideways market, but its upside is capped due to the options overlay. I expect REITs to remain range-bound in 2026, but sector rotation could shift return drivers toward price appreciation, limiting IYRI's relative advantage.