NEOS S&P 500 High Income ETF

SPYI

Market cap $6.25B

Yield for traditional income sources have started to compress. For income-oriented investors, who seek to build a reliable passive income machine it causes a real headache. To hit a certain target income figure, investors have to assume either higher risks, extend time horizon or save/invest more capital.

High-yield CEFs and covered call ETFs lure in investors with juicy yields. However, there are several hidden dangers lurking beneath the surface of many of these funds. There is a better way to generate high-yielding passive income and potential long-term total return outperformance.

The NEOS S&P 500 High Income ETF is a covered call fund with a unique twist: tax efficient Section 1256 contracts. These contracts allow a portion of short-term returns to be taxed as long-term capital gains. The strategy is well optimized for covered call funds, which trade frequently. The fund's covered call strategy increases income compared to just holding the S&P 500, and also serves as a partial hedge.

WESTPORT, Conn.--(BUSINESS WIRE)--NEOS Investments, an asset management firm comprised of leaders and pioneers in the options-based ETF space, announces November monthly distribution amounts for their suite of ETFs that pursue monthly income and tax efficiency across core portfolio exposures.

Neos S&P 500 High Income ETF (SPYI) currently offers an attractive valuation and dividend yield compared to the SPDR S&P 500 ETF Trust (SPY). Judging by the latest dividend declarations, SPY faces growth pressure amid expensive valuation. The current VIX Index is quite mild and underestimates the issues facing SPY.

NEOS NASDAQ-100 High Income ETF (QQQI) and NEOS S&P 500 High Income ETF (SPYI) are both rated “Buy” for their high income and tax efficiency. QQQI offers higher yield and growth potential due to its focus on the volatile technology sector, but carries greater risk compared to SPYI. SPYI provides more stability and diversification, making it suitable for conservative investors seeking steady income and capital protection.

Neos S&P 500(R) High Income ETF offers a high monthly yield (~12% annualized) and diversified S&P 500 exposure, appealing for passive retirement income. However, this yield and diversification come with a catch. I detail the strengths and weaknesses of SPYI and share a potentially better approach to retiring on passive income from dividends.

Covered call ETFs have surged in popularity, but most are heavily concentrated in AI-driven indices, like QQQ and SPY. AI valuations appear stretched, and a correction could hit covered call ETF investors, as hard as pure index, or AI stockholders. The question is how to navigate this.

The S&P 500 is a lot of things. In ETF form, that index represents an efficient, often cost-effective avenue for investors looking to tap into a trusted gauge of the largest U.S.-based companies.

Advisors and investors are seeking dependable, above-average income outside of the fixed income universe. That makes covered call and options-based ETFs increasingly fertile territory for income seekers.