Neos S&P 500(R) High Income ETF (BATS: SPYI) is an interesting play on the S&P 500 benchmarked to the CBOE’s S&P 500 Buy-Write index. The Buy-Write index tracks potential returns from an S&P 500-oriented covered call strategy, which is the SPYI’s primary focus. It is an actively managed fund utilizing proprietary techniques to pinpoint and profit from options activity, including long and short positions. Because the strategy is buy-focused, the fund is also positioned to increase in value in rising markets, as in 2024. The SPYI is up 5% YTD in early December, but the capital appreciation isn’t why you own this stock.
Neos S&P 500(R) High Income ETF is an income-focused asset with a high monthly yield. The annualized return is nearly 12% in 2024 and is sustainable because buy-write or covered call positions generate monthly cash flow. The monthly payment tends to be erratic, but it trends in a tight range near $0.50, providing a reliable cash flow. However, there is a catch. The buy-write strategy means profits aren’t taxed like typical corporate earnings, and distributions are classified as return of capital or ROC, not ordinary dividends. ROC has different implications depending on portfolio strategy, risk tolerance, and investor needs and may not be suitable for all.
