Get Additional Income & Core Bonds With BNDI

The prospect of subsiding interest rates has become more pronounced after the recent pause in rate hikes by the Federal Reserve. If that’s the case, fixed income investors may want to extract additional income while also getting core bond exposure with the NEOS Enhanced Income Aggregate Bond ETF (BNDI).

With its active management strategy inherent in the fund, BNDI seeks to distribute monthly income generated from investing in a representative portfolio of the U.S. aggregate bond market and implementing a data-driven put option strategy. The active management allows BNDI to maintain pliability and flexibility in any market environment while also taking advantage of tax-loss harvesting opportunities.

To extract more income from the market, the fund includes the sale of SPX Index options classified as section 1256 contracts, which are subject to lower 60/40 tax rates. This is where the fund’s tax efficiency offers investors income while decreasing their tax burden.

BNDI currently has a net expense ratio of 0.58%. The distribution yield is 5.57%, which is calculated by multiplying the most recent distribution by 12 to annualize it, and then dividing by the net asset value of BNDI.

Adding Core Bond Exposure With BNDI

The anticipation of lower interest rates could also add bullishness for the overall bond market heading into 2024. If that’s indeed the case, investors may want to ramp up their core bond exposure to take advantage of rising bond prices in the new year.

As opposed to getting individual debt holdings, investors can opt for ETFs that offer this core exposure — BNDI has two common options in one fund. One is the iShares Core US Aggregate Bond ETF (AGG), which seeks to track the investment results of an index composed of the total U.S. investment-grade bond market.

The other is the Vanguard Total Bond Market Index Fund ETF Shares (BND), which seeks to track the performance of the Bloomberg U.S. Aggregate Float Adjusted Index. The index represents a wide spectrum of public, investment-grade, taxable, fixed income securities in the United States, including government, corporate, and international dollar-denominated bonds, as well as mortgage-backed and asset-backed securities, all with maturities of more than one year.

As of now, BNDI offers almost a 50/50 split for exposure between the two funds, giving investors that core exposure to supplement their equities portfolios. Additionally, with the income component added with its put option strategy, BNDI adds that additional income component that should help fixed income investors seeking yield.

For more news, information, and analysis, visit the Tax-Efficient Income Channel.