A lighter-than-expected June CPI could bring a semblance of market normalcy after months of volatility. Advisors and investors looking to capture tax-efficient income across core allocations would do well to consider the yield opportunities in the NEOS income ETF suite.
After months of prolonged volatility, markets might catch a break on June’s lower CPI report. Broad CPI rose 3% year-over-year, up 0.2% month-over-month. Core CPI, a closely watched measurement by the Fed that excludes food and energy, rose 4.8% in June. Core CPI rose just 0.2% month-over-month, the smallest gain in nearly two years and under expectations of 5%.
The lower prints bring hope for investors, and markets rallied on news of June’s CPI. For investors, it could mean a return to normalcy in the coming months and moving out of heavier cash positions and back into core allocations.
There are a number of opportunities for advisors and investors seeking noteworthy yields within ETFs. NEOS offers several actively managed income ETFs with exposure across the major asset classes and considerable yield through their options. For advisors looking to brush up on yield and learn more about the fund suite, registration is open now for the July 19th webcast “An Advisor’s Guide to ETF Yield”.
Income, Options, and Yield in Core Allocations
The options that all three NEOS ETFs utilize are S&P 500 Index options that are classified as Section 1256 contracts that have favorable tax rates. 60% of capital gains from the premiums are taxed as long-term, and 40% are taxed as short-term, regardless of how long the options were held. This creates an income stream with enhanced tax efficiency for portfolios.
Image source: NEOS
Equities
The NEOS S&P 500 High Income ETF (SPYI) seeks to provide higher income through call options the fund writes that it earns premiums on. It then can use the money earned from the written calls to buy long, out-of-the-money call options on the S&P 500 Index.
SPYI boasts a distribution yield of 12.11% as of 06/30/23, and a 30-day SEC yield of 1.07%. The ETF is well positioned to capitalize on income opportunities in the S&P 500 as the index rises. It also offers tax-efficient income which can be a boon for portfolios during periods of economic weakening. SPYI carries management fees of 0.68%.
Fixed Income
The NEOS Enhanced Income Aggregate Bond ETF (BNDI) invests across the broad U.S. Aggregate Bond Market while also implementing a tax-efficient options strategy that generates additional income. BNDI offered a distribution yield of 5.20% as of 06/30/23, and a 30-day SEC yield of 2.25%.
The fund invests in the Vanguard Total Bond Market ETF (BND) and the iShares Core U.S. Aggregate Bond ETF (AGG). The income and capital gains that BNDI receives from its bond allocations are enhanced by the addition of monthly income from the fund’s put-option strategy on the S&P 500. The strategy entails selling short puts and buying long puts to protect against volatility. BNDI carries management fees of 0.58%.
Cash Alternatives
The NEOS Enhanced Income Cash Alternative ETF (CSHI) allows investors to capitalize on yields in short-term Treasuries, putting cash allocations to work while market volatility persists. CSHI’s distribution yield was 6.51% as of 06/30/23, with a 30-day SEC yield of 4.72%.
The fund is long three-month Treasuries and also sells out-of-the-money SPX Index put spreads. The options roll weekly to account for market changes and weekly. It seeks to deliver 100–150 basis points above what 90-day Treasuries are yielding. CSHI also seeks to take advantage of tax-loss harvesting opportunities and the tax efficiency of index options. The fund carries management fees of 0.38%.
See also: “An Advisor’s Guide to Understanding ETF Yield”
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