Higher S&P 500 Earnings Could Benefit This Active ETF

The expectation of higher corporate earnings in 2024 could help prop up the actively managed NEOS S&P 500 High Income ETF (SPYI). Of course, capital markets are brimming with optimism, with the expectation of rate cuts to come.

When those actual rate cuts come and the pace at which they will happen is anybody’s guess, but institutional investors are banking on higher corporate earnings. Global investment firm Goldman Sachs, for example, is forecasting that S&P 500 earnings will rise 5% to a $237 earnings per share estimate, which in comparison, is $6 higher than the average estimates of strategists tracked by Bloomberg.

“We see potential upside to our EPS estimate from stronger US economic growth, lower interest rates, and a weaker dollar,” said Goldman Sachs chief U.S. equity strategist David Kostin.

If those estimates hold, it could provide upside for SPYI. With its active management, the fund allows investors to tap into the talent and deep experience of its portfolio management team. With its concentration on call options, investors in the ETF can leave this complexity to professionals who can navigate through these markets with relative accuracy and efficiency.

When you pop the hood of SPYI, its holdings primarily consist of the “Magnificent Seven.” As such, names include Apple, Microsoft, Alphabet, Amazon, Nvidia, Tesla, and Meta Platforms.

Tailor-Made S&P 500 Holdings

With active management, SPYI can allow for tailor-made holdings of the aforementioned “Magnificent Seven” and other stocks. This allows the fund to be flexible under various market conditions. The portfolio managers can tailor the positions in the fund to suit current market conditions and/or use a call-laddering strategy, allowing risk mitigation to the downside and the ability to capitalize on any upside when the S&P 500 trends higher.

As an added benefit, the fund also offers investors a tax efficiency component to help mitigate capital gains. Since SPX Index options are classified as section 1256 contracts, they are subject to lower 60/40 tax rates.

SPYI offers a single solution, as opposed to investors handpicking holdings themselves to build a core equity portfolio. The active management also removes the guesswork and constant supervision of one’s own portfolio.

“SPYI may be considered as an alternative to existing core equity allocations to provide a tax efficient monthly income stream, while maintaining the opportunity for upside participation when market conditions warrant,” the fund’s fact sheet noted.

Tax-efficient monthly income is a prime feature of NEOS funds. To get a glimpse of how their full ETF product suite benefits investors from a tax-efficient standpoint, click here.

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