The Nasdaq-100 ETF With 14% Distribution Yield | ETF Trends

The Nasdaq continued its ascent in trading this afternoon on further Nvidia gains. Investors wanting to optimize income shouldn’t miss the distribution yield of one of the most recent Nasdaq ETFs launched.

Those advisors and investors looking to augment their Nasdaq-100 exposures would do well to consider the NEOS Nasdaq 100 High Income ETF (QQQI). The fund seeks high monthly income by investing in the Nasdaq-100. QQQI also employs an options strategy using covered calls to generate a premium.

The NEOS team brings a wealth of options experience to the table, particularly within the Nasdaq-100.

“We’ve actually been running Nasdaq-100 options-based strategies since 2013,” Garret Paolella, co-founder, managing partner, and PM at NEOS Investments, explained in an interview on Armchair Income. Paolella and other members of the NEOS team were the first to bring options-based ETFs to market.

Since then, they’ve honed their experience and evolved how they construct their funds. The launch of QQQI followed months of research and analysis of millions of data points. The fund follows in the footsteps of the launch in August 2022 of the firm’s three core options-based income strategies within the S&P 500, fixed income, and ultra-short duration bonds.

“We’re really a data-focused investment firm — we’re looking at quantitative data,” Paolella explained. “We want to have our strategies be rules-based, not actively managed where you’re just coming in and trading what the market’s doing on the day.”

QQQI’s First Distribution Yield Tops 14% in February

In its first month since launch, the fund generated a distribution yield of 14.42% as of 02/29/2024. Distribution yield is calculated by annualizing the most recent distribution and dividing it by the fund’s NAV. It’s often seen as a more forward-looking indicator of potential performance.

The fund offers layers of tax efficiency for investors. The options that QQQI uses are call options on the NDX and qualify as section 1256 contracts. These receive favorable tax treatment under IRS rules. The options held at year’s end are treated as if sold at fair market value on the last market day. Any capital gains or losses are taxed at 60% long-term and 40% short-term, no matter how long they were held.

Should equities rise or fall, NEOS can actively manage the call options to capture gains in the underlying assets. This also allows them the opportunity to minimize losses. In addition, the fund’s managers also engage in tax-loss harvesting opportunities throughout the year on the call options, equity holdings, or both. QQQI has an expense ratio of 0.68%.

NEOS also offers the NEOS S&P 500 High Income ETF (SPYI), the NEOS Enhanced Income Aggregate Bond ETF (BNDI), and the NEOS Enhanced Income Cash Alternative ETF (CSHI).

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