Investors flocked to broad equities in the last week as market volatility continues. The NEOS S&P 500 High Income ETF (SPYI) that seeks to provide high income within the S&P 500 continues to garner attention as it crosses the $100 million AUM mark this week.
Of the top 10 ETFs by flows in the last week, S&P 500 focused ETFs brought in $8.3 billion of the $11.3 billion total. Nearly $7 billion of those flows went to the SPDR S&P 500 ETF Trust (SPY).
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The NEOS S&P 500 High Income ETF (SPYI) capitalizes on core equity allocations while also providing a tax-efficient income stream for portfolios. As flows flood into S&P 500 funds, investors increasingly take note of SPYI’s potential. SPYI crossed the $100 million mark in AUM this month.
Enhancing Income Within the S&P 500 With SPYI
In the last month, SPYI had net flows of $90.6 million. 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 has a distribution yield of 12.29% as of May 31, 2023, and a 30-day SEC yield of 1.14% (SEC yield doesn’t include options income).
SPYI seeks to provide higher income through call options the fund writes and 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.
An out-of-the-money call option has no intrinsic value. That’s because the current price of the underlying asset is below the strike price of the call. Should equities rise or fall, NEOS can actively manage the call options to capture gains in the underlying assets or minimize losses.
The options that the fund uses are index options, taxed favorably as Section 1256 Contracts under IRS rules. Options held at the end of the year are treated like they were sold on the last market day of the year at fair value. Any capital gains or losses are taxed as 60% long-term and 40% short-term, no matter how long investors held them. This can offer noteworthy tax advantages.
The fund’s managers also engage in tax-loss harvesting opportunities throughout the year on the call options, equity holdings, or both.
SPYI has an expense ratio of 0.68%.
For more news, information, and analysis, visit the Tax-Efficient Income Channel.