After a relatively strong first half, equity performance turned volatile in the third quarter. Despite volatility and downturn, the NEOS S&P 500 High Income ETF (SPYI) generated better total returns than the S&P 500.
The S&P 500 is on track to close down both for the month and for the quarter later today. Much remains uncertain about the impact of higher rates for longer and what that means for recession risk next year. The Fed narrative and rate hiking path remain core drivers of market volatility; markets dropped in the latter half of September on news of higher rates for longer from the Fed.
Add into the mix conflicting economic and consumer data, geopolitical tensions, and more, and the volatility is likely to last well into next year. Given more pronounced volatility recently, it’s worth noting the performance of SPYI in the third quarter.
SPYI outperformed the SPDR S&P 500 ETF Trust (SPY) between July 1 and close on 09/28/23. Though down 2.34% on a total returns basis, it offered nearly 65 basis points of outperformance over SPY, down 2.98% in the same period.
Enhance Monthly Equity Income With SPYI
SPYI capitalizes on core equity allocations while also providing a tax-efficient income stream for portfolios. The ETF is well positioned to capture 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.
Image source: etfdb.com
The fund’s performance is one that investors continue to take note of. Between July 1 and September 28, the fund brought in nearly $224 million in inflows.
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 hold 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.