A few months ago, I compared the performance of three popular S&P 500 covered call ETFs in 2023: JPMorgan Equity Premium Income ETF (JEPI), GlobalX S&P 500 Covered Call ETF (XYLD), and NEOS S&P 500 High Income ETF (SPYI). Among them, SPYI emerged as the top performer due to its exposure to S&P 500 holdings, out-of-the-money covered calls, and use of Section 1256 contracts for tax efficiency.
SPYI delivered a total return of 18.1% in 2023, capturing nearly 69% of the S&P 500 Index’s total return. Now, the same team behind SPYI has introduced NEOS Nasdaq-100 High Income ETF (QQQI), which aims to offer high monthly income and upside potential when the Nasdaq-100 Index rises.
QQQI holds the same stocks as the Nasdaq-100 Index but optimizes for tax-efficient income for shareholders by selling out-of-the-money covered calls. This strategy aims to provide monthly distributions while allowing for some upside share price appreciation.
Compared to other Nasdaq-100 income-focused ETFs, QQQI’s use of Section 1256 contracts and out-of-the-money covered calls sets it apart. Despite being a new ETF, QQQI has shown promising results early on, with a higher distribution yield compared to its competitors.
While there are downside risks associated with covered call ETFs, QQQI has performed well since its inception, outperforming QQQ in terms of total return due to its covered call strategy. It remains to be seen how QQQI will perform in 2024, but early indications suggest a strong start.
In conclusion, QQQI offers income-focused investors a unique opportunity to have exposure to the Nasdaq-100 Index in a tax-efficient manner. The team behind QQQI has a track record of success with SPYI, making QQQI an attractive option for investors looking for high monthly income and potential for growth.