The $6.9 billion NEOS S&P 500 High Income ETF’s 12% yield hinges on option premiums threatened by low volatility and high rates.
The NEOS S&P 500 High Income ETF (SPYI) has returned 19% over the past year, trailing the S&P 500’s 20% gain but delivering a 12% annualized distribution. With $6.9 billion in net assets, the fund relies on selling SPX call options to fund payouts, supplemented by dividends from holdings like Costco and Altria.
Option premiums, the primary driver of SPYI’s income, are under pressure as the VIX remains below 15 and the 10-year Treasury yield exceeds 4.5%. This macro environment could force the fund to dip into principal to sustain distributions, eroding net asset value. SPYI’s expense ratio stands at 0.68%.
Year-to-date, SPYI has gained 8%, reflecting narrower underperformance compared to other covered-call funds. The fund’s income strategy faces heightened scrutiny as volatility compression persists.