Quick Read – Covered-call ETFs like SPYI and QQQI cap your upside in bull markets while offering little protection during sharp downturns. – SPYI charges 0.68% and QQQI charges 0.98% versus SPY’s 0.09%, and while they hold largely the same stocks, they could trail SPY by 30 to…
% over five years. – Option premium distributions are taxed as ordinary income rather than qualified dividends, which makes the real yield significantly lower for investors in the 24 to 32 percent bracket. – On a recent Motley Fool Money episode, analyst Lou didn’t dress it up. “A lot of products on Wall Street were built to be sold, were built for the fees, not necessarily built because they really, really work for the buyer,” he said. He was talking about the covered-call income ETF boom, and specifically the funds retirees are being pitched as bond substitutes
If you own Neos S&P 500 High Income ETF (BATS:SPYI) or NEOS Nasdaq-100 High Income ETF (NASDAQ:QQQI), or your advisor keeps mentioning them, the numbers deserve a hard look. The verdict on covered-call income funds Lou’s colleague Matt gave the fairer version. Retirees, he said, “want current income without having to sell the stocks that they own,” and covered-call funds scratch that itch.
SPYI has pulled in roughly $6.9 billion in assets doing exactly that, paying out monthly distributions around $0.51 to $0.53 per share on a stock trading near $53. Money hits your account every month. Psychologically, that feels like a paycheck.