The NEOS S&P 500 High Income ETF (SPYI 0.23%) debuted in August 2022 and has quickly grown into the largest exchange-traded fund in NEOS Investments’ lineup, now managing more than $4.2 billion in assets.
As part of the increasingly crowded covered-call ETF segment, it stands out among the many options based on the S&P 500 Index.
In particular, its unique strategy and tax efficiency have made it a fan favorite among income-focused investors.
In this article, we’ll break down how this ETF works, what makes it different from peers, and whether it deserves a spot in your portfolio.
Overview
What is the NEOS S&P 500 High Income ETF?
The NEOS S&P 500 High Income ETF is a covered-call ETF, meaning it uses derivatives -- specifically, short call options -- to generate income in exchange for limiting some upside potential. However, its approach differs from many of its competitors.
The ETF starts by replicating the S&P 500 index, a well-known benchmark composed of 500 large-cap U.S. stocks selected for their size, liquidity, and sector representation.
On top of this core exposure, it layers a data-driven options writing strategy using SPX index options, which are cash-settled, European expiry contracts.
The NEOS S&P 500 High Income ETF is quasi-active, meaning it doesn’t follow a strict rules-based formula like other covered-call ETFs that track an options index. Instead, NEOS actively manages the options overlay, allowing for tactical adjustments.
This structure offers two advantages. First, SPX index options are taxed under Section 1256, meaning they benefit from a 60/40 blended capital gains tax rate.
Second, the ETF can tactically buy back or reposition options to capture more upside in rising markets, something systematic funds can’t do.
Exchange-Traded Fund (ETF)
How to invest
How to buy NEOS S&P 500 High Income ETF
- Open your brokerage app: Log into your brokerage account where you handle your investments.
- Search for the ETF: Enter the ticker or ETF name into the search bar to bring up the ETF's trading page.
- Decide how many shares to buy: Consider your investment goals and how much of your portfolio you want to allocate to this ETF.
- Select order type: Choose between a market order to buy at the current price or a limit order to specify the maximum price you're willing to pay.
- Submit your order: Confirm the details and submit your buy order.
- Review your purchase: Check your portfolio to ensure your order was filled as expected and adjust your investment strategy accordingly.
Holdings
Holdings of NEOS S&P 500 High Income ETF
Because this ETF is built on the S&P 500, its holdings are largely identical to that index, aside from any SPX index options the fund has sold or purchased at a given time.
This results in a natural overweight to the technology sector and mega-cap stocks, particularly the so-called "Magnificent Seven."
At the time of writing, the ETF's top 10 holdings are:
- Nvidia (NVDA -0.12%) – 7.35%
- Microsoft (MSFT 0.54%) – 7.01%
- Apple (AAPL 0.07%) – 5.92%
- Amazon (AMZN -0.33%) – 4.00%
- Meta (META -0.26%) – 2.95%
- Broadcom (AVGO 0.51%) – 2.46%
- Alphabet Class A (GOOGL 0.54%) – 2.01%
- Tesla (TSLA 3.49%) – 1.70%
- Berkshire Hathaway Class B (BRK.B 0.79%) – 1.68%
- Alphabet Class C (GOOG 0.45%) – 1.64%
Should I invest?
Should I invest in NEOS S&P 500 High Income ETF?
The NEOS S&P 500 High Income ETF is best suited for income-focused investors who prioritize monthly cash flow over long-term capital appreciation.
It may be especially attractive if you’ve maxed out your tax-sheltered accounts, since a large portion of its distributions are classified as return of capital.
This structure can make it more tax-efficient in a taxable account, allowing you to defer taxes and potentially reduce your current-year bill while still generating steady income.
Dividends
Does the NEOS S&P 500 High Income ETF pay a dividend?
The NEOS S&P 500 High Income ETF pays a monthly distribution, not a traditional dividend. The most recent distribution in June was $0.50477 per share, with 41% of it classified as return of capital (ROC).
ROC isn’t immediately taxable but instead reduces your adjusted cost basis, which may affect capital gains down the road. The ETF is able to classify more of its distributions as ROC due to tax loss harvesting strategies used within the portfolio.
Based on this latest payout and current share price, it has an estimated 12.15% distribution yield.
Expense ratio
What is the NEOS S&P 500 High Income ETF expense ratio?
The NEOS S&P 500 High Income ETF has an expense ratio of 0.68%, which is reasonable for an actively managed ETF that uses index options to generate income. On a $10,000 investment, that equates to $68 in annual fund fees, deducted over time on the back end.
Expense Ratio
Historical performance
Historical performance of the NEOS S&P 500 High Income ETF
| 1-Month | 3-Month | 6-Month | 1-Year | |
| SPYI NAV | 3.68% | 8.47% | 5.38% | 13.54% |
| SPYI Market Price | 3.68% | 8.30% | 5.22% | 13.37% |
| Cboe S&P 500 BuyWrite Monthly Index | 2.66% | 1.90% | -1.25% | 10.25% |
Related investing topics
The bottom line on the NEOS S&P 500 High Income ETF
This ETF offers a high-yield, tax-efficient way to gain exposure to the S&P 500 while generating income through an actively managed covered call strategy.
Its use of SPX index options and tax loss harvesting allows for attractive monthly distributions, largely classified as return of capital.
So far, it has managed to outperform its benchmark, the Cboe S&P 500 BuyWrite Monthly index, even after accounting for a 0.68% expense ratio.
FAQ
Investing in the NEOS S&P 500 High Income ETF FAQ
What is the difference between SPY and SPYI?
The SPDR S&P 500 ETF Trust (NYSEMKT:SPY) is a passive ETF tracking the S&P 500 index without the use of any derivatives. It is an S&P 500-based ETF that actively sells SPX index options to generate income.
Does SPYI pay a dividend?
The NEOS S&P 500 High Income ETF pays a distribution, not a dividend. This distribution comprises dividends from the underlying S&P 500 stocks and premiums from the covered-call overlay.
Is SPYI a good investment?
The NEOS S&P 500 High Income ETF may be a good investment for income-first investors who don't mind capped upside appreciation and are seeking tax efficiency.
How often does SPYI pay a dividend?
This ETF pays distributions on a monthly basis, with ex-dividend and payout dates typically falling in the last week.
