By: NEOS Investments
At NEOS Investments, we understand the importance of generating income for our investors, especially in today's challenging environment where interest rates continue to be volatile, and inflation continues to push the cost of living higher.
Options-based ETFs from NEOS Investments seek high monthly income in a tax-efficient manner, while offering core portfolio exposure across equities, fixed income, and cash allocations.
Below, we'll explain the difference between three types of yields - 30-day SEC yield, distribution yield, and dividend yield - that investors can use to evaluate the performance of their ETFs. Understanding their differences is vital for investors seeking steady income streams.
Distribution Yield:
30-Day SEC Yield:
Dividend Yield:
Generating income likely has a place in most investor portfolios, and it’s valuable to understand how taxes may or may not impact your income stream.
ETFs from NEOS Investments aim to generate monthly income by selling index option contracts. It's important to note that the treatment of index options for tax purposes can be beneficial for investors. These options are treated as Section 1256 contracts and are taxed at a blended rate of 60% long-term capital gains and 40% short-term capital gains. This can result in a lower tax rate compared to traditional income streams.
In summary, understanding the differences between 30-day SEC yield, distribution yield, and dividend yield can help investors better evaluate the performance of their income-focused investments. 30-day SEC yield doesn't include income received from selling options, which is why distribution yield provides a more comprehensive representation of the income generated by NEOS ETFs. By considering all three yield calculations, investors can make informed decisions about their investments when evaluating different income-focused investment options.
Lastly, by generating income from selling options contracts and taking advantage of the tax benefits of Section 1256 contracts, options-based ETFs can offer a tax-efficient way for investors to seek income in today's challenging environment.
Seeking Tax-Efficient Monthly Income? NEOS ETFs aim to deliver the next evolution of options strategies, where seeking income is the outcome.
Aiming to Maximize Returns and Minimize Taxes: The Potential Benefits of Return of Capital Distributions in Option-Writing ETFs