NEOS debuts option-enhanced income ETFs

Connecticut-based NEOS Investments has made its ETF debut by launching three actively managed funds that utilize option strategies to deliver enhanced income.

Two of the new ETFs are fixed income funds providing multi-sector and ultra-short Treasury exposures.

The NEOS Enhanced Income Aggregate Bond ETF (BNDI US) and NEOS Enhanced Income Cash Alternative ETF (CSHI US) have been listed on NYSE Arca with expense ratios of 0.58% and 0.38%, respectively.

BNDI broadly replicates the US aggregate bond market which consists of US dollar-denominated, investment-grade fixed income securities from government, corporate, and securitized issuers.

CSHI, meanwhile, covers US Treasury bills with less than three months remaining to final maturity.

Both ETFs also incorporate actively managed put spread strategies on the S&P 500 Index. A put spread typically involves simultaneously selling and buying put options where the strike price of the long put options is set below the strike price of the short put options.

The strategy generates income from the net option premium and will typically be profitable when equity markets are rising, flat, or moderately bearish. While a put spread will typically suffer in more strongly bearish markets, losses will generally be capped when the S&P 500 falls below the strike price of the long put options.

NEOS’s third launch is the NEOS S&P 500 High Income ETF (SPYI US) which has been listed on Cboe BZX Exchange with an expense ratio of 0.68%.

SPYI replicates the S&P 500 while utilizing an actively managed call spread strategy. A call spread typically involves selling and buying call options on the S&P 500 where the strike price of the long call options is set above the strike price of the short call options.

The call spread strategy also generates a net option premium. The ETF’s total exposure (long S&P 500 exposure combined with a call spread) will typically outperform the S&P 500 in falling, flat, and moderately bullish equity markets. Although the fund will underperform the S&P 500 in strongly bullish markets, losses will generally be capped when the S&P 500 rises above the strike price of the long call options.

All three ETFs make distributions to investors on a monthly basis.

Garrett Paolella, co-Founder and Managing Partner at NEOS Investments, said: “Investors need and deserve an enhanced suite of options-based ETFs to help them build more resilient core equity and income portfolios. Aiming to solve today’s increasingly complex portfolio construction challenges is something my colleagues and I are very excited to be doing with the rollout of these ETFs, and we are thrilled to be able to start talking with investors, advisors, and institutions about the role our solutions can play in all types of portfolios.”

Published on September 5, 2022

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