How NEOS Funds Contend for the Best Income ETFs Title

Infographic titled "Options-Based Income ETFs: A Major Financial Surge" highlighting $225 billion in flows, over 915 ETFs, and NEOS SPYI and QQQI strategies.

NEOS’ pitch is less about chasing a headline distribution rate and more about making a deliberate design choice. The article highlights a crowded options-income segment, where products can look similar while using very different tools: index options, single-stock options, swaps, or dividend overlays. For investors, that means the first screen is not yield alone, but methodology—what market exposure is being retained, what risks are being sold away, and how consistently the manager can execute the option overlay across different conditions.

Fees and structure matter because income strategies are not one-size-fits-all. SPYI and QQQI both charge 68 basis points, yet they sit on different benchmarks and may suit different portfolio roles. That matters for diversification: the Nasdaq 100 and S&P 500 are both equity exposures, but they behave differently in sector concentration and volatility. The article also underscores a practical point for selection: distribution rates can be useful context, but they should not be treated as a complete measure of total return, especially in strategies where option premium, dividends, and capital movement interact.

The most durable takeaway is portfolio use, not product hype. Options-income ETFs can be paired with traditional allocations to potentially reshape cash flow and reduce some drawdown sensitivity, but they still carry equity market risk, valuation risk, and path dependency. Because these funds are actively managed, investors should also watch trading costs, liquidity, and the possibility that strategy complexity leads to tracking difference versus simple benchmarks. In short, the better question is whether the fund’s rules, costs, and tax treatment fit the investor’s broader allocation and rebalancing plan.

Options income ETFs have exploded in popularity in recent years, picking up both massive flows and a notable number of new product launches. NEOS Investments has been one of the leaders in the space, with its largest ETFs holding more than $10 billion in AUM. Leaders from the firm shared their insights on VettaFi’s recent webcast: Navigate the Evolving Landscape of Options-Based Income ETFs.

Key Takeaways:

  • Income ETFs have exploded in popularity in recent years, with both growing variety and AUM.
  • This includes everything from index options ETFs to swaps and dividend-focused funds.
  • NEOS ETFs like QQQI and SPYI have billions in AUM operating in this space.
  Hosted by Cinthia Murphy, VettaFi director of research, the webcast included insight from NEOS’ Co-Founder, Managing Partner and Portfolio Manager Garrett Paolella and Co-Founder, Managing Partner & Portfolio Manager Troy Cates. The discussion explored in detail not only the firm’s offerings but also the types of options ETFs and their tax implications.

Key Benefits and Approaches in Options ETFs

The duo of Cates and Paolella explained that the options-based ETF space has seen huge growth with $225 billion in flows over the last three years. That growth includes the now 915 total option-based strategies, comprising roughly 20% of all U.S. ETFs. What’s more, the category, they noted, grew around 35% to 40% in that period. “Understanding what the strategy does, how it performs, (that) not even two … strategies are identical (is important),” Cates said. “So I think it’s making sure that you have a manager that understands options, option-based strategies well…that’s really dedicated to understanding the ins and outs of options and how those affect the portfolio in each one of those asset classes that you’re ultimately going to utilize options against,” he added. Cates and Paolella enumerated four core benefits or options income ETFs. The use of call and put options generate income, lowering correlation to various market risks like credit and duration, downside hedging, and enhanced tax efficiency. Perhaps more notable than the benefits, are the important distinctions in the types of options approaches. NEOS ETFs use index options, where other strategies engage in swaps or single stock options approaches, they explained. “It’s something you’ve got to talk to a tax professional about to really understand, but it’s something that we look at very closely as we’re building out these products,” Cates said, pointing to the ETF’s tax advantages and the complexities of options strategies’ tax implications. They also explained that overall, adding options-based strategies in otherwise traditional 60/40 allocations can help increase portfolio income, decrease maximum drawdowns, and reduce eta while maintaining similar equity exposure.

How NEOS Funds Compete With the Best Income ETFs

So what kind of funds does the firm offer to compete among the best income ETFs? NEOS’ top two funds by AUM target income from major indices: the NEOS S&P 500 High Income ETF (SPYI) and the NEOS Nasdaq 100 High Income ETF (QQQI). Both strategies actively invest, using call options to generate income alongside index dividends. According to ETF Database data, QQQI has returned 11.8% YTD while SPYI returned 11.9% over the same period. Both funds charge the same 68 basis point fee. SPYI offered an 11.4% distribution rate as of October 31, while QQQI offered a 14.1% distribution rate in that time, per NEOS Investments data. Together, SPYI and QQQI can help investors capture the full range of options-based benefits described by Cates and Paolella. For those looking to enhance income and elevate yield, these strategies offer strong contenders.
https://www.etftrends.com/monthly-income-content-hub/neos-funds-contend-for-best-income-etfs-title/

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