SPYI: The New High-Income ETF That Is Outperforming Both JEPI And XYLD Thus Far In 2023

It’s been six months since I first began researching the NEOS S&P 500 High Income ETF SPYI — continuously benchmarking its performance against the JPMorgan Equity Premium ETF JEPI.

In this post, I want to analyze the NEOS S&P 500 High Income ETF’s performance year-to-date as well as compare that performance to other popular income-focused ETFs. To remind everyone, the Neos S&P 500 High Income ETF investment objective seeks to generate high monthly income in a tax efficient manner with the potential for equity appreciation in rising markets.

SPYI is an actively-managed exchange-traded fund that seeks to achieve its investment objective by investing in a portfolio of stocks that make up the S&P 500 Index and a call option strategy, which consists of a mix of written (sold) call options and long (bought) call options on the S&P 500 Index.

Price Performance

When researching high-income ETFs to add to an income-focused portfolio, an important consideration is total performance. Plainly speaking, what's the point of holding an ETF that generates double-digit distribution yields if the price return of the ETF declines over time?

For example, at the time of writing (10/23/23), JEPI’s price return year-to-date has been -3.06% — compared to the S&P 500’s year-to-date return of 11.07%. Sure, JEPI paid their investors 6.51% in income year-to-date — but even after considering both their year-to-date price action and their yield (3.05% total return), you still would have been better off investing into the S&P 500 and simply selling your profits to supplement your income. 

We see a similar story with the Global X S&P 500 Covered Call ETF XYLD. This ETF’s price return has been slightly more favorable than JEPI’s — coming in at -3.01% year-to-date, as well as boasting a healthy 8.40% in income paid year-to-date. However, when considering their total return of 5.56%, you still would have been better off investing into the S&P 500 and simply selling your profits to supplement your income.

What About SPYI? 

SPYI’s price action year-to-date has been 1.62%, while paying income of 9.34% — a total return of 10.99%. This figure is substantially closer to the S&P 500’s total return of 11.38% year-to-date. So close, in fact, that SPYI has captured over 96% of the S&P 500’s total return thus far in 2023. 

And after taking into account their tax-efficient strategies — ensuring more is kept in your pocket come tax time by leveraging Section 1256 contracts and tax-loss harvesting — your after-tax returns become increasingly more favorable when compared to simply selling your short-term S&P 500 profits to supplement your income.

From a pure price return perspective, SPYI has outperformed both JEPI and XYLD by 4.68% and 4.63%, respectively. This is mainly because of the way that SPYI writes their option contracts. According to the holdings (as of 10/23/23), the Fund is writing covered call option contracts with a strike price roughly 5% “out of the money.” 

Compare this now to XYLD’s holdings (as of 10/23/23) — who seems to be writing covered call option contracts with a strike price “at the money.” Because of this "passively managed" option strategy, XYLD's monthly dividend payments to their investors vary greatly. This is likely because of their inability to adjust option positioning month-to-month despite market volatility or price action.

By writing covered call option contracts "out of the money," SPYI's price is able to appreciate in value in rising markets. This isn't the case for XYLD, as once the S&P 500 has appreciated beyond the strike price of their covered calls, their upside is capped at the total amount of premium generated by the option contracts.

Yields

As shared before, SPYI’s year-to-date income has been 9.34% — with a current annualized distribution yield of 12.22% (as of 10/23/23). Year-to-date, SPYI has paid out $4.37 per share in the form of cash dividends to their investors. 

Year-to-date, XYLD has paid out $3.21 per share in the form of cash dividends to their investors and boasts a 10.21% annual distribution yield. Year-to-date, JEPI has paid out $3.44 per share in the form of cash dividends to their investors and boasts a 8.19% annual distribution yield. Both of these yields are quite healthy, but certainly not double digits like SPYI’s.

Conclusion

The NEOS S&P 500 High Income ETF has outperformed both the JPMorgan Equity Premium Income ETF and the Global X S&P 500 Covered Call ETF in price appreciation, income generated year-to-date, and total return. 

Moreover, these returns don't include the favorable tax efficiencies afforded to its investors — potentially keeping even more money in investor pockets when Uncle Sam comes knocking. JEPI and XYLD certainly have their place in income-focused investor portfolios — but with their year-to-date total returns lagging both the S&P 500 and SPYI in a meaningful way — I begin to question "Where?"

As an income-focused investor myself, I'm surprised more investors don't know about the obvious benefits of choosing SPYI over its peers.

This content is for informational purposes only and is not intended to be investing advice.