QQQI: An Award-Winning Income Strategy

Introduction

QQQI has officially been trading on the stock market for 15 months. During this period of time, we've experienced both upside price appreciation as well as a proper bear market correction in the Nasdaq-100. In this post, I'm going to analyze the fund's performance and compare it to other leading Nasdaq-100 covered call ETFs such as JEPQ and QYLD.

To remind everyone, the NEOS Nasdaq-100 High Income ETF's investment objective seeks to generate high monthly income in a tax-efficient manner with the potential for equity appreciation in rising markets.

QQQI 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 Nasdaq-100 and a call option strategy, which consists of a mix of written (sold) call options and long (bought) call options on the Nasdaq-100 Index.

The fund generates this tax-efficient monthly income by selling index options classified as Section 1256 contracts. These types of contracts receive favorable tax treatments from the IRS as explained further here. Their fund managers sell their covered call option contracts 3-5% out of the money allowing for upside potential in rising markets. They also roll their contracts on a monthly basis, giving investors consistent monthly income.

Now that we're all on the same page as to what QQQI is and how the fund works behind the scenes, let's dig into the fund's performance since inception 15 months ago and compare it to other leading covered call Nasdaq-100 ETFs.

Performance

Since inception, QQQI has delivered a total return of +19.9%. This +19.9% total return includes +5.1% of price appreciation, with the remainder of the return coming in the form of tax-efficient monthly income.

As you can see below, this tax-efficient monthly income has been very consistent in size — hovering around $0.62 per share paid to investors.

The recent pullback in the Nasdaq-100 caused the fund to pay a slightly smaller distribution to investors for the month of April as the Nasdaq-100 plummeted -16%. However, as I write this, the Nasdaq-100 is back to pre-Liberation Day highs which tells me next month's distribution should be back around that $0.62 per share range.

On the surface, QQQI paid their shareholders a lower distribution in April — but once you dig deeper and do the math you’ll realize their April distribution remained the same on a percentage basis per share. Their NAV dropped, but the percent distribution paid per share stayed the same at 1.2% of NAV.

Interestingly, QQQI's total return since inception is par for the course when compared to the total return of the underlying index it tracks.

The Nasdaq-100 has delivered a total return of +20.9% since QQQI's inception, outpacing the covered call ETF by only +1.0%. As an income-focused investor, this is as good as it gets! On a total return basis, QQQI has captured almost all of the Nasdaq-100's upside. For investors actively taking the monthly income (rather than reinvesting the distributions), it has offered tax efficiency and positive price return.

When we reflect upon how other leading Nasdaq-100 covered call ETFs performed in relation to QQQI year-to-date, we get a very different picture. QQQ's total return is -4.8%, QQQI's total return is -4.7%, JEPQ's is -6.4%, and QYLD's is -7.0%. The reason for the underperformance by the other covered call ETFs is how they're constructed. For example, QYLD has performed so poorly in relation to QQQI (and QQQ) this year because of how their fund managers are writing their covered calls — at-the-money.

When you write a covered call option contract at the money you're essentially foregoing all upside appreciation for maximum income today. Considering the volatility we've experienced year-to-date, specifically the recovery we've seen in the index since Liberation Day, QYLD has done a poor job of capturing that upside price appreciation.

JEPQ has done a better job than QYLD, specifically because they're writing out-of-the-money covered call opinion contracts, but still underperformed QQQI given their "black box" of underlying holdings.

As a reminder, JEPQ's investment objective is to seek current income while maintaining prospects for capital appreciation. The Fund seeks to achieve this objective by creating an actively managed portfolio of equity securities composed significantly of those included in the Fund's primary benchmark, the Nasdaq-100 Index, through equity-linked notes (ELNs), selling call options with exposure to the Benchmark.

Those "equity-linked notes" are taxed as ordinary income — which means even though JEPQ delivered a -6.4% total return as of writing, the after-tax return is much lower depending on your effective tax rate. This is very different from QQQI's Section 1256 contracts, which again, receive very favorable tax treatments from the IRS. Additionally, the holdings inside of JEPQ are not the same as the Nasdaq-100 — they're similar, but not the same.

As we look back over the last 12 months, it's obvious who's delivering a higher (more tax-efficient) yield.

This is also reflected below as QQQI's 1-year performance as of writing this on May 5th yields the highest trailing yield as well as the best total return.

Summary

As an income-focused investor, it's hard for me to understand why anyone would hold JEPQ or QYLD in their portfolio. Sure, with JEPQ you're trusting veteran fund managers to find and hold "undervalued" technology stocks, which could have its perks — although we've yet to see those "perks" come to fruition. But with QYLD, there is no excuse.

You're holding an underperforming fund that has proven time and time again that it 1) will not be able to keep up with the Nasdaq-100 during times of volatility and 2) lags behind its competitors when performance is needed most.

I choose to be invested in QQQI above JEPQ and QYLD because this fund is more tax-efficient, outperforms its competitors during times of immense volatility, and does a wonderful job of turning Nasdaq-100 price appreciation into monthly income. It does this by holding all underlying constituents of the Nasdaq-100 Index (not just some cherry-picked names like JEPQ) and writing covered call option contracts 3-5% out of the money (unlike QYLD).

You might argue that 15 months of data isn't enough to make a decision — and that's understandable. However, between rising inflation, a Trump tariff tantrum, the unwind of the Yen carry trade, and every other "unpredictable" event that has caused the Nasdaq-100 to move up, down, left, right, and in circles — this is all the proof I need. Additionally, QQQI receiving the award for "Best New Active ETF" from ETF.com the other week also proves my point.

We've seen how QQQI was able to deliver very similar total returns to the Nasdaq-100 while providing tax-efficient monthly income to its investors. The same can't be said about JEPQ nor QYLD.

Disclaimer: This is not financial advice or recommendation for any investment. The content is for informational purposes only, you should not construe any such information or other material as legal, tax, investment, financial, or other advice. I/we have a beneficial long position in the shares of QQQI either through stock ownership, options, or other derivatives. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article. Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor.