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On September 17, 2023, the Federal Reserve cut its effective federal funds rate (EFFR) for the first time since 2024, prompting a favorable market reaction with a 1.42% increase. The cut raises concerns about the appeal of debt securities for income investors, as yields on fixed-income products decline, leading many to consider equities for better returns.
Currently, the NEOS S&P 500 High Income ETF (BATS: SPYI) offers an annual yield of 11.67%, equating to $6.15, with monthly dividends. The fund employs a covered call strategy, which has resulted in an average annual yield of 10% to 11% since its launch on August 30, 2022, and a growth of 8.46%. In contrast, the JPMorgan Equity Premium Income ETF (NYSEARCA: JEPI) offers a lower yield and has different investment strategies.
The NEOS fund is structured for tax efficiency under Section 1256 of the U.S. tax code, allowing 60% of gains to be taxed at long-term capital gains rates, compared to JEPI, where most distributions are taxed as ordinary income. This tax treatment may provide an additional benefit for SPYI investors seeking high yield.
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