The NEOS Nasdaq 100 High Income ETF (QQQI) surpassed $1 billion in AUM last week as investors increasingly look to options-based strategies amidst volatility. The fund offers high income with a notable distribution rate, and layers of tax efficiency for investors.

QQQI crossed the one-year mark in trading at the end of January and follows in the footsteps of the popular NEOS S&P 500 High Income ETF (SPYI). SPYI currently holds over $3 billion in AUM.

“Advisors are increasingly seeking options-based equity income strategies to support their clients’ total return objectives,” said Todd Rosenbluth, head of research at VettaFi. “NEOS has established a leadership position due to its expertise in tax efficient income generation.”

The income earned by the strategy continues to draw the attention and flows of advisors and investors. QQQI generated a distribution rate of 14.21% as of February 28, 2025. Distribution rate annualizes the most recent distribution and divides by the fund’s NAV. It’s a more forward-looking measurement of returns for investors, making QQQI an enticing addition to portfolios.

QQQI: High Income & Tax-Efficiency Within the Nasdaq

The fund is actively managed and provides exposure to the Nasdaq-100 Index. Through the use of options writing, it puts tech stock volatility to work for income. QQQI uses a data-driven covered call options strategy designed to generate high income potential.

Covered calls entail buying an asset while also writing a call on the underlying asset. This generates a premium, but also caps the upside potential should the underlying asset appreciate. QQQI also uses a call spread to achieve its income goals. This spread allows for more of the underlying to potentially participate in upside market movements when they occur, compared to indexed covered call option strategies.

In addition to potential upside capture, the fund offers layers of tax efficiency for income-oriented investors. The options that QQQI uses are call options on the NDX and qualify as section 1256 contracts. These receive favorable tax treatment under IRS rules. The options held at year’s end are treated as if sold at fair market value on the last market day. Any capital gains or losses are taxed at 60% long-term and 40% short-term, no matter how long they were held.

Should equities rise or fall, NEOS can actively manage the call options to capture gains in the underlying assets or minimize losses. In addition, the fund’s managers also engage in tax-loss harvesting opportunities throughout the year on the call options, equity holdings, or both.

QQQI has an expense ratio of 0.68%.

For more news, information, and analysis, visit the Tax-Efficient Income Channel.