SPYI V. JEPI: This NEOS Fund Is Just Better Constructed

A comparative analysis of covered call ETFs, NEOS S&P 500 High Income ETF (SPYI) and JP Morgan Equity Premium Income ETF (JEPI), highlights SPYI's stronger performance and tax efficiency. Since August 2022, SPYI achieved 52.84% total returns and an 11.70% trailing yield, significantly outpacing JEPI's 33.33% returns and 8.4% yield. SPYI, employing a more aggressive options strategy and growth-oriented holdings, offers superior tax advantages via 1256 contracts and has demonstrated robust NAV growth and rally outperformance, positioning it as a more compelling choice for investors seeking a balance of income and total returns over JEPI's conservative, income-focused strategy.

Analysis

A comparative analysis of the NEOS S&P 500 High Income ETF (SPYI) and the JP Morgan Equity Premium Income ETF (JEPI) reveals a significant performance and strategic divergence. Since its inception in August 2022, SPYI has delivered a total return of 52.84%, substantially outperforming JEPI's 33.33% over the same period. This outperformance is driven by SPYI's growth-oriented strategy, which seeks to track the S&P 500 and utilizes a more aggressive options approach by buying out-of-the-money options to capture greater upside. In contrast, JEPI adopts a more defensive posture with diversified holdings in sectors like healthcare and a simpler options strategy of selling near-at-the-money calls, which has resulted in marginal outperformance during sell-offs (2% better than SPYI in a recent downturn) but significant underperformance in rallies (lagging SPYI by nearly 10%). Furthermore, SPYI offers a distinct tax advantage through its use of 1256 contracts, where gains are taxed 60% as long-term capital gains, while most of JEPI's distributions are taxed as ordinary income. Although SPYI has a higher expense ratio at 0.68% versus JEPI's 0.35%, its superior total return and NAV growth have fueled a higher trailing yield of 11.70% compared to JEPI's 8.4%. The primary risk noted for SPYI is its lack of a track record in a protracted market sell-off.

Key Decisions for Investors

• Investors seeking a combination of high income and capital appreciation should consider SPYI, as its strategy has demonstrated superior total returns and the ability to capture significant market upside.
• For those in taxable accounts, SPYI presents a more tax-efficient income alternative due to its structure utilizing 1256 contracts, which provides a more favorable tax treatment than JEPI's ordinary income distributions.
• Conservative investors prioritizing stable income and modest downside protection might still prefer JEPI, given its consistent achievement of its ~8% income target and its slightly better performance during short-term market declines.
• A key factor to monitor for SPYI is its performance in a sustained bear market, as its aggressive, growth-focused strategy has not yet been tested in such an environment since its 2022 launch.