2 ETFs to Hedge Core Equity Portfolios & Earn Income

Amidst ongoing trade war and geopolitical tensions creating market volatility, NEOS Investments highlights its QQQH and SPYH ETFs as hedged equity income strategies. QQQH, focused on the Nasdaq-100, boasts a 9.74% distribution rate as of May 31, 2025, while SPYH, tracking the S&P 500, offers 7.94%; both employ option strategies to generate income and mitigate downside risk, benefiting from volatility and offering potential tax efficiencies through Section 1256 contracts.

Analysis

Persistent market volatility, exacerbated by ongoing trade disputes including new 50% tariffs on steel and renewed U.S./China trade tensions, alongside escalating geopolitical risks concerning Ukraine and Russia, has cultivated a risk-off sentiment among investors. In this environment, NEOS Investments presents two exchange-traded funds (ETFs) designed for downside protection and income generation: the NEOS Nasdaq-100 Hedged Equity Income ETF (QQQH) and the NEOS S&P 500 Hedged Equity Income ETF (SPYH). QQQH, benchmarked against the Nasdaq-100, has demonstrated notable performance over the past year and reported a distribution rate of 9.74% as of May 31, 2025. Its strategy employs a put spread option collar on Nasdaq-100 index options, which involves writing calls to generate premiums for income and to fund the purchase of out-of-the-money put spreads, while simultaneously selling far-out-of-the-money puts to further fund put purchases and generate income. This options-writing approach is structured to benefit from periods of heightened market volatility through increased premium generation. Additionally, QQQH offers potential tax efficiencies, as its index options qualify as Section 1256 contracts, subject to a 60% long-term and 40% short-term capital gains tax treatment irrespective of the holding period, alongside possibilities for tax deferment via return of capital distributions and active tax-loss harvesting by management. SPYH, launched on April 2, 2025, applies a similar strategy to the S&P 500 and reported a distribution rate of 7.94% as of the end of May 2025. Both ETFs carry an expense ratio of 0.68% and are positioned as complementary holdings to core equity portfolios seeking to mitigate risk and enhance income.

Key Decisions for Investors

• Investors confronting heightened market uncertainty from trade disputes and geopolitical risks should evaluate hedged equity strategies like QQQH and SPYH for potential downside mitigation and income generation.
• The notable distribution rates (QQQH: 9.74%, SPYH: 7.94%) and tax efficiencies derived from Section 1256 contracts make these ETFs worthy of consideration for income-focused investors seeking to optimize after-tax returns.
• Given that the underlying options strategies are designed to benefit from market volatility, continued monitoring of volatility levels and geopolitical developments is crucial when assessing the suitability of these funds for an investment portfolio.