SPYI & QQQI: High-Yield ETFs with Hidden Trade-offs

The NEOS S&P 500 High Income ETF (SPYI) and NEOS NASDAQ-100 High Income ETF (QQQI) represent a compelling proposition for income-focused investors seeking double-digit returns from mainstream market indexes. SPYI advertises an impressive annual distribution rate of 12.16%, while QQQI goes even further with a 14.28% distribution rate, both paying cash distributions on a monthly basis. This stands in stark contrast to traditional index ETFs like the SPDR S&P 500 ETF (SPY) with its 1.09% forward annual dividend yield and the Invesco QQQ Trust (QQQ) at just 0.47%.

Both NEOS funds achieve these remarkable yields through sophisticated options-trading strategies that typically include writing covered calls against their underlying holdings. This approach allows investors to maintain exposure to the S&P 500 and NASDAQ 100 indexes while generating substantial income beyond traditional dividends. The monthly distribution schedule provides frequent opportunities for investors to reinvest and potentially compound their returns, creating an attractive proposition for those prioritizing regular income over pure capital appreciation.

While the distribution numbers appear compelling, investors must consider the full picture, including expense ratios and performance trade-offs. Both SPYI and QQQI charge annual operating expenses of 0.68%, significantly higher than many traditional index ETFs. More importantly, the same covered call strategies that generate high income also limit upside potential during strong market rallies.

Performance data reveals the substantial opportunity cost of choosing these high-income ETFs. As of October 16, 2025, the SPY ETF’s share price increased by approximately 14% over the preceding 12 months, while SPYI gained only 0.5% during the same period. The disparity was even more pronounced with the technology-focused funds: QQQ rallied 22% over the past year compared to QQQI’s 5% increase. This performance gap highlights the fundamental trade-off between generating high current income and participating fully in market appreciation.

Investors should also note that distribution rates are not guaranteed. NEOS can reduce the distribution rates of both SPYI and QQQI at any time, potentially altering the income profile that attracted investors initially. The combination of capped upside potential, ongoing expense drag, and variable distribution rates creates a more complex investment proposition than the headline yield figures might suggest.

For investors considering SPYI and QQQI, the decision ultimately comes down to investment objectives and time horizon. These funds may be particularly suitable for retirees or income-focused investors who prioritize regular cash flow over long-term capital growth. The instant diversification provided by exposure to the S&P 500 and NASDAQ 100 indexes, combined with high monthly distributions, creates a compelling package for those needing consistent income.

However, investors seeking total return or those with longer time horizons might find traditional ETFs like SPY and QQQ more appropriate, despite their lower yields. The historical performance data clearly demonstrates that the opportunity cost of missing out on market appreciation can outweigh the benefits of higher income in strong bull markets. With equal-sized positions in SPYI and QQQI potentially yielding an average annual distribution rate of 13.22%, investors must carefully weigh whether this income adequately compensates for the sacrificed capital appreciation.

Regular monitoring and portfolio rebalancing are essential for investors in these funds. The dynamic nature of options-based strategies means that the relationship between income generation and capital appreciation can shift with market conditions. Investors should be prepared to adjust their allocations as market environments change and their personal financial needs evolve, ensuring that their investment approach remains aligned with their overall financial objectives.