Small-Cap ETF Offers High Income and Tax Efficiency

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Small-Cap ETF Offers High Income and Tax Efficiency

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The NEOS Russell 2000 High Income ETF (IWMI) aims to provide high monthly income with potential for equity appreciation by investing in small-cap stocks that are part of the Russell 2000 Index. The fund employs a data-driven call option strategy, which includes both sold and purchased Russell 2000 index options. This strategy is designed to generate income from option premiums.

A key feature of IWMI is its tax efficiency. Distributions from the fund have been classified as a return of capital, which may consist of option premiums, dividends, and capital gains. The fund utilizes Section 1256 options contracts, which are subject to a favorable 60% long-term and 40% short-term capital gains tax treatment, rather than being taxed as ordinary income. This tax structure can be particularly appealing to income-focused investors.

As of August 25, 2026, IWMI had assets under management (AUM) of $1.23 billion. The fund’s price has seen a yearly performance increase of 9.31%, with its NAV returns rising by 25.94% over the past year. Since its inception on June 25, 2024, the average annual return for IWMI has been 18.39%. While the covered call strategy can cap upside in strong bull markets, it is generally considered effective in range-bound and volatile market conditions. The expense ratio for IWMI is 0.68%.

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