The Case for NEOS Gold High Income ETF (IAUI) in a Diversified Income Portfolio

In today's macroeconomic climate—marked by persistent inflation, central bank uncertainty, and a search for yield—investors are increasingly prioritizing assets that balance income generation with downside protection. Enter the NEOS Gold High Income ETF (IAUI), a unique vehicle that combines exposure to physical gold with a data-driven call option strategy to deliver monthly distributions. While traditional gold ETFs like SPDR Gold Shares (GLD) or Sprott Physical Gold Trust (PHYS) offer inflation hedging, they lack the income component that IAUI delivers. For those seeking to diversify their portfolios while navigating a low-yield environment, IAUI's structure is worth a closer look.

The Dual Appeal: Income and Inflation Protection

Gold has long been a cornerstone of inflation-protected portfolios, but its lack of yield has historically limited its role in income-focused strategies. IAUI bridges this gap by leveraging a call option strategy on gold exchange-traded products (ETPs). As of July 2025, the ETF's annualized distribution rate of 1.05%—though partially classified as return of capital—offers a compelling monthly income stream. This yield is particularly attractive when compared to traditional gold ETFs, which typically distribute little to no income.

The fund's strategy is straightforward: it writes call options on gold ETPs, collecting premiums that fund its monthly distributions. These premiums are amplified by the fund's allocation to short-term U.S. Treasury Bills (73.48%) and other mutual funds (24.06%), creating a stable base for option writing. While this approach introduces volatility—IAUI's 20-day volatility of 10.75% is higher than its peers—the tax-efficient structure (Section 1256 contracts) ensures that gains are taxed at favorable rates, enhancing after-tax returns.

Strategic Fit in a Diversified Portfolio

The key to IAUI's value lies in its ability to serve as a non-correlated income source in a diversified portfolio. Gold's inverse relationship with equities during periods of economic stress makes it a natural hedge, while the options strategy adds a layer of income that can offset dividend cuts in other sectors. For investors wary of rate hikes or geopolitical risks, IAUI's dual mandate—preserving capital through gold and generating income via options—offers a compelling risk-reward profile.

Consider this: IAUI's 0.78% expense ratio is in line with the ETF Database Commodities category average, and its $24.2 million AUM suggests it's still in its early growth phase. While liquidity remains a concern (average daily volume: 33,314 shares), the fund's structure is designed for scalability. As macroeconomic uncertainty persists, demand for assets like IAUI—combining income and inflation protection—could surge.

Risks and Realities

No strategy is without risks. IAUI's performance is tied to the volatility of gold prices and the effectiveness of its options strategy. A sharp decline in gold could pressure the fund's net asset value (NAV), while a rise in gold might reduce the premium income from call options. Additionally, 91% of the fund's most recent distribution was return of capital, which erodes principal. Investors must weigh these factors against their risk tolerance and time horizon.

That said, IAUI's role as a satellite holding in a broader portfolio—rather than a core allocation—mitigates these risks. Pair it with equities, bonds, and other commodities to balance volatility while maintaining exposure to gold's inflation-hedging properties.

Final Take

For income-focused investors navigating a world of macroeconomic headwinds, IAUI represents a novel approach to diversification. Its ability to generate monthly income while offering a hedge against inflation sets it apart from traditional gold ETFs. While its performance history is limited (launched June 2025), the fund's tax efficiency and strategic design make it a worthy consideration for those seeking to enhance their portfolios with a non-traditional asset.

In a market where certainty is elusive, IAUI's blend of gold's timeless appeal and options-based income could prove to be a valuable tool. Just remember: this isn't a get-rich-quick play—it's a long-term strategy for those who understand the risks and rewards of volatility.