The Two NEOS Income ETFs I Won't Own: BTCI's 33% 'Yield' and IWMI's Capped Small-Cap Rally

NEOS built its name on two covered-call ETFs, SPYI and QQQI, and the formula is genuinely sound. The firm writes index options against the S&P 500 and the Nasdaq-100, harvests the premium every month, and shields most of the payout from ordinary income tax through the 60/40 treatment of futures-style index contracts. It has worked well enough to draw in roughly $32 billion and, this August, an agreement by Goldman Sachs to acquire NEOS worth up to $2.25 billion. The consensus that follows is easy to reach: NEOS does options-based income well, so all of its funds must be worth owning.

That is where I break with the crowd. Two NEOS funds bolt the same covered-call engine onto assets that should not carry it — Bitcoin (BTCI) and the Russell 2000 (IWMI) — and the structural logic stops holding. In my opinion these are the two I would not own, and the tell is a number, not an opinion.

The machine that actually works

A covered-call fund is only as honest as the thing it writes calls on. On the S&P 500 and the Nasdaq-100 the premise holds: you are a diversified, cash-generative basket of large companies, selling a slice of upside you can afford to give up in exchange for a steady monthly premium. SPYI earns a roughly 12% distribution yield and QQQI about 14%, with the Section 1256 treatment keeping most of that outside ordinary-income rates. That combination of high, tax-efficient cash flow on a liquid index is a real product — the reason Goldman is paying up.

The engine only works, though, when the underlying is an asset you would hold for its cash yield or its stability. Bolt the same device onto a speculative asset whose entire appeal is capital appreciation, and you end up harvesting the very thing you bought the position to capture.

BTCI: a 33% yield that is mostly your own money

Here is the number that carries the Bitcoin case. On its own fund page, BTCI posts a trailing distribution yield near 33%, but its SEC yield — the measure of actual net investment income — is about 1.6%. Much of the gap between those two figures is return of capital: the fund is paying you back out of your own principal while wearing a yield costume. Chasing a 33% "income" stream that the fund only earns single digits on is, in my view, mistaking a refund for a salary.

The deeper problem is that call-writing is backwards on Bitcoin. You own a spot Bitcoin ETP because you want the rallies; a covered call sells exactly those rallies while leaving you fully exposed to a crypto winter on the downside. NEOS's own performance page shows its boosted Bitcoin fund (XBCI) down roughly 30% since launch. Sell-side coverage has said it plainly: the fund "is not Bitcoin," and a headline payout that large is largely an illusion.

IWMI: capping the rally that justifies the risk

The Russell 2000 version is the same misallocation with a calmer wrapper. IWMI holds near-total exposure to the small-cap index and overlays covered calls and call spreads to produce a monthly check of roughly $0.60 — a distribution yield around 13% to 14%. The flaw is that small caps are a high-beta asset whose case rests on sporadic, explosive catch-up rallies, and the strategy caps exactly those rallies. Through mid-July, IWMI was up about 17% year-to-date on a total-return basis while the plain Russell 2000 (IWM) was ahead by roughly 20% and up nearly 34% over the trailing year. You take the full downside of small caps and sell away their best months.

There is a quiet erosion problem too. Because part of that 13% is classified as return of capital, the per-share NAV grinds lower even when the headline yield stays fat — the same principal-thinning dynamic as BTCI, just slower. At a net expense ratio around 0.68% on a structure built on an already-cheap Vanguard ETF underneath, the wrapper is layering cost onto an asset that was never meant to fund a high monthly distribution.

Where I land

The covered-call machine is a good allocation tool in the one place NEOS markets it honestly: a broad, tax-efficient income sleeve on large-cap indexes, which is why SPYI and QQQI are the funds behind the deal. BTCI and IWMI break the formula because their income is manufactured — returned capital or sold upside — rather than earned. Should the tell change — if BTCI's SEC yield actually caught up to its distribution, or if IWMI's tax-deferral benefit mattered to you in a taxable account — I would revisit. As structured today, the two funds I would not own are the ones that quietly hand you your own risk back.