The 1 ETF That Replaced My Entire Bond Portfolio and Pays 4x More

Bond portfolios are complex to manage if you look for fixed-income assets for varying corporations and governments. It gets even more complicated if you want to allocate funds across bonds of different ranks. Luckily, there is an ETF you can use to replace your entire bond portfolio. It also has a much more attractive yield, giving you the opportunity to potentially 4x your passive income.

The NEOS Nasdaq-100 High Income ETF Delivers With Options Trading

The NEOS Nasdaq-100 High Income ETF (NASDAQ:QQQI) has a much higher yield than almost any bond. Its 13.85% trailing twelve-month yield soars above most fixed-income assets, and it only has a 0.68% expense ratio. While that is a higher expense ratio than the average ETF, this fund compensates by delivering an excellent yield.

QQQI can deliver high yields because the fund managers sell covered calls for the Nasdaq 100. The fund uses Section 1256 index options, which means 60% of the distributions are treated as long-term capital gains, and the remaining 40% is treated as short-term capital gains. While short-term capital gains are treated like ordinary income, long-term gains have more favorable tax rates.

This fund is actively managed, and the professionals in charge will look at daily fluctuations in the Nasdaq 100 when deciding which options contracts to sell. They calculate several variables, such as strike prices, expiration dates, and other details, when deciding which covered calls to sell.

Tech is a big part of the portfolio

This fund allocates roughly half of its holdings into the tech sector. That’s no surprise since the Nasdaq 100 Composite is loaded with some of the top tech stocks in the market. Almost every single stock in the ETF is a large-cap, while only 12% of its holdings are mid-cap companies. This Nasdaq 100 play does not have any small-cap stocks.

The fund is up by roughly 12% over the past year if you include cash distributions. Although covered calls cap potential returns, this ETF still has exposure to one of the most promising benchmarks in the industry. The Nasdaq 100 has outperformed the S&P 500 over many years, with tech stocks playing a big role. As tech continues to innovate, the gap between the Nasdaq 100 and S&P 500 should continue to expand, much to the benefit of QQQI investors. 

QQQI Distributes Cash To Investors Every Month

One of the big reasons QQQI outshines most bond portfolios is that it delivers monthly cash distributions on top of providing respectable returns and a high yield. Bond investors have to carefully construct their portfolios to get monthly cash flow since it is more common for bond issuers to pay interest annually or semi-annually. Some bonds give out quarterly dividend payments, but monthly interest payments are extremely rare.

Not only does QQQI simplify it with monthly cash distributions, but a double-digit yield is almost impossible to find in the bond market without considering junk bonds. To top it all off, the QQQI payments are more favorable from a tax perspective than bond payments. You don’t need a collection of bonds when a single ETF can simplify the process and produce more cash flow for long-term investors.