Jesus is and always will be the best Investment!
In the ever-changing world of ETF’s, investors are constantly seeking opportunities to maximize their returns while also managing their risk. Two ETF’s that have garnered significant attention recently are the NEOS S&P 500 High Income ETF (SPYI) and the ProShares S&P 500 High Income ETF (ISPY). Both funds aim to provide investors with high income from the S&P 500 index, but they employ different strategies. In this article, we’ll dive into the comparison of SPYI v ISPY, exploring their similarities, differences, and potential benefits for investors.
Post Agenda
- SPYI Fund Overview
- ISPY Fund Overview
- SPYI v ISPY Strategy Comparison
- SPYI Pros & Cons
- ISPY Pros & Cons
- Risk & Volatility
- Who is SPYI Appropriate for?
- Who is ISPY Appropriate for?
SPYI Fund Overview
SPYI is an actively managed ETF launched by Neos Investments. The fund’s primary objective is to generate high monthly income for investors while maintaining exposure to the S&P 500 index. SPYI employs a strategy that involves investing in the S&P 500. These holdings earn dividends and the income is enhanced with an options strategy.
ISPY Fund Overview
ISPY, on the other hand, is a passively managed ETF launched by ProShares. This fund tracks the performance of the S&P 500 Daily Covered Call Index. They seek to provide investors with high income through a combination of equity exposure and option premium.
SPYI v ISPY Strategy Comparison
When comparing SPYI v ISPY it’s important to understand the nuances of each fund. Let’s discuss several different characteristics of to highlight how each attempts to benefit investors.
SPYI’s Strategy
SPYI’s strategy is comprised of four main components;
- Holding S&P 500 Stocks
- Collecting Dividends
- Covered Call Options Strategy
- Long OTM Call Options
The fund sells call options on the S&P 500 index to generate additional income. However, they differentiate themselves by re-investing some of those proceeds into long out of the money call options. Most covered call funds in existence simply sell the calls to increase the income but SPYI attempts to capitalize on some of the upside beyond the short call by purchasing these additional calls.
ISPY’s Strategy
ISPY employs a covered call strategy but they do it through the use of swap agreements. Strong 2008 vibes anyone? Regardless, the strategy is pretty easy to understand, they;
- Invest in S&P 500 Stocks
- Sell Daily Call Options on the S&P 500 Index through swap agreements
ISPY seeks to follow the S&P 500 Daily Covered Call Index while also returning investors an above average income. Additionally, ISPY may receive dividends from their holdings. In all, the strategy is mostly straightforward, ignoring any risk from those swap agreements, the fund aims to generate a consistent income by selling covered calls on a daily basis.
SPYI Pros & Cons
No comparison would be complete with out a succinct list of pros and cons for a potential investor to consider. Below I’ve provided what I believe are several of the most important items for consideration.
Pros
- Active Management could allow for future optimization
- Additional upside participation, beyond the short call
- Consistent monthly income
- Tax Efficiency through the use of Index options
- Diversified approach
Cons
- Higher expense ratio – 0.68%
- Additional complexity and management error
- Limited historical data
- Potential for underperformance
- Reliance on the options market
ISPY Pros & Cons
Some of the factors affecting or contributing to SPYI are also present with ISPY. Both funds seek similar objectives, only through a different approach. The most notable, in my opinion, are listed below.
Pros
- Lower expense ratio – 0.55%
- Simpler Options Strategy
- Stronger initial performance
- Potential for lower volatility
- Passive management may appeal to some investors
Cons
- Swap agreements make me uncomfortable
- Limited historical data
- Less flexibility with passive management
- Higher portfolio turnover from daily call options
- Dependent on the S&P 500 Daily Covered Call Index
Risk & Volatility
To fully compare SPYI v ISPY, risk and volatility are important factors to consider. From a volatility perspective, ISPY exhibits slightly higher volatility day-to-day. As of this writing, ISPY has a daily average range of $.45 where as SPYI has a daily average range of $.39. Not a significant difference but certainly something to keep an eye on.
Neither fund is without it’s risk. Chief among those risks is the limited historical data available for both funds. Ideally, I think we’d all prefer to see how they perform during a bear market before contributing our limited capital. Still, from a return perspective, it’s hard to ignore ISPY’s commanding lead. As of tonight, ISPY has returned north of 12% in price appreciation compared to SPYI’s sub 7%.
In all honesty, no one knows how either fund will perform when the market eventually does roll over. Neither has been in existence long enough for this valuable data. On the surface, an argument could be made that additional income will buoy these funds compared to their growth focused peers. A feature both funds are eager to promote, but with such limited data the jury is really still out on how either ETF will perform.
Who is SPYI Appropriate for?
- Investors seeking income through active management
- Investors seeking income through options
- Investors wanting additional upside in a bullish market environment
- Investors prioritizing consistent monthly income
While each investor is different, I think these are some of the more important features for consideration.
Active management could be debated at length but the upside is a more flexible approach. Sure, this flexibility could lead to other problems but it could also lead to solutions to problems so I guess that knife always cuts both ways.
In all, SPYI is probably more suitable to someone wanting complete transparency. Their approach just seems more clear and isn’t clouded by whatever fully constitutes a swap agreement. Though, similarly, the strategies SPYI employs may be reason enough to avoid them just the same.
Who is ISPY Appropriate for?
- Investors preferring passive index based strategies
- Investors preferring more traditional covered call approach
- Investors seeking a lower expense ratio
- Investors prioritizing consistent monthly income
If you’re seeking a passive approach and wanting to avoid the cost of long out of the money options then ISPY could make sense. I personally feel more aligned with SPYI but I also hold ISPY. If you’re interested to see how each of these holdings is performing for me you can view my Unqualified Portfolio here.
Still, to date, ISPY has performed significantly better than SPYI and they also boast a lower expense ratio, I don’t see how anyone would argue with that.
Final Thoughts
Well that about wraps up our SPYI v ISPY comparison. Honestly, it’s getting confusing keeping up with all the new offerings in the income investment space. These two ETF’s specifically, confuse me on almost a daily basis given the similar symbols.
Regardless, I hold both investments and don’t have plans to dump either of them at this time. Both have provided a consistent and similar income. SPYI has returned slightly more in income but they’ve also performed slightly worse overall, so by total return ISPY is performing better.
In closing, to determine which ETF is more appropriate for you would come down to the features you prefer. If you want a lower expense ratio then ISPY is the clear winner. Should you prefer a higher level of income then I think SPYI is more acceptable. If you’re seeking higher total returns, you should probably consider other alternatives first, but in the SPYI v ISPY debate, ISPY is the winner.
God bless,
Jeff
