Gold Now Pays You: The Innovative Strategy Behind IAUI

The NEOS Gold High Income ETF (IAUI) offers investors a unique way to generate income from gold, an asset that typically produces no dividends or interest payments. To achieve this, the fund uses an actively managed options overlay to monetize some of gold's volatility and produce monthly distributions.

Gold exposure in IAUI is obtained through spot gold ETFs, allowing shareholders to benefit from movements in the price of physical gold without having to buy, transport, or store bullion. The options strategy involves selling calls and puts on gold ETFs, generating premiums that contribute to the fund's income.

The resulting distribution rate for IAUI is 11.98%, which is substantial compared to traditional gold investments. However, this comes with trade-offs: higher expenses and a potential reduction in participation in gold's appreciation. The fund charges a 0.79% expense ratio, which is higher than the cheapest long-only spot gold ETFs.

One of the key considerations for investors is the tax treatment of IAUI's distributions. According to the fund's September Section 19(a)-1 notice, approximately 86% of its latest distribution consisted of return of capital (ROC), which reduces an investor's adjusted cost basis rather than creating an immediate tax liability.