A Fat 13% Yield From the Russell 2000? Meet the Covered-Call Fund Betting Against Big Tech

4 weeks ago 13

Omor Ibne Ehsan

Sat, July 18, 2026 astatine 7:45 AM CDT 4 min read

Quick Read

IWMI writes covered calls against the Russell 2000 to present a 13% yield, giving income investors a small-cap alternate to mega-cap tech funds.
IWMI returned 17% year-to-date done mid-July 2026, trailing IWM's 20% arsenic its telephone overlay capped upside during a beardown small-cap rally.
Return-of-capital distributions defer taxes successful taxable accounts, which makes IWMI a stronger acceptable arsenic a 5 to 10% income allocation than wrong a Roth IRA.
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Most high-income covered-call ETFs thin connected the S&P 500, Nasdaq-100, oregon single-stock overlays connected NVIDIA (NASDAQ:NVDA). The NEOS Russell 2000 High Income ETF (BATS:IWMI) writes calls connected tiny caps instead, allowing income investors to diversify output distant from mega-cap tech. The organisation complaint sits successful the 13% to 14% range.

Concept of Small-Cap Stock constitute connected a publication isolated connected Wooden Table.

What IWMI Owns and How It Pays

IWMI parks astir each superior successful the Vanguard Russell 2000 ETF, astatine astir 99.88% of the portfolio, past overlays covered calls and telephone spreads connected the Russell 2000. Option premium positive underlying dividend equals monthly income. NEOS uses Section 1256 contracts, which person blended 60/40 long-term/short-term superior gains treatment, with distributions historically classified successful portion arsenic a instrumentality of capital.

Return of superior matters successful taxable accounts: it avoids contiguous taxation and lowers outgo basis, deferring taxation until sale. This is genuinely utile if you recognize it: portion of each monthly outgo is your ain superior returning.

The money launched June 25, 2024, is tally by NEOS Investments, has grown from $439 cardinal astatine inception to astir $1.06 cardinal by July 2026, and charges a nett disbursal ratio of 0.68% (gross 0.76%). Monthly distributions tally astir $0.60 per share.

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Does the Strategy Deliver?

IWMI closed astatine astir $53 successful mid-July 2026, up 17% year-to-date connected a total-return basis. Compare that to the iShares Russell 2000 ETF (NYSEARCA:IWM), which returned astir 20% year-to-date and astir 34% implicit the trailing year. IWMI trailed the bare scale successful a beardown small-cap tape, precisely what covered-call funds do. The calls capped upside. You collected income alternatively of the last rally leg.

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