Meet NLSI: The Long-Short ETF Designed To Pay Investors Every Month

In a market where conviction can turn on a dime faster than sentiment, NEOS Investments believes that being neutral can, in fact, be a positive. The firm officially launched the NEOS Long/Short Equity Income ETF (BATS:NLSI) on Dec 11, as a fund that utilizes a long/short equity strategy in combination with options to harvest income.

NEOS has made a name for itself through its options-based income approaches. With NLSI, it is leveraging these capabilities in the age-old space of long/short investment, a field that has long been the purview of hedge funds and active mutual funds, and in select instances, ETFs. The outcome is strategy designed to seek income and equity appreciation without requiring investors to make a decisive call on market direction.

According to the firm, the NLSI employs a proprietary model that builds the long and short equity portfolios for the fund. In addition, the fund aims to benefit from the tax-loss harvesting and has utilized the options on the SPX Index options that qualify as Section 1256 contracts, which benefit from a blended 60/40 tax treatment—60% taxed at long-term capital gains rates and 40% at short-term rates, regardless of holding period.

Often, the idea of neutrality in the market is central to many long/short investing techniques and involves being affected to a greater extent by security selection rather than market movement. NEOS has indicated that NLSI will typically maintain about 30 long and 30 short positions to reflect its neutrality. Clearly, the fund will not take an aggressively positive or negative market view to avoid timing-related risks.

NEOS management believes that income is another point of diversification. The company claimed that NLSI can offer high monthly income accompanied by the opportunity for appreciation of equities. The ETF could achieve this by maintaining a lower correlation between traditional equities and income investments. For investors looking to smooth returns in uncertain markets, NLSI is positioning itself as a strategy designed to work quietly in the background—regardless of which way stocks decide to swing.

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