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With gold trading near its highs at the time of writing, experiencing high levels of volatility and uncertainty about its trajectory, many investors are wondering whether covered call ETFs are an appealing solution. And that is what I asked myself while studying the structure of the NEOS Gold High Income ETF (IAUI). Here I’ll answer what this ETF does, in which market phases is it more likely to perform well, and which type of investor this ETF is for.
Intro And Definition
This is an active ETF, with inception on June 4, 2025, designed to combine exposure to gold and high monthly income. Clearly, it is not a traditional gold ETF. It’s a combination of collateral in Treasuries, exposure to gold via up to 25% allocation to a Gold ETP, synthetic exposure through options, and the selling of calls to generate income. For this reason, the expense ratio is relatively high, at 0.78%, a factor that does not appear to be slowing IAUI’s capital inflows, which today has an AUM above $412.5 million.
IAUI: profile (Seeking Alpha)
It is viewed as a periodic cash flow instrument, also thanks to the monthly distribution frequency and a yield that today stands at 8.27%. Considering a 30-day SEC yield of about 1.75%, clearly we are not talking about “natural income,” but rather the result of a structure that combines option premiums, interest on collateral, and a very significant share of return of capital (the factsheet indicated that, on the most recent distributions, 93% was estimated as return of capital).
IAUI: dividend grade (Seeking Alpha)
What Does IAUI Do?
The objective of the fund is to generate high monthly income with potential appreciation based on exposure to ETPs that have direct exposure to gold. The income is generated by 3 engines:
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Participation, at least partial, in the movement of the gold price.
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Collection of premiums from the calls sold.
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Income from Treasuries/money market held as collateral.
IAUI: return driver (Author)
For this reason, it is seen by many as a tool useful for those who want to remain exposed to gold while at the same time receiving monthly payments. Payments that introduce the classic cap on the upside of the underlying price (typical of the buy-write and many covered-call strategy ETFs).
IAUI – GLD: price return (Seeking Alpha)
For this reason, in many cases it is mainly seen as a means to monetize an already advanced bull market or a consolidation phase of gold. Specifically, I think that this table of my reworking can summarize well the market conditions favorable to IAUI.
IAUI: market condition (Author)
This is because the fund maintains a cap on the upside of the underlying, applying a strategy that monetizes the differential between implied volatility and realized volatility. When the differential is high and the price remains in a neutral oscillation range, the fund can generate a particularly interesting income flow.
IAUI: Yield on cost (Seeking Alpha)
Certainly not to be confused with a gold-neutral strategy. The distribution can mitigate declines, but attention: IAUI does not profit from a decline in gold as a true short or market-neutral strategy would. The volatility is, in fact, equal to that of the underlying (GLD).
IAUI – GLD: total return (Seeking Alpha)
Who Is IAUI For?
In my opinion, this makes IAUI especially suitable for an investor who wants exposure to gold but also a monthly cash flow and who accepts giving up part of the metal’s upside in exchange for income—a yield-seeking investor, that is, someone interested in converting a bullish or cautious view on gold into a more “cash flowing” form. This is also a strategy that tax-aware investors consider, given its predilection to RoC income. It’s important to note that in the event that an investor’s cost basis hits $0, anything above that is taxed as long-term capital gains.
IAUI: dividend history (Seeking Alpha)
Today, with the price of gold fighting at its highs, IAUI becomes for many a form of cushion and a way to monetize, through the premiums collected, the volatility increasing with the new global conflicts. The volatility and price action of Gold, of course, will change in different environments.
GLD (Seeking Alpha)
Conversely, IAUI loses some meaning for those who expect a very strong, linear, and prolonged bull market in gold. In such a scenario, the covered call strategy structurally tends to underperform spot gold ETFs.
MUI – GLD – IAU: sideway trend (Seeking Alpha)
How Is IAUI Built?
From the prospectus it emerged that the construction of the fund is based on three main blocks:
- Up to 25% of assets in Gold ETPs, mainly through a controlled foreign corporation;
- Up to 75% of the NAV in synthetic exposure through the purchase of calls and the sale of puts on Gold ETPs;
- Selling calls to generate income with notional between 50% and 100% of the NAV.
IAUI: portfolio component (Author)
As for the first and the second block, it must be said that the exposure to gold is not pure but hybrid. It is a direct exposure via Gold ETP synthetic exposure via long call + short put. Then, (as for the third block) the fund mainly uses FLEX Options, in addition to traditional options, with monthly expiration and constantly rolled. In this sense, the manager has broad discretion over the percentage of coverage, the strike of the calls, and also the rolling. Part of the fund’s performance depends on the quality of the active management.
IAUI: top 10 holdings (Seeking Alpha)
Risks
A first evident risk is the fact that the covered call structure monetizes premiums but limits participation in the upside beyond the strikes. The consequence is a probable underperformance compared to GLD, AAAU, or traditional gold ETFs in strong and linear bull markets. Likewise, IAUI is not a short gold or market-neutral strategy: despite collecting premiums, the fund maintains a long gold positioning. Therefore, in a bear market for gold, the fund still declines, even if sometimes less than the underlying. And here a problem often underestimated by those who make extensive use of buy-write ETFs comes into play: volatility risk. If on the one hand it positively affects the size of the distributions, on the other it is a problem.
Extreme movements, simply a sharp decline followed by a strong rebound, can penalize the structure of a covered call ETF.
This would generate a cumulative deterioration of performance: the fund follows the decline almost 100%, but then recovers less than the underlying in the subsequent rise due to the cap on the upside.
This generates both underperformance in capital terms, but also the net size of the premium distributed relative to the underlying because this yield is generated off a smaller capital.
Peer Comparison
Let’s start with the classic gold ETFs: GLD and AAAU probably represent the most “pure” form of exposure to gold. As often happens with buy-write ETFs, the high distribution yield does not automatically compensate for the sacrifice of upside, especially in market segments experiencing a strong bull market, such as gold.
IAUI – GLD – AAAU: total return (Seeking Alpha)
Moving instead to the other income gold ETFs (covered call), like the UBS ETRACS Gold Shares Covered Call ETN (GLDI), the YieldMax Gold Miners Option Income Strategy ETF (GDXY), and the Defiance Gold Enhanced Options Income ETF (GLDY).
The first is an ETN with a covered call strategy, while the second exploits the covered call strategy on the miners segment.
IAUI – GLDI – GDXY: total return (Seeking Alpha)
GLDI is different in legal nature as it is an ETN; here the investor owns a senior unsecured credit claim against the issuer, currently UBS. GDXY has emerged as an active ETF built on a synthetic covered call strategy on GDX, therefore not on physical gold or on GLD, but on the gold miners ETF. It is interesting to note how GLDI, with the underlying gold ETF GLD, has underperformed, partly because the fund maintains a much simpler and more mechanical structure compared to IAUI. On GDXY, instead, it is interesting to note how it has outperformed. The reasons are twofold: first of all, the participation in the gold miners segment, which is more dynamic and volatile, especially in the late-cycle phase of gold. And then a much more aggressive income overlay, with synthetic long exposure on GDX through long ATM call + short ATM put and the sale of calls 0-15% OTM with maturities ≤ 1 month. The difference can be seen in the size of the positions supported by the kurtosis and the skew structure sustained over the last semester. GLDY is also an options-enhanced income ETF starting in April 2025 but has only about $40 million AUM at the time of writing. It has suffered from NAV drag significantly more than IAUI, as it uses At-the-Money options to generate income.
Pros And Cons
From this study of IAUI, in my opinion, some clear positive elements emerge:
- IAUI offers high monthly income in an asset class that normally does not distribute natural cash flows, such as gold. The result of the combination of gold price movement, option premiums, and income from Treasuries.
- Active management seems to have brought an advantage in terms of total returns compared to competitors such as GLDI.
On the other hand, limitations emerge that we cannot overlook lightly:
- The most important limitation that emerged is the opportunity cost compared to traditional gold ETFs: if gold continues to rise strongly, IAUI tends to lag behind.
- Likewise, the fund does not really protect against a structural reversal of the gold bull market: it cushions, but does not immunize.
This article answers 3 main questions about IAUI:
- How does IAUI relate to the price of gold?
- In which environments can IAUI perform well?
- Which types of investors should consider IAUI?
Editor’s note: This article is intended to provide a general overview of the ETF for educational purposes only and, unlike other articles on Seeking Alpha, does not offer an investment opinion about the ETF.
