NIHI: Extracting Dividends From International Equities Via A Covered Call ETF (BATS:NIHI)

Introduction To The NEOS MSCI EAFE High Income ETF

The past few years have seen the popularization of options-based strategies, and Neos Investments has been at the center of an interesting trend. Neos is famous in the ETF space for using put spreads to enhance returns for a plethora of asset classes, but they also have a number of robust classic buy-write funds (covered call ETFs). The NEOS MSCI EAFE High Income ETF (NIHI) is such a fund. The ETF is a very useful tool to extract dividends from a portfolio of international equities. In today’s article we are going to go through the larger topic of covered call ETFs, the NIHI fund build and structure, and its application in various macro cycles.

What Are Covered Call ETFs?

Let us start with some basic concepts around covered call ETFs in general:

A covered call ETF is an exchange-traded fund that generates potential income by writing call options on the securities the ETF holds. These actively-managed ETFs give investors the opportunity to benefit from covered call writing without having to participate in the options market directly.

Covered call ETFs allow investors to earn income in the form of options contract premiums, in addition to any other dividends, and potentially reduce portfolio volatility. One trade-off is that upside potential may be limited if call options are exercised — typically when the underlying security reaches the strike price — which could result in shares being called away from the fund.

So the main purpose of a well-run covered call ETF is to extract dividends from a pool of assets or ETFs when the underlying holdings might not have any. The idea is to use options in order to generate said dividends. Writing calls simply allows the fund to use the options market to do that.

Despite many misconceptions, covered call ETFs tend to have similar long-term total returns as the underlying assets, and this is for well-run funds. Poorly run covered call structures trail their holdings from a total return perspective. And now here come the nuances in terms of how a covered call fund is built.

Types Of Covered Call ETFs

Systematic

Systematic covered call ETFs have rules-based ways of overlaying their options. The best example is the Global X S&P 500 Covered Call ETF (XYLD). We covered this ETF at length here. This fund is structured to follow the Cboe S&P 500 BuyWrite Index:

The Cboe S&P 500 BuyWrite Index (BXM) is designed to measure the total rate of return of a hypothetical “covered call” strategy applied to the S&P 500 Index. This strategy consists of a hypothetical portfolio consisting of a “long” position indexed to the S&P 500 Index on which are deemed sold a succession of one month, at-the-money call options on the S&P 500 Index listed on the Cboe Options Exchange. We refer to this hypothetical portfolio as the “covered S&P 500 Index portfolio.”

So the buy-write index and inherently the ETF write one-month rolling at-the-money call options. This is a systematic strategy because it does not care if the market is oversold, overbought, or has a high implied volatility priced in the options chain. Day in and day out, this strategy will do the same transactions.

In our article we show investors how systematic strategies as used by XYLD trail active ones:

This tells us that active funds are better than systematic ones in this instance, and constantly rolling 1-month calls is not the best way to extract dividends from the S&P 500. Therefore, in our opinion XYLD will be a mediocre long-term performer, especially due to the fund’s inability to monetize short-term trends or events, items which active funds can correctly manage.

Which brings us to active approaches in terms of covered calls.

Active

Active covered call ETFs can choose their strikes, maturity dates, and coverage ratios when overlaying options. While nobody can time the market, extreme situations are very obvious for all asset managers. If a market is oversold when looking at a multitude of technical indicators, managers might choose to sell calls on only a portion of the portfolio, riding a bounce up in price via NAV and then writing calls on the remaining portion.

Similarly, bear markets are sometimes characterized by high implied volatility, which in turn means higher option premiums. This structuring aspect can be used to maximize profits on the strategy during such occurrences.

Thirdly, managers can speculate overbought conditions by writing options with in-the-money strikes or longer maturities in order to increase the deltas of the written calls, thus taking advantage of any correction.

The main takeaway for readers is that active covered call ETFs are better long-term if the management teams in place are solid.

NIHI Build And Structure

The ETF has a very straightforward structure:

The fund contains a large position in the iShares Core MSCI EAFE ETF (IEFA), which is overlaid with two separate call options. IEFA is an international equities ETF that aims to do the following:

The iShares Core MSCI EAFE ETF seeks to track the investment results of an index composed of large-, mid- and small-capitalization developed market equities, excluding the U.S. and Canada.

The index referenced by IEFA is the MSCI EAFE IMI Index. Do note that NIHI does not write calls on the IEFA ETF directly but writes them on the underlying index:

The Fund seeks to take advantage of tax loss harvesting opportunities in addition to utilizing Index options classified as section 1256 contracts, which are subject to lower 60/40 tax rates.

In the holdings table above, we can see the ETF writing calls on the index at two separate strikes, but both with an April 17, 2026 maturity date.

The main holding in the fund, IEFA, is a well-diversified international equities ETF, with the following geographic exposure:

The ETF represents a staple of international equities (excluding U.S. and Canada exposure), and long-term is well-correlated with the competing Vanguard product, Vanguard Developed Markets Index Fund (VEA):

These ETFs are used by institutional and retail investors as building blocks for obtaining international equities exposure. All that NIHI does is use the covered call structure to extract dividends from the underlying equities.

Some fund analytics for NIHI:

• AUM: $155M.
• Expense ratio: 0.68%.
• Distribution rate: 10%.
• Distribution period: monthly.
• Fund CUSIP: 78433H543.

Tracking The Fund’s Performance

The fund is fairly new, having come to market in late September 2025. Since inception, the name has tracked the underlying ETF closely:

We can see from the above chart that NIHI has a total return profile very well correlated with the iShares Core MSCI EAFE ETF (IEFA), which it tracks. The period of data is still very small, but as expected, we see correlations breaking down during significant spikes in performance for IEFA, like in February 2026. Given its call writing, NIHI has a capped upside during short-term spikes in value for the underlying ETF.

However, as we can see from the chart above, longer-term the two instruments exhibit very similar total returns, which is the defining characteristic of well-run active covered call ETFs.

Covered Call ETFs During Bear Markets

The one structural aspect to keep in mind with respect to covered call ETFs is the propensity for the price and NAV to move lower than the underlying holdings during bear markets. The simple reason behind this occurrence is the fact that the covered call ETF tends to transform equity returns into dividends, and when there are no equity returns to be had, the fund just disburses return of capital, which chips away at the NAV.

We can clearly see that tendency in the above graph with the price returns for IEFA and NIHI in 2026. IEFA is negative for the year, but NIHI’s price return is much lower. While on a total return basis they are quite close, on a price basis a covered call ETF will always significantly underperform during a bear market. Why? Because it disburses returns that are not there.

Over long cycles, good covered call ETFs will have similar total returns as the underlying, do expect lower NAV performance during bear markets, which means higher negative profit and loss figures in your brokerage account versus just holding an underlying like IEFA outright.

Reference Literature.

Please find below a number of research articles on the topic of covered call ETFs:

Key Advantages And Disadvantages

Advantages:

• Getting dividends from a portfolio of international equities.
• Active option writing and structuring.
• Monthly distributions.

Disadvantages:

• Potential tracking error versus owning IEFA outright.
• NAV decreases during bear markets.
• High expense ratio.

Conclusion

NIHI is a covered call ETF from Neos. The ETF represents an elegant solution to extracting dividends from international equities via the covered call structure. NIHI holds a position in IEFA, which is overlaid with index options to optimize the tax treatment of dividends. The fund has tracked IEFA fairly well on a total return basis so far, with the name being an active covered call ETF. Neos has a very good track record in the space, so we expect NIHI to exhibit a total return very closely correlated with IEFA long term. The name is best suited for investors looking for monthly income from the international equities asset class.

This article answers three main questions about NIHI:

• Is NIHI actively managed, or does it track an index?
• What type of investor is NIHI most suitable for?
• How is NIHI likely to perform in different market conditions?