The 12% Yield Trap: How SPYI Returns Your Own Capital as ‘Income’

If you own NEOS S&P 500 High Income ETF (CBOE:SPYI) for its double-digit monthly checks, look past the yield. The fund quietly charges an expense ratio that ranks near the top of the S&P 500 shelf, caps your upside when the market advances higher, and returns some of your own capital back to you as “income.” Those three costs compound, and the fund’s factsheet doesn’t add them up for you.

What You’re Actually Paying

SPYI carries a 0.68% expense ratio. On a $10,000 investment, that amounts to $68 in annual fees regardless of whether the market is rising, flat, or falling. Compare that to a mainstream S&P 500 tracker like Vanguard’s VOO (NYSEARCA:VOO) at roughly $3 per $10,000, or SPDR’s SPY (NYSEARCA:SPY) at roughly $9.

That gap represents real money: about $65 a year versus VOO, or roughly $650 over a decade before you even factor in the compounding drag on the balance you never got to keep.

With $10.54 billion in AUM as of July 13, 2026, that 0.68% fee funnels tens of millions a year to the issuer. NEOS is running an active options overlay on top of the S&P 500. But investors sizing up SPYI against a low-cost S&P 500 fund should know the fee is roughly seven times what SPY charges and more than twenty times what VOO charges.

The Part the Factsheet Doesn’t Highlight

The bigger hidden cost is not printed anywhere in bold: capped upside.

SPYI sells S&P 500 call options to generate its distribution, so when the index runs, the fund can’t fully keep up. Over the trailing year, SPYI returned 16.09% against SPY’s 16.90%. That 81 basis point gap is on top of the fee, and it appears in an up year. Analysts covering the fund note its “total return has lagged the S&P 500” because of the capped upside baked into the covered call.

Then there is the anatomy of the “yield.”

SPYI pays roughly $0.51 to $0.53 per share every month, with a headline annualized distribution near 12%. That number dwarfs the S&P 500’s actual dividend yield. The difference has to come from somewhere; that being option premiums, and, when premiums fall short, return of capital.

A 24/7 Wall St. analysis recently flagged “the presence of return of capital in distributions” as a real tax and transparency issue, and that if volatility keeps declining, SPYI “might have to tap into its principal, potentially lowering its net asset value.”

While ROC lowers your cost basis, which can juice the after-tax headline today, it can shrink the gain (or magnify the loss) you owe on later. Simply put, it is your own money being handed back, dressed up as income.

Additionally, monthly distributions also mean 12 taxable events a year in a non-qualified account. Section 1256 treatment on the options leg helps, but it does not turn ROC into free money.

The Cheaper Mirror

If you want S&P 500 exposure and can generate your own cash flow, a plain vanilla index fund charges a fraction of the fee and does not cap your upside.

VOO and SPY both track the same 500 stocks SPYI provides exposure to. The trade-off is real: you lose the monthly check and the tax-managed options overlay, but increase potential upside exposure.

If you specifically want a covered-call S&P 500 wrapper at a lower fee, JPMorgan’s JEPI (NYSEARCA:JEPI) runs a related equity-premium strategy at roughly 0.35%, about half of SPYI’s cost, though its exposure and options mechanics are not identical.

What This Means for You

SPYI is a legitimate, actively managed options product priced like one. The question is whether the monthly deposit is worth $68 per $10,000 per year, a capped participation in bull runs, and a distribution that can include your own capital. Ask yourself what you’d choose if the yield were quoted net of your own principal. That is the number to compare.

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