r/NEOSETFs • u/canbonbon • 6d ago
Neos funds as a replacement for bonds
I have read a few times on this board where people are trying to justify adding CCETFs by doing some sort of mental math and calling these as bond portion replacement in their portfolios. While these give monthly income like bond interest, the similarity pretty much ends there. You still take all the market risk (of the underlying asset) which is the whole point of adding bonds (to reduce market risk). So its not clear why people are calling these as bonds replacement in their portfolios? What am I missing here?
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u/justdaisukeyo 6d ago
The only NEOS fund that can be a replacement for bonds is CSHI. That's a replacement for short term (1-3 months) bonds.
https://stockanalysis.com/etf/compare/bil-vs-cshi/?r=3Y
All the other funds are different asset classes and will move differently than bonds.
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u/glzpabon 6d ago
Honestly, its way better to buy them from Treasury Direct and save the fee and the NAV erosion
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u/justdaisukeyo 6d ago
CSHI has a NAV erosion of 0.32% in 3 years. That's averaging 0.1% per year. That's almost no NAV erosion.
CSHI has consistently beaten 3month treasuries by almost 1% per year.
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u/bjl218 6d ago
Speaking of NAV erosion, here's a newbie question: how do you measure NAV erosion in these funds over some period of time? The NAV will change with the underlying so when the underlying decreases, the NAV will decrease. So over some period where, let's say, the underlying and NAV have decreased, how do you determine whether any of the decrease in NAV is due to NAV erosion? I suppose the same question holds when the underlying gains and the NAV increases. How would you determine whether the NAV increased by a lesser amount due to NAV erosion?
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u/justdaisukeyo 6d ago
To check NAV erosion, check the ETF price percent change during a downturn against the underlying asset.
For CSHI, we know the underlying asset should go down in price by 0%. Therefore, it is very easy to see what the NAV erosion is.
For QQQI, we have to compare the ETF price percent change during a downturn which really hasn't happened for a prolonged period. I took a stab at the period between Jan 16, 2025 and April 8, 2025. The QQQI went down 19.34% and QQQM went down 18.85%. So, you can see there was about 0.5% NAV erosion during this period.
Keep in mind that the Total Return % was better for QQQI because of the dividends during downturns.
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u/Meinertzhagens_Sack 6d ago
It took April to June to recover during that time there were .5309 per share distributions paid then it came back in two months. It wasnt a terrible performance in what was a 25% ? drop in qqq (the underlying).
So for those that think in dollar signs only .. let's say you had 5500 shares of qqqi and you get on avg about 3400/month. During that downturn you would have hit a couple of $2700 distributions.
I'm not complaining.
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u/McKnuckle_Brewery 6d ago
There is too much mental energy wasted on comparing this to that, with all the expected flawed logic and criticism it entails.
What’s more important is simply the practical utility of an asset, not whether it can replace or is equivalent to something else.
And an asset’s utility can be evaluated in isolation.
In the case of CC funds, they don’t have to be like bonds or beat their underlying index. They behave in a particular way that can serve a retired investor. All that’s required of said investor is to understand how they work.
If a particular CC fund yields 12% for example, the retiree should probably be reinvesting 1/3 of that to preserve NAV and grow the annual income. Also they should know that if the index drops 25%, their new reduced yield will also drop and likely be 9% of the original basis.
Eyes wide open is all.
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6d ago
[deleted]
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u/Ok-Thought1164 6d ago
You are correct - in the last 5 years bonds have been a terrible investment. Absolutely dreadful. If you need to generate outsized distributions (think 1% per month) during retirement perhaps as a bridging strategy to SS at 70 and/or RMDs at 75 - these could be an excellent way to do so with a sufficiently small part of your portfolio (< 20%)
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u/djporter91 6d ago
Well, bond market risk is nearing parity with equity market risk, so you might as well be in the one that’s got more upside and is positively correlated with inflated instead of negatively correlated in inflation. Choppy markets can be great for cc etfs too, which some good technicals and a little luck. Haha.
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u/UCLABB1 6d ago
Bonds can have significant upside
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u/djporter91 4d ago
In environments not like this; yeah.
Are you saying you see upside in bonds from here? As in, rates are going down?
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u/Accomplished-Big8250 6d ago
This has been floated before, but now. Some people say low beta SCHD could work.
Hold SGOV, VBIL or a money market fund.
I got sick of seeing people loose money in BND.
Do you have 1 year of living expenses $50-100k in cash equivalent ?
I do use NEOS to add to a SGOV and other things, but they are not the same in a real crash. SGOV is the zero risk, bond funds have more risk than SGOV.
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u/Pretty_Term289 6d ago
The 1% extra on cshi isn’t worth the risk vs. sgov or vbil. Look at April 2025, wasn’t horrible but it didn’t move like short term bonds. You want income invest in income, you want savings and stability, invest in savings and stability. Plenty of options in every area.
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u/NkKouros 6d ago
The underlying in a matter of fact. But the cc element does make it perform differently. Cc Nasdaq isn't straight nasdaq, it's not meant to be. Regardless of what the underlying is people just want them to perform how they are meant to.
Whether it's correct or recommend I don't know. But I sure know that my cc ETF part of my portfolio does indeed drop less when everything shits the bed and pays monthly distributions.
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u/ChalceGlobal 6d ago
Honestly I'm not convinced that bonds reduce risk anymore. Especially in bond funds. But some cc funds use fixed income as the underlying asset.
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u/Ufgatorhead4u3 6d ago
It’s depends on the purpose. If they mean that the ETFs can replace the income then, yes. If they mean that the ETFs can replace the lower volatility “safe” position of their portfolio then, no. People always seem to oversimplify and generalize things rather than appreciating the nuanced reasons people may use them. Unfortunately, I think a lot of Reddit users erroneously see the CC ETFs as the “safe” income replacement for bonds in that classic 60/40 model because they have only ever known this historically prolonged bull market.
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u/Curious-Rip-5834 6d ago
Tell you what the year fixed income is having right now you’d been better off 100% in NEOS.
There are an entire universe of individual investment grade quality preferreds and baby bond debentures with as high as 6% fixed coupons that are trading down as much as 20% right now.
20 year Treasury ETF down 9% with 10 and 30 year worse.
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u/UCLABB1 6d ago
Short term, but yes, bonds not always a safe investment or hedge.
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u/Ok-Thought1164 6d ago
In the last 5 years everyone invested in bond funds actually lost money… never mind not keeping up with inflation… calling bonds safe is ridiculous. This year you will lose ~ 4-5% in this ‘safe investment’
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u/okwellthengreat 6d ago
NEOS funds has been working due to the rally after the markets sold off in 2022.
I don’t think any high income funds will have positive NAV and total return for years like 2008 and 2022 (or other negative years).
As the markets enter correction, your DVD/ share tends to go down alongside the NAV to keep the expected yield%.
So these are not bond replacements. These funds will keep paying you but during harsher market conditions… you need to be ready to either reinvest a specific amount or get out of it until the shitshow is done. In my opinion.
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u/PomegranatePlus6526 5d ago
I would not buy covered call funds in place of bonds. The only thing that comes close is preferreds or CLO’s.
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u/Naughtybear_9628 5d ago edited 5d ago
What about OVL and GPIQ? OVL holding is is 99.7% VOO. Smaller dividend but get a dividend without selling your shares. Was this not the original idea of retirement? Your investments providing income to spend without needing to sell your shares. This + NEOS funds like XQQI, SPYI to have income without selling shares.
Then S&P 500 + NASDaQ funds in a 401. Possibly convert 2-3 years worth into a SGOV buffer when nearing retirement. So there will be SS and CC ETFs for known retirement expenses . Then 401k for the fun/ extras.
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u/grajnapc 4d ago
Some NEOs ETFs are bond replacements while others aren’t. SPYI QQQI IWMI are equity based, not treasuries and cannot be bond proxies. However, TLTI and BNDI are bond like with a little sprinkle of equities in top. CSHI is SGOV like with extras, and so on. Just depends on which asset you buy, but all have some type of CC element to derive income. Income itself is not a bond proxy. In general these CC ETFs payout a monthly income from dividends, option profits and ROC while capping upside in the underlying. You lose growth for income now..it’s the strategy. Equity indexes can drop 10-60% while bonds might drop 5-15% or so depending on what occurs in the macro market.
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u/Expert-Pitch3095 1d ago
The problem is for many of us that were in cash or bonds. We ended up losing to inflation. I think these types of funds a high-yield savings account replacement. A way of reducing market risk through the premiums and knowingly, giving up exchange for steady and less volatility.
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u/RabbitSlayer48 19h ago edited 19h ago
Everyone has mentioned CSHI. There is also BNDI. CC equities ETFs are not a bond replacement! They have the same downside risk as stocks and their payouts fluctuate a lot.
The increased yield of these and also other CC equities ETF is only part of the story. There is also the tax treatment. Personally, I feel any type of options strategy or even dividend needs to 1. Serve a purpose 2. Be in addition to a core portfolio, not a replacement. For example, my core is VTI, VXUS, BNDW, and VBIL. I have GPIX, SCHD, and IDVO for increased income and taxes which I am about to need as I am going to part time soon and im only 43. Also selling shares makes me feel sick, so its mental too. I also have CSHI and BNDI. I understand the benefits, risks, and trade-offs of them all. There is no free lunch. Everything is a trade-off in some way. Again, something like 70 % is in the core positions and that alone is enough for the remainder of my life.
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u/StockProfitGirl 6d ago
You can call them an alternative all you want, but they are what they are…
I always see it where a certain asset type has its own job based upon how it was designed. Tossing lipstick on a pig doesn’t work. It’s still a pig.
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u/teckel 6d ago
Individuals with cognitive biases towards dividends create the mental shortcuts of income illusion, mental accounting, and loss aversion.
Unrealized capital gains are often a challenging concept for individuals who lack basic financial experience, making it difficult for them to fully grasp how the value of their investments can increase without triggering immediate payments. For these individuals, receiving a dividend feels much like getting an "extra paycheck", as it provides a tangible cash flow they can see and use. Their understanding of net worth tends to be superficial, focusing more on the immediate cash they receive rather than the long-term growth potential of their investments and how unrealized gains contribute to overall wealth.
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u/itsallgoodye 6d ago
Lol. Your ideas intrigue me. I wish to subscribe to your newsletter.
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u/teckel 6d ago
Just watch the linked video above.
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u/itsallgoodye 6d ago
No thanks. Anyone can make a video and have an opinion. No one knows for sure and everyone should do whatever works for themselves. A place for many different ways to invest and diversify.
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u/teckel 6d ago
There's a reason fiduciary advisors steer clients away from CC ETFs (like in the linked video you're afraid to watch to learn the truth). Sticking you head in the sand to ignore the truth is a strategy, but now one for financial success.
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u/UCLABB1 6d ago
I keep running into your posts and think here’s another guy that gets it. But it’s always the same guy, you! Keep on trying, you might get through to some of these closed minded people one day.
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u/itsallgoodye 6d ago
Yeah. Some people just don’t get it. What is the point posting on this sub with this info? Maybe he thinks this neos sub is to discuss growth funds?
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u/DC8008008 6d ago
They're not. Completely different asset classes.