Quick Read
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IWMI writes covered calls against the Russell 2000 to deliver a 13% yield, giving income investors a small-cap alternative to mega-cap tech funds.
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IWMI returned 17% year-to-date through mid-July 2026, trailing IWM's 20% as its call overlay capped upside during a strong small-cap rally.
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Return-of-capital distributions defer taxes in taxable accounts, which makes IWMI a stronger fit as a 5 to 10% income allocation than inside a Roth IRA.
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Most high-income covered-call ETFs lean on the S&P 500, Nasdaq-100, or single-stock overlays on NVIDIA (NASDAQ:NVDA). The NEOS Russell 2000 High Income ETF (BATS:IWMI) writes calls on small caps instead, allowing income investors to diversify yield away from mega-cap tech. The distribution rate sits in the 13% to 14% range.
What IWMI Owns and How It Pays
IWMI parks nearly all capital in the Vanguard Russell 2000 ETF, at roughly 99.88% of the portfolio, then overlays covered calls and call spreads on the Russell 2000. Option premium plus underlying dividend equals monthly income. NEOS uses Section 1256 contracts, which receive blended 60/40 long-term/short-term capital gains treatment, with distributions historically classified in part as a return of capital.
Return of capital matters in taxable accounts: it avoids immediate taxation and lowers cost basis, deferring tax until sale. This is genuinely useful if you understand it: part of each monthly payment is your own capital returning.
The fund launched June 25, 2024, is run by NEOS Investments, has grown from $439 million at inception to about $1.06 billion by July 2026, and charges a net expense ratio of 0.68% (gross 0.76%). Monthly distributions run around $0.60 per share.
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Does the Strategy Deliver?
IWMI closed at about $53 in mid-July 2026, up 17% year-to-date on a total-return basis. Compare that to the iShares Russell 2000 ETF (NYSEARCA:IWM), which returned roughly 20% year-to-date and nearly 34% over the trailing year. IWMI trailed the naked index in a strong small-cap tape, exactly what covered-call funds do. The calls capped upside. You collected income instead of the final rally leg.