Confirming there’s appetite for options income ETFs, Goldman Sachs Asset Management (GSAM) is adding to its roster of those funds, announcing it’s acquiring NEOS Investments in a deal valued at up to $2.3 billion.
With the NEOS deal, GSAM is adding approximately $30 billion in assets under management across nearly 20 ETFs, many of which derivatives income funds. Not only that, but the buyer is adding a firm known more minimizing some of the risks of covered calls, including severely limited upside participation and a deep dependence on return of capital (ROC).
The NEOS acquisition vaults GSAM’s overall ETF tally to $130 billion and its active ETF assets under management to $80 billion, placing it in the top eight issuers of such products. The acquisition also confirms and signifies belief in the long-term opportunity set offered by well-run options-based income ETFs.
“Growth in derivative income ETFs has accelerated as investors expect modern solutions to deliver attractive income, navigate interest rate volatility and manage risk in the transparent, tax-efficient ETF wrapper,” according to a Goldman Sachs statement. “Industry-wide, derivative income ETFs have grown to approximately $180 billion in assets under management (AUM) and represent one of the fastest-growing categories of ETFs, with a compound annual growth rate (CAGR) of more than 70% since 2021, according to Morningstar. NEOS has been one of the market leaders in the derivative income category since launching its flagship options-based income ETF suite in 2022.”
Goldman Flexing Options ETF Muscles
Another reason the NEOS acquisition is noteworthy is because this isn’t the first GSAM has leveraged deal-making to increase options income ETF footprint.
News of the NEOS purchase arrived just months after Goldman put the finishing touches on its $2 billion acquisition of Innovator Capital Management. That deal, which was announced last December, significantly expanded the buyer’s footprint in the world of defined-outcome, or buffered, ETFs – funds that feature varying levels of downside protection while, in the right structure, diminishing some of the risks associated with conventional covered call ETFs.
Innovator has lived up to its name, ushering in a wave of adoption of defined outcome ETFs while making contributions to the growth of the actively managed ETFs.
The NEOS acquisition adds to GSAM’s options income ETF growth spurt and in impressive fashion at that. As noted above, the target has $30 billion in assets under management – a figure amassed in just four years.
A Smart Buy
Not to be overlooked in the latest round of ETF industry consolidation is why NEOS has been on such an eye-catching growth trajectory. Put simply, the issuer has proven adept at addressing some of the risks associated with covered call ETFs.
Take the case of the $13.9 billion NEOS Nasdaq 100 High Income ETF (QQQI), one of the issuer’s flagship products. QQQI is a high-income spin on the Nasdaq-100 Index (NDX). Since its January 2024 inception through the end of July, QQQI returned 51.41%, according to issuer data. Yes, that trails NDX, but it also shows NEOS knows what it’s doing when it comes managing the risks of covered call ETFs.
The $11.3 billion NEOS S&P 500 High Income ETF (SPYI) drives home that point, too. For the 12 months ending July 31, SPYI returned 17%, not far off the pace of 19.5% set by the S&P 500.
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