On this episode of the ETF of the Week podcast, VettaFi’s head of research Todd Rosenbluth discussed the NEOS Bitcoin High Income ETF (BTCI) with Chuck Jaffe of Money Life. The pair discussed several topics related to the fund to give investors a deeper understanding of the ETF overall.

Chuck Jaffe: One fund, on point for today. The expert to talk about it. Welcome to the ETF of the Week!

Yes, this is the ETF of the Week, where we examine trending, new, newsworthy, unique, and intriguing exchange-traded funds with Todd Rosenbluth. He’s the head of research at VettaFi. You’ll know why we talk to him if you go to VettaFi.com and you check out the research there that they do on ETFs, which will help you become a savvier, smarter investor in exchange-traded funds.

Todd Rosenbluth, great to chat with you again!

Todd Rosenbluth: It’s great to be back!

Chuck Jaffe: Your ETF of the Week is…

Todd Rosenbluth: The NEOS Bitcoin High Income ETF. BTCI.

Chuck Jaffe: BTCI, the NEOS Bitcoin High Income ETF. I have so many questions. But since we start with “of the Week,” and bitcoin can be one of the most volatile assets in any week, is there a specific reason why we’re talking about a bitcoin fund? And this is not your average bitcoin fund. But why a bitcoin fund? And then, why this bitcoin fund this week?

Todd Rosenbluth: So, I came back from vacation and saw that BTCI, which is a fund that launched in October, had crossed the $500 million mark in assets under management. It’s seen over $300 million of net inflows in the last few months. It’s yielding 27%. I’m sure we’ll get into the weeds on that one. This is — and we’ve talked about bitcoin in a number of different ways.

We’ve talked about options or premium income ETFs in a number of different ways. I thought this brought those things together. This fund is performing well. It’s popular. It’s relatively new and innovative. Why not? Let’s talk about it as ETF of the Week.

Chuck Jaffe: Well, I love it that we’re discussing this fund. So, let’s first point out that, you know, it wasn’t that long ago that the first spot bitcoin ETFs were being created — or the first thing, technically they’re not spot because you cannot hold physical bitcoin the way you can gold. But the idea being ETFs that were built solely around the price of bitcoin or other cryptocurrencies are a fairly new development.

This is a twist on that, because it has this high income thing and high income in bitcoin. High capital gains make sense. High income and bitcoin seems like a bit of an oxymoron. Like it shouldn’t go together. So, explain how this fund works, because it’s not your typical Bitcoin.

Todd Rosenbluth: So, regular listeners should probably be familiar with the firm NEOS. We’ve talked about them in some of their other products that are options-based, where they use options in order to generate income — above average income. For the equity side, it’s been in the low double digit percentage, 10%–12% is a good income stream for some of those more traditional equity products.

So, this is using the options tied to bitcoin. So, you’re right. Bitcoin ETFs, the original bitcoin ETFs that offered direct exposure to it came out in January of last year, of 2024. Towards the end of last year, we saw the beginning of trading of options. This ETF from NEOS, experts within the field of using options within the ETF wrapper, came out in October, and it’s performed very well.

It’s generated above average income on a consistent basis, and maybe one of the questions that you get, but you can look at the monthly distributions, which has been relatively steady. The yield doesn’t always stay the same, in the 25% plus range, but it’s certainly up there. But that income stream, that distribution has consistently been above $1.30, $1.40 on a monthly basis.

This is a great way of getting exposure for people who are comfortable having options within their ETF wrapper, and to generate above average income.

Chuck Jaffe: 27% yield. Nobody looks at a yield that high and thinks that’s real. This is a fairly new fund. How is it generating that yield, and making it real? And how much do you worry that when market conditions change, it’s going to wind up changing?

Todd Rosenbluth: So, if folks want to see how real it is, [you]can look back. Now, it’s not a long period of time. We’re [at]about nine months of monthly distributions. By the time people are seeing and hearing this, we will probably hit the August one. I think it comes out on the 23rd and 24th. So folks will be able to see. There’s enough of a track record to get a sense of how consistent that is.

Bitcoin has been volatile this year, so you get the benefits. There’s benefits in the volatility, in terms of the options.

Yields that high? Again, I’m an old equity guy. Maybe you’re not as old. You’re not an equity [person], [“you” being the person] that’s listening to this. But dividend yields that are high makes it sound like the dividend is going to get cut.

That’s just different than how it is with options based strategies that we have in the ETF wrapper. That would make this simple for you. So, that income is going to be relatively consistent. We think this is a way of getting exposure to Bitcoin and reducing volatility by generating that income to provide an offset. It’s actually outperformed, “it” being BTCI, has outperformed those traditional bitcoin ETFs, IBIT and others this year, because of that income stream and the potential for more.

Chuck Jaffe: I know you are not a moving average guy, but this is a fund that is going to have a lot of volatility because it’s, you know, what it’s tied to and everything else. And if you were a moving average guy, well, it just got to a 200-day moving average, which it’s above, but it’s below the 50, right around the 50 and the 20.

So, that would suggest that the trend might be changing. With a fund like this, even though you are not normally a trend follower, do you put different parameters on it? Like, are you willing to make this something that you’re not holding for a week, but you’re holding for years with a set allocation? How do you make this work in a portfolio for investors who the rest of their things do not perform at all like this?

Todd Rosenbluth: Right. So, I think of this as a potential strategic allocation for investors and advisors that want to have exposure to bitcoin as an alternative to stocks or bonds within their portfolio. So, you’re getting some of the benefits of bonds in that income, well above average income than you’d find within fixed income. But, much more volatility. So, I don’t think of this as a bond replacement.

I don’t even really think of this as an equity, you know, within your equity part of it. Alternatives — we tend to find for advisors and investors that are getting exposure to alternatives, it’s around 5% and I’m ballparking here, of your exposure. So, for folks that already have bitcoin within their portfolio through a traditional ETF or otherwise, this is an alternative to that to generate income or, this can complement that.

So, it can reduce volatility and generate income. I feel like I’m going to repeat myself seven more times and say “generate income.” But it’s 27%. So that’s part of the story that you’re getting with BTCI. And what you’re getting is the benefits of a professional management team from NEOS, that is trading options on a regular basis. They do this for equity and fixed income-oriented products.

This is one of their alternative products to get exposure. So, long answer, I think this can be a strategic allocation that can fit into a portfolio, but have an income component as opposed to just riding the volatility, up or down, or traditional bitcoin.

Chuck Jaffe: We frequently talk about new ETFs, or funds that are newish, and how long you want to give them, et cetera. And obviously, with $500 million in assets, this fund passes the critical mass test. It’s got that now. What it hasn’t done yet is lived through a period where bitcoin goes on a protracted downside run. Do you want to wait?

Like, for people who are skeptical. And we’ve addressed why they might be. But for people who are skeptical, do they want to put this on their watchlist? But watch it until they see how it does when bitcoin takes a bender before they buy it?

Todd Rosenbluth: So, sure. That’s — you certainly could do so. And I think this is on the watchlist of many people before. And it’s more [a question of if] you have confidence in bitcoin and the price of it from the valuation. Now, I’m not knowledgeable. I’m not an expert in bitcoin. I don’t have an assessment as to is now the right time. Given the run that we’ve had, given what’s going on in the regulatory environment, given what the administration’s focus is tied to, to cryptocurrency…

If now is the right time to be having bitcoin exposure, I think you have to make that decision first. And then this is an interesting way, a unique way, to generate income and have as an alternative to your regular part of your portfolio or towards getting an alternative to having spot.

But I’ll use the term spot bitcoin — that’s what people are saying — spot bitcoin ETF, so instead of owning IBIT or FBTC, those are the iShares and Fidelity ETFs that are available. The NEOS product is an alternative to that. You have to decide that you want to have bitcoin in your portfolio and decide that now is the right time to do so.

If you want to wait till bitcoin pulls back? Yeah, this is a great way of generating income when that time is right.

Chuck Jaffe: I want to ask a question that I suspect you may want to dodge. But because we made other bitcoin ETFs ETF of the Week, especially when they first came out… If somebody is making their first foray into cryptocurrency ETFs and they have the chance to go with the classic one, or they have the chance to go with this one so they can do the spot versus the income generator…

Do you have a preference? Do you like one versus the other? If we’re talking about an investor making an allocation.

Todd Rosenbluth: So, I think it comes down to the use case for an ETF within your portfolio. So, if you’re looking for capital appreciation tied to the price of bitcoin, there are lots of great ways, and all, full disclosure, cheaper ways to get exposure to bitcoin. If what you’re looking for is income in the environment, and we continue to talk about premium income or alternative income strategies, because the expectation is that rates are going to come down, the Fed is going to cut interest rates.

People are looking for above average income in other formats. Then, this product is unique and is offering you a very competitive yield to lean into Bitcoin and get income, and could pair very well within an enhanced income equity strategy. NEOS is one of the firms that offers them.

NEOS is an expert in this space. I think they’re the only ones that are offering something like this? $500 million shows you that other investors buy into this too.

Chuck Jaffe: It’s BTCI, the NEOS Bitcoin High Income ETF, not your standard ETF. Also not your standard ETF of the Week! Todd, great stuff. Thanks as always for joining us.

Todd Rosenbluth: Thanks a lot, Chuck.

Chuck Jaffe: The ETF of the Week is a joint production of VettaFi and Money Life with Chuck Jaffe. And yeah, I’m Chuck Jaffe. I’d love it if you check out my hourlong, weekday podcast by going to MoneyLifeShow.com, or by searching for it wherever you find your favorite podcasts.

And if you’re searching for information on your favorite ETFs or maybe your next favorite ETFs… Well, go to VettaFi.com, where they’ve got a full suite of tools that will make you a better investor.

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