With 10-year Treasury yields hovering around 4.25%, cash instruments, including certificates of deposit (CDs) and money market funds, are having a moment. Actually, the moment is turning into an era because it extends back to early 2022.
Data confirm that money market funds are drawing massive amounts of capital this year. For the week ending Sept. 6, total money market fund assets under management climbed by $41.83 billion to $5.62 trillion, according to the Investment Company Institute (ICI).
Investors’ renewed affinity for money markets and other yield-bearing cash instruments is understandable because these assets are lobbing off attractive yields without subjecting market participants to credit or interest rate risk. However, there are avenues for doing better with cash. Enter the NEOS Enhanced Income Cash Alternative ETF (CSHI).
Right Place, Right Time for CSHI
As its name implies, CSHI is designed to be an alternative to traditional cash assets. In order to be a compelling alternative to, say, a money market fund, CSHI has to tap avenues for standing while not becoming too exotic. The NEOS exchange traded fund accomplishes that fund.
Credit and interest rate risk is benign in the fund because the primary asset class held by the ETF is 1-3 month Treasury Bills. While safe, Treasurys in that duration range usually don’t sport impressive yields owing to strong credit quality and short durations. If the CSHI story ended there, it wouldn’t be much of an alternative to cash. Fortunately, there’s more to that story.
CSHI sets itself apart from bland cash assets by writing (selling) put options on the S&P 500 Index. Not only do options-writing funds usually deliver stout income, they’re considered alternative assets, indicating CSHI can bolster portfolio diversification well in excess of a CD or money market fund.
“Actively managed by NEOS, the Fund seeks to take advantage of tax loss harvesting opportunities in addition to utilizing SPX Index options classified as section 1256 contracts, which are subject to lower 60/40 tax rates,” according to the issuer.
Like money market funds, CHSI features a monthly distribution, which could be appealing to investors seeking regular income. Speaking of income, that’s exactly how CSHI sets itself apart for basic cash instruments.
Currently, higher yields on money markets are in the 3.50% range and investors can access yields north of 4% on select high-yield savings accounts and the like. However, those percentages are scant in comparison to the 30-day SEC yield of 5.11% found on CSHI.
For more news, information, and analysis, visit the Tax-Efficient Income Channel.