Cash alternatives continue to be particularly appealing this year given market stress and investor uncertainty. The NEOS Enhanced Income Cash Alternative ETF (CSHI) remains a popular choice with investors, with a noteworthy distribution and SEC yield.
CSHI currently offers a distribution yield of 6.39% as of 05/31/2023 and a 30-day SEC yield of 4.63%. Distribution yield is calculated by annualizing the most recent distribution and dividing by the fund’s NAV. Thirty-day SEC yield excludes yield earned on options.
See also: “An Advisor’s Guide to Understanding ETF Yield”
Significant Distribution Yield and Tax Efficient Income
The fund is an actively managed ETF that generates high monthly income and is an options-based fund. CSHI is long on three-month Treasuries and also sells out-of-the-money SPX Index put spreads. These roll weekly to account for market changes and volatility.
It seeks to deliver 100–150 basis points above what 90-day Treasuries are yielding. CSHI also seeks to take advantage of tax-loss harvesting opportunities and the tax efficiency of index options.
CSHI currently has over $93 million in net flows year-to-date as investors and advisors seize income opportunities in short-term Treasuries.
The put options that the fund uses are not ETF options but instead are S&P 500 index options. There are options that are taxed favorably as Section 1256 Contracts under IRS rules. This means that the options held at the end of the year are treated as if they had been sold on the last market day of the year at fair market value.
Any capital gains or losses are taxed as 60% long-term and 40% short-term, no matter how long the options were held. This can offer noteworthy tax advantages, and the fund’s managers also may engage in tax-loss harvesting opportunities throughout the year on the put options.
CSHI has an expense ratio of 0.38%.
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