This ETF Enhances Income No Matter What Happens With Rates

Rate cuts? Rate hikes? Fixed income investors strive for peace of mind knowing yield can be sustained over an extended period. To maintain this stability, enhanced income strategies are necessary to flex with the economic environment.

It’s a guessing game about when the Fed will start cutting interest rates and at what pace they occur. But a pivot is not beyond the realm of possibilities. Another pause, or even a rate hike could result. That’s especially so given the way the economy grew in Q4 2023.

“The nation’s economy grew at an unexpectedly brisk 3.3% annual pace from October through December as Americans showed a continued willingness to spend freely despite high interest rates and price levels that have frustrated many households,” an ABC News article said.

The report also noted that “the Commerce Department said the gross domestic product — the economy’s total output of goods and services — decelerated from its sizzling 4.9% growth rate the previous quarter.” The flip side also reveals that “the latest figures still reflected the surprising durability of the world’s largest economy, marking the sixth straight quarter in which GDP has grown at an annual pace of 2% or more.” So economic data doesn’t necessarily mean rate cuts could happen at a feverish pace. They could take time, leading investors to believe rate cuts may have already been priced into 2023’s rally.

Get Enhanced Income in an Active Fund

To stay ahead of the game, an active management strategy focused on income is almost imperative. That strategy is inherent in the NEOS Enhanced Income 1-3 Month T-Bill ETF (CSHI). The fund goes beyond an aggregate bond exposure strategy by adding options to extract additional income.

CSHI seeks to distribute monthly income generated from investing in a portfolio of one- to three-month Treasury bills while implementing a put-option strategy on the S&P 500 index. This also allows CSHI to capture any upside in the S&P 500. That would counter a fall in bond prices while adding exposure to ultra-short Treasury bills with an duration to mitigate rate risk.

Additionally, the active management component allows CSHI to seek tax-loss harvesting opportunities that complement exposure to SPX Index options classified as section 1256 contracts. These contracts can help minimize taxes since they are subject to lower 60/40 tax rates.

Tax-efficient monthly income is a prime feature of NEOS funds. To get a glimpse of how its full ETF product suite benefits investors from a tax efficient standpoint, click here.

For more news, information, and analysis, visit the Tax-Efficient Income Channel.