Recent data indicate approximately $8 trillion sits in money market accounts and funds. That sum staggers, when considering how well equities have performed this year. Yes, some market participants, including institutional investors and active fund managers, are required to hold a portion of assets in cash, but that doesn’t fully explain $8 trillion. The issue with basic cash instruments, including money markets, is that they aren’t risk-free bets. Cash is interest rate-sensitive. That underscores why, as rates on money markets and high-yield savings accounts declined, some advisors and investors embraced the NEOS Enhanced Income 1-3 Month T-Bill ETF (CSHI) as cash alternative.
Confirming that CSHI is indeed gaining traction as a compelling alternative to standard cash investments, the ETF has roughly doubled in size over the past eight months. Offering investors a 30-day SEC yield of 3.26% on a low-risk investment will do that.
The Fed Could Make CSHI Even More Popular
The actively managed CSHI’s growth spurt could continue over the near-term. After all, what felt impossible entering this year is now increasingly on the table. The Federal Reserve may hike interest rates, potentially multiple times before the end of 2026.
A new report by Bank of America indicated that the Fed could hike rates three times — once each in September, October and November — and boost bond yields in the process. CSHI writes call options on 1-3 T-Bills, so the ETF isn’t highly vulnerable to rate hikes. However, Fed tightening could stoke higher yields on cash instruments, thus boosting the appeal of CSHI in the process.
Advisors on the fence about CSHI over the near-term, consider the following. Bank of America noted that “the Fed’s inflation problem has gotten unambiguously worse,” implying that the central bank has no choice but to soon consider rate hikes. Additionally, a majority of Kalshi traders are betting that the Fed will roll out at least one rate increase before the start of 2027.
“For investors, this environment rewards discipline more than prediction. Higher energy prices could lift inflation and slow economic activity, but consumer spending and corporate earnings have remained resilient,” noted U.S. Bank.
There’s still another point to consider with CSHI. It’s an ETF that many investors can hold for extended periods. That’s worth noting because, amid the rate hike chatter, some experts believe it’s unlikely the Fed has the latitude to reconsider easing prior to 2028.
For more news, information, and analysis, visit the Tax-Efficient Income Content Hub.
