VIDEO: ETF of the Week: CSHI

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

Welcome to the ETF of the Week, where we examine trending, new, newsworthy, unique and intriguing exchange traded funds with Todd Rosenbluth, head of research at VettaFi. Go to VettaFi.com, and you’ll find all the tools you need to make yourself a better investor in exchange traded funds.

Todd Rosenbluth, it’s great to chat with you again!

Todd Rosenbluth: It’s great to be back, Chuck!

Chuck Jaffe: Your ETF of the Week is…

Todd Rosenbluth: The NEOS Enhanced Income 1-3 Month T-Bill ETF. CSHI.

Chuck Jaffe: The NEOS Enhanced Income 1-3 Month T-Bill ETF. Now, 1-3 month T-bills. Very conservative. Your recent choices have been kind of spreading your wings, going, “this rally seems to feel pretty good. Investors might want to lean into it.” So, why this fund now?

Todd Rosenbluth: So, we’ve been seeing recently ETF flows have been gravitating toward the conservative side. The T-bill-like, the cash-like, fixed income ETFs. That’s what’s led in the last couple weeks. People are getting more nervous about how strong that rally has been.

We’ve seen the money go into that. We wanted to take a closer look at that category, and we noticed that this NEOS ETF is outperforming them, and it hasn’t been as popular.

So we wanted to raise this fund as a good example. This is an options-based ETF. We’ve talked about NEOS and their expertise in the options-based world. They are a pioneer. I believe we talked about QQQI a couple of months ago; that is, of course, the Nasdaq-100. That’s more of a risk-on type ETF.

CSHI is more of a risk-off, but you get a 5% yield in basically investing in Treasury bills with the expertise of NEOS.

Chuck Jaffe: It is important that people understand this is not your standard ultra-short Treasury fund. It’s not just that 5% current yield. Some folks would look at it and go, wait, the expense ratio is nearly 0.4%, which would be high on this kind of a fund, except for that options overlay. It’s the options here that goose the income.

Yes, they take more expenses. But again, this fund has delivered, right?

Todd Rosenbluth: Right. On a net of fees basis, this fund is outperforming both Treasury bills themselves. Outperforming (BIL A-), which is the more popular 1-3 month Treasury bill ETF. And it’s outperforming other actively managed ETFs. Now, for many actively managed ultra-short fixed income ETFs, the active management is more in the security selection.

So, instead of investing in T-bills, they’re investing in commercial paper or other short-term corporate bonds or agency bonds that are available. And we see firms like PIMCO and JP Morgan, among others, that are offering exposure. The active management that NEOS is bringing here is in the options world. They have the ability to use a strategy to be able to generate additional income.

It’s worked. This fund is almost three years old. It’ll turn three years old in August. And since inception, it’s been outperforming those peers, both indexed and active, on a security selection basis. So, that caught our eye.

Chuck Jaffe: It’s interesting timing, in terms of this fund this week. Because this week, one of our listeners, Tristan in Bellevue, Washington, was asking a question about covered call types of ETFs, options, strategies, etc. And functionally, while he was looking more at the equity-driven things, he was trying to say, there is a side about these things that sounds too good to be true.

So, would there be a warning? You would say, “If you’re going to use a strategy like this, this is what you need to know?” Because yes, you’re getting better returns, but better returns are never free.

Todd Rosenbluth: Tight. We touched on this a bit, but this is a slightly more expensive way than an index-based approach. The track record of this strategy and the track record of NEOS across their other strategies is available. NEOS actually was a pioneer. The managers were running [these kinds of] strategies before they formed NEOS. But, there’s a track record to go off.

But, just to be clear, this is not investing in cash. This is not a cash-like security. So, this is an ETF that invests. And thus, there’s going to be price movement of the ETF based on market trading. This is not just putting your money in cash. This is a way of generating additional income, in a cash-like security.

There’s been a little bit more volatility in this than it has been investing in T-bills. But, you’ve been rewarded on that, based on the data that I’ve seen. This is a strategy that can fit in well for people. But you need to go in with your eyes open about [how] this is not just investing in T-bills. This is a put option strategy using T-bills as the core of the portfolio.

Chuck Jaffe: So, we’re not lumping this in with our cash allocation. We’re lumping this in with our fixed income allocation. Does it therefore suggest that because this is a different strategy, that if I’m going to put a 5% allocation to short-term Treasuries, that I will want to split it between a classic Treasury fund and this kind of fund?

I mean, is it that you goose the yield a little bit? You get a little bit more juice with a little bit more risk, but you’re still basically covering that space. Or this can be your short-term Treasuries, even though it’s options based?

Todd Rosenbluth: I think it can be your strategy to get short-term fixed income, your ultra-short fixed income strategy, and you would get additional income. And what we haven’t talked about is the Fed is on hold right now from cutting rates. But as the Fed begins to cut interest rates further, this is a way of getting additional income as opposed to just being penalized. Not from a return potential, but the income generation that you have. 

But if folks want to test this out within their portfolio and see how it works, it can work in well and be a slice of your fixed income or your ultra short fixed income. That is a prudent way of doing something as well.

If an options-based strategy for fixed income ETFs is new to folks, it’s prudent that they take a closer look and then perhaps ease their way into it. But if you believe in the team at NEOS, you believe in the options-based strategy opportunities, this can certainly be a heavier weighting within your allocation.

And what we’ve seen, even though I know we’re talking about CSHI, we have seen advisors that are building their portfolio using more options-based strategies. So, you could combine QQQI with CSHI and get enhanced income from either a lower-income slice of your equity or fixed income portfolio.

Chuck Jaffe: And if folks want to know more about the (QQQI A-), which we discussed previously, that’s the NEOS. Nasdaq 100 High Income ETF. They could look back in the ETF of the Week archives for that.

See More: VIDEO: ETF of the Week: QQQI

Chuck Jaffe: Last question here. NEOS is a fairly new fund company that’s done really well, and it’s doing these options-oriented strategies, etc. [The] fund is only about three years old, and has generated decent assets. When you talk about NEOS being a proven manager, three years in a market cycle that’s been very favorable, that doesn’t worry you at all?

Todd Rosenbluth: The people who are running these strategies have a longer history of running options-based strategies at other firms, so that helps give me comfort. I mean, this is a fund that doesn’t have a three-year track record. And so for people who want a three-year track record, you may want to wait till it hits August.

I don’t know that you’re going to see a notable change. The fund is outperforming since inception. You can certainly go on to Morningstar or other sites or NEOS to see how it’s performing versus their index — their index alternative that is out there. I would note that the fund went through some volatility earlier in this year and it held up relatively well. That gives us some comfort. 

We’re going to talk about new and innovative ETFs. Some of them have shorter histories. I think this is a good strategy to take a closer look at for people who want higher income, but with a lower-risk fixed income strategy. This product, CSHI, offers that in a nice way.

Chuck Jaffe: It’s CSHI, the NEOS Enhanced Income 1-3 Month T-Bill ETF. The ETF of the Week from Todd Rosenbluth at VettaFi. Todd, great conversation. I look forward to the next one already!

Todd Rosenbluth: See you next week, Chuck.

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

Now, if you’re looking for more information on your favorite ETFs, or maybe your next favorite ETFs, if you’re taking some of the things that we talk about here, check out VettaFi.com, where they’ve got a full suite of tools that will help you get the details you want and make yourself a better investor. They’re on Twitter or X at @Vetta_Fi. Todd Rosenbluth, their head of research, my guest, he’s there too. He’s at @ToddRosenbluth

The ETF of the Week is here for you every Thursday. Make sure you don’t miss next week’s exciting episode by subscribing or following along on your favorite podcast app. And we’ll be back for you next week. Until then, happy investing, everybody!

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