Investor worries of more Fed tightening and waning consumer confidence sent markets tumbling Tuesday. As challenges continue to mount for economic resiliency, investors looking to optimize their cash hedges against market risk should consider the NEOS Enhanced Income Cash Alternative ETF (CSHI ).
News that the Fed expects one more interest rate hike this year and fewer rate cuts next year than previously forecast weighs heavily on markets at the end of the month. The S&P 500 is down more than 5% in September as of 09/26/2023. The Nasdaq Composite fell nearly 7% over the same period, and the Dow dropped 3%.
Alongside interest rate concerns is plummeting consumer confidence. The Conference Board reported its Consumer Confidence Index fell for the second month in a row to 103 in September on expectations of 105.5. The index previously was 108.7 in August.
What’s more, the Expectations Index which measures short-term outlook on business, income, and the labor market, dropped to 73.7. Numbers below 80 traditionally indicate an impending recession within the next year.
“The proportion of consumers saying recession is ‘somewhat’ or ‘very likely’ rose in September after dropping in August,” Dana Peterson, chief economist at The Conference Board, said in the press release.
CSHI Is a Cash Alternative ETF With Noteworthy Yields
Worries of eroding equity performance alongside the economic cost of higher rates for longer add heightened stress and uncertainty. Advisors and investors increasing their cash allocations amidst uncertainty should look to the NEOS Enhanced Income Cash Alternative ETF (CSHI ) for its noteworthy yields.
CSHI 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.
CSHI 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.
The fund currently has a distribution yield of 6.63% and a 30-day SEC yield of 5.11% as of 08/31/2023.
The put options that the fund uses are not ETF options but instead are S&P 500 index options. These options receive favorable tax treatment as Section 1256 Contracts under IRS rules. This means the options held at the end of the year are treated as if sold on the last market day of the year at FMV.
Any capital gains or losses are taxed as 60% long-term and 40% short-term. Notably, this tax treatment applies regardless of 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%.
For more news, information, and analysis, visit the Tax-Efficient Income Channel.