2025 may prove another strong year for ultra-short duration strategies, given the complex market and economic environment. Advisors and investors wanting to put money to work while hedging against duration risk should consider the NEOS Enhanced Income 1-3 Month T-Bill ETF (CSHI ).
Markets remain rife with risk in the first quarter as geopolitical tensions, potential trade wars, and more loom large. Although tariffs on Canada and Mexico were paused for 30-days, tariffs on China began this month. The U.S. imposed 10% tariffs on imports from China on Monday. China responded the next day with announcements of a 15% tariff on energy related goods like coal and liquified natural gas, reported CNN.
The possibilities of tariffs sent markets plummeting on Monday on fears of economic impacts to the U.S. Though tariffs on Canada and Mexico remain paused for now, the threat of trade wars across several fronts creates added risk in markets.
CSHI Offers High-Income, Low-Duration Risk
For those investors looking to shore up cash allocations this year, the NEOS Enhanced Income 1-3 Month T-Bill ETF (CSHI) is worth consideration to put that money to work for income. The fund outperformed other notable strategies within its category since inception in August 2022.
CSHI seeks to deliver 100-150 basis points above what 1-3 month Treasuries are yielding. The fund currently has a distribution rate of 5.42% and a 30-day SEC yield of 4.00% as of January 31, 2025. Distribution rate annualizes the most recent distribution and then divides by the fund’s NAV. Since inception, it generated total returns of 14.35% and a distribution rate of 5.42%.
CSHI is actively managed and seeks to generate high monthly income with its options-based strategy. It is long on three-month Treasuries and sells out-of-the-money SPX Index put spreads. These roll weekly to account for market changes and volatility.
Added Tax-Efficiency Investing in Cash Alternatives
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 fair market value.
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 which can offer noteworthy tax advantages.
A portion of CSHI’s distributions also qualify as Return of Capital. These distributions are a return of some (or all) of the original investment made into an asset. In some cases, it is a return on premium earned by an investment as opposed to principal.
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.
