CSHI ETF: A great place to park cash for the “longer” term.

No matter who you are as an investor, it is recommended to have at least a small cash position set aside to meet different market and personal conditions. Now, it is important to understand that when people recommend that you have cash positions, it is not always physical cash. Many people also consider T-bills, High-Yield Savings Accounts (HYSAs), Certificates of Deposits (CDs), and other similar assets to be cash positions. The idea is to put money into interest-generating positions where your money is very liquid and holds its value with zero or extremely low volatility.

One of my favorite places to park cash “for the longer term” is the NEOS Enhanced Income 1-3 Month T-Bill ETF (NYSEARCA: CSHI). The idea with a “longer-term” cash position is to allocate cash for opportunities. It is a position where you hold cash indefinitely unless a superior investment opportunity arises, such as if a large piece of real estate comes on the market or a company’s stock suddenly becomes undervalued. CSHI is a great asset for these cash positions because they can handle slightly increased volatility in exchange for higher returns and distributions over the long term. It is a fund that consistently generates 100-150 basis points more than the 1-3 month US Treasury bill rate with minimal risk. I rate CSHI a Buy for those looking for a place to park their opportunistic cash positions.

CSHI strategy and objectives

According to the CSHI prospectus,

The NEOS Enhanced Income 1-3 Month T-Bill ETF (the “Fund”) (formerly the NEOS Enhanced Income Cash Alternative ETF) seeks to generate monthly income in a tax-efficient manner.

To add to this, Troy Cates, a managing partner at NEOS, discussed in depth in an interview that CSHI is trying to generate around 1-1.5% yield on top of what T-bills are currently producing from USA for 1-3 months. The fund accomplishes this objective by holding the entire portfolio in 1-3 month US Treasury bills and using them as collateral to sell out-of-the-money SPX put spreads. These put spreads are typically sold 8-10% out-of-the-money and are shorter-term options that are released every week, according to Cates.

What makes CSHI a solid place to park your cash is that its put spreads and distribution targets are extremely conservative based on its current option holdings.

In the worst-case scenario where the S&P 500 falls below 5000, CSHI’s maximum loss is 0.67%. This number can be calculated by first finding out how much CSHI would have to cover if all of their put options were exercised. The worst case scenario for CSHI is when all of their put options sold are exercised, while the put options bought expire worthless. In this hypothetical case, the CSHI puts at 4800, 4850 and 4900 will expire worthless while the rest are exercised. Thus, the cash settlement would be equal to the collateral needed to cover the exercised put options minus the amount of the put option purchased at 5075. We then finish by adding the net credit from the sale of the put spreads to find our maximum loss and divide that by the NAV of CSHI to achieve our maximum percentage loss.

If you read my article on the Simplify Enhanced Income ETF (HIGH), “HIGH: Unnecessary Risk From Unpredictable Option Spreads,” you’ll know that I’m not a big fan of the ETF because of its unpredictability. However, this is not the case with CSHI. It has been clearly established that the fund buys Treasuries and sells SPX put spreads with guidance on the money and its distribution objectives. This makes the fund much more predictable and stable as a cash parking vehicle. Yes, there is option risk with CSHI, but your maximum loss is less than 1% when the market drops without warning. And if the market continues to decline, fund managers will continue to write out-of-the-money options to protect their assets. We can step out of the hypothetical scenarios and look at how CSHI handled the Japanese yen trade in August.

What you will notice is that the CSHI was hardly affected by the changes in the general market and closely tracked the 1-3 month US Treasury yields with slightly higher volatility. Compare that to something like HIGH, which lost about 1.41% in August 2024 and underperformed the S&P 500.

Now, the reason to buy CSHI directly versus US Treasuries is that the additional yield from selling put spreads pushes CSHI forward significantly depending on how long you hold it.

For cash positions you hold indefinitely, taking advantage of the extra yield would make sense if the extra volatility isn’t life-changing. For context, the CSHI’s standard deviation since inception has been 0.3%. The simple point is that this fund is great if you are willing to take a 0.3% worst case loss. Most of the time, CSHI will outperform by holding only Treasuries or HYSAs with minimal added risk. It is a great fit for cash positions that could be held longer.

CSHI is not always appropriate

Of course, there are situations where CSHI is not appropriate. The first example that comes to mind is when you buy real estate. You can put your money into CSHI when you shop for real estate, but once you get an accepted offer, it would be wise to move your money into an even more liquid and stable position to guarantee your ability to close. Essentially, in the short-term conditions where you have a tight balance to meet, CSHI still has enough risk that it may not be worth investing in the fund.

In addition, please pay close attention to CSHI’s objective of generating a yield of 1-1.5% above US Treasury rates. With the likelihood of an entry rate cut, the CSHI will not remain at the current level of 5.91%. Instead, the CSHI yield will fall to whatever the 1-3 month US Treasury bill rate becomes, plus about 1%. If you think the Federal Reserve is going to cut interest rates, then other cash-like assets where you can lock in a higher interest rate might make a lot more sense.

Neither is CSHI intended to replace income funds. If the total value of your portfolio at any one time isn’t super important as long as it grows over time, you’ll do better with funds with more aggressive options strategies if your goal is income.

Great for longer term cash positions

Overall, though, CSHI is a great place to park cash that will be held indefinitely pending other investment opportunities or situations. The options risk generated by CSHI’s conservative SPX put spread strategy is minimal compared to the amplified returns generated over the long term. There are cases where the fund does not make sense that must be reviewed individually. Overall, I rate CSHI a Buy for investors looking for cash positions designed to take advantage of future investment opportunities.