With the capital markets hanging on the U.S. Federal Reserve’s every move, staying flexible in the current environment is necessary. That said, consider an active fund option in the NEOS Enhanced Income 1-3 Month T-Bill ETF (CSHI).
There are certainly two opposed forecasts heading into the rest of 2024. One is the higher-for-longer interest rates narrative where incoming data is fueling bets that rate cuts won’t happen anytime soon.
“Three Federal Reserve officials said the central bank should keep borrowing costs high for longer as policymakers await more evidence inflation is easing, suggesting they’re not in a rush to cut interest rates,” reported Bloomberg.
Of course, the other is that bullishness in the stock market indexes will continue. Especially as signs of a cooling economy start to trickle in. In April, weaker job growth was paired with weaker retail sales and an inflation reading that came in cooler than expected.
“Taken [together with retail sales] this supports a Fed rate cut in the fall,” Gary Pzegeo, head of fixed income at CIBC Private Wealth US, wrote in a note to clients Wednesday. “Markets are discounting a cut in September and have moved to price in a second cut by December.”
Investors will have to decide which path the market will eventually take. But CSHI can help eliminate the guesswork. On top of that, it adds income while reducing an investor’s tax burden.
Flexibility in the Current Market
As mentioned, flexibility in the current market environs is almost imperative given the sensitivity to news regarding economic data. A data-dependent Fed is certainly taking in any information. This gives the capital markets cues on what the central bank may do with rates.
That said, investors can stay adaptable with CSHI given its duality of investing in short-term Treasury bills and the S&P 500. Per its baseline fund description, CSHI seeks to distribute monthly income generated from investing in a portfolio of one- to three-month Treasury bills while implementing a put-option strategy on the S&P 500 index. This also allows CSHI to capture any upside in the S&P 500, thereby countering a fall in bond prices while adding exposure to ultra-short Treasury bills with a short duration to mitigate rate risk.
Additionally, CSHI adds another degree of flexibility with its active management. This allows CSHI to also seek tax-loss harvesting opportunities that complement exposure to SPX Index options classified as Section 1256 contracts. These contracts can help minimize taxes since they are subject to lower 60/40 tax rates.
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