Unlocking Monthly Income in a Low-Yield World: A Deep Dive into NEOS Enhanced Income 1-3 Month T-Bill ETF (CSHI)

In an era where traditional cash alternatives like money market funds and short-term bonds offer meager yields, investors are increasingly seeking innovative solutions to generate consistent income without sacrificing capital preservation. The NEOS Enhanced Income 1-3 Month T-Bill ETF (CSHI) emerges as a compelling candidate in this landscape, blending the safety of U.S. Treasury Bills with a tax-optimized options strategy to deliver monthly income. This article evaluates CSHI's structure, performance, and tax advantages, positioning it as a strategic tool for investors navigating today's low-yield environment.

The Low-Yield Dilemma and Traditional Alternatives

For decades, investors have relied on cash equivalents such as money market funds and short-term bond ETFs to preserve capital while earning modest returns. However, with the Federal Reserve's benchmark interest rates remaining historically low and inflation eroding real returns, these traditional options have lost luster. As of 2025, the average yield on money market funds hovers near 2.5%, while short-term bond funds lag even further. The challenge is clear: How can investors generate meaningful income while mitigating risk in a world where “risk-free” assets offer little reward?

CSHI's Hybrid Approach: T-Bills Plus Options

The NEOS Enhanced Income 1-3 Month T-Bill ETF (CSHI) addresses this challenge through a dual-pronged strategy. At its core, the fund holds a portfolio of 1-3 month U.S. Treasury Bills, which are among the safest investments in the market. These short-term instruments minimize exposure to interest rate risk and ensure daily liquidity, a critical feature for cash-sensitive investors. However, CSHI goes a step further by implementing a data-driven put option strategy on the S&P 500 (SPX) index. This overlay generates additional income through both written and purchased put options, which are classified as Section 1256 contracts—a tax-advantaged structure that applies a 60/40 long-term/short-term capital gains tax rate.

Tax Efficiency and Yield: A Winning Combination

One of CSHI's standout features is its 5.08% dividend yield, significantly outpacing the 2.95% category average and 3.57% segment average. This high yield is amplified by the fund's tax-loss harvesting capabilities, which allow it to offset capital gains with losses, reducing the tax burden on investors. For example, performance data as of June 30, 2025, shows CSHI's annualized returns of 5.45% (net asset value) and 5.47% (market price) over one year. Even after tax adjustments, the fund's 3.36% and 3.34% annualized returns over five years remain competitive with riskier alternatives.

The fund's expense ratio of 0.38% further enhances net returns, undercutting the 1.05% average of similar long-short ETFs while remaining in line with the 0.12% average of fixed income funds. This cost efficiency, combined with its tax-advantaged structure, makes CSHI a rare combination of high yield and low friction for investors in higher tax brackets.

Risk Profile and Performance Validation

While CSHI's active management approach introduces some uncertainty, its risk profile remains conservative. The fund's portfolio is highly concentrated in short-term U.S. government securities, and its beta (a measure of market sensitivity) is near 0.0, reflecting minimal exposure to broader market fluctuations. Over three and five years, CSHI has delivered annualized returns of 5.60% and 5.59%, respectively, demonstrating consistency in both rising and falling rate environments.

Critically, CSHI is not FDIC-insured, and its performance hinges on accurate execution of its options strategy. However, its low volatility and defensive positioning make it a more reliable cash alternative than traditional money market funds, which have struggled to keep pace with inflation.

Strategic Considerations for Investors

For income-focused investors, CSHI offers several advantages:
1. Monthly Income: The fund's structured approach generates predictable distributions, ideal for retirees or those seeking regular cash flow.
2. Tax Optimization: The Section 1256 classification and tax-loss harvesting reduce after-tax returns drag, making it particularly attractive for taxable accounts.
3. Capital Preservation: The short-duration Treasury Bill portfolio limits downside risk, even in volatile markets.

However, investors should consider CSHI as part of a diversified portfolio. While its low-risk profile is appealing, it should not replace longer-duration fixed income or equities for those seeking growth. Additionally, its active management means performance is not guaranteed, and market conditions could impact the effectiveness of its options strategy.

Final Verdict: A Tax-Efficient Cash Alternative

In a low-yield environment, the NEOS Enhanced Income 1-3 Month T-Bill ETF (CSHI) stands out as a tax-efficient, high-yielding cash alternative. By combining the stability of short-term Treasuries with a strategic options overlay, it delivers monthly income without sacrificing capital preservation. With an expense ratio of 0.38%, a 5.08% yield, and a track record of consistent performance, CSHI is well-positioned to meet the needs of investors seeking to navigate today's economic landscape.

For those prioritizing monthly income and tax efficiency, CSHI is a compelling addition to a balanced portfolio. As always, investors should assess their risk tolerance and consult with a financial advisor to ensure alignment with their long-term goals.