The NEOS Enhanced Income 1-3 Month T-Bill ETF (CSHI) is a hybrid fixed income exchange-traded fund designed to provide investors with exposure to the short end of the treasury yield curve. CSHI can be utilized as a component of multiple investment strategies, including duration management in a fixed income portfolio and for liquidity as a replacement for money market funds. CSHI differentiates itself through the use of a put options strategy on the S&P 500 Index (SPX) to enhance the income component, providing investors with an appealing monthly distribution yield relative to peer short-term Treasury strategies.

About NEOS Enhanced Income 1-3 Month T-Bill ETF

CSHI was launched by NEOS ETFs on August 29, 2022 on the NYSE Arca Exchange. The strategy charges a 39bps management fee, a premium over peer short-term treasury strategies, though can be justified given the structure and performance of the fund.

CSHI has a relatively liquid market with $1.23b in net assets with an average of $22mm in share value changing hands on a daily basis, exhibiting strong liquidity. Accordingly, the fund has a low 30-day median bid/ask spread of 0.02%, minimizing excess trading costs when entering and exiting a position. Liquidity can be exceptionally critical when utilizing CSHI for short-term liquidity or as part of an actively managed fixed income rotational strategy.

CSHI pays out a robust monthly distribution rate delivered by the combination of interest income and return of capital derived from the short-term Treasuries and derivative income strategy. For all of 2025, 76% of the distribution was derived from net investment income while the remaining 24% was derived from return of capital. The balance between investment income and return of capital can significantly vary from month to month and may not be consistent across all holding periods.

CSHI has paid out $2.45/share over the last twelve months for a yield of 4.91%. A defining factor that may influence CSHI’s distribution is the base rate set by the Federal Reserve. Given that CSHI focuses on the ultrashort end of the Treasury yield curve, the fund may be exceptionally sensitive to a shift in interest rate policy, not necessarily in terms of duration risk but rather, cash flow risk. For instance, a cut in the base rate may result in new issuances yielding a lower rate whereas a rate hike may deliver a higher yield for replacement issuances.

An added component to the distribution is CSHI’s options trading strategy. The fund utilizes SPX Index options to enhance the fund’s ability to generate income. CSHI utilizes put spreads to gain exposure to the SPX, which consists of the simultaneous purchase and sale of put options at different strike prices to minimize risk of losses. The fund leverages section 1256 contracts, which effectively provide a 60/40 split between long-term and short-term capital gains, regardless of how long the contracts are held. As part of the trading strategy, the fund may advantageously utilize these put options for tax-loss harvesting opportunities.

Investor Suitability

CSHI can be utilized by a variety of investors seeking exposure to the ultrashort-end of the Treasury yield curve. Given CSHI’s enhanced income components, the fund can be utilized for those seeking to enhance their fixed income exposure while reducing duration risk. CSHI can also be utilized for liquidity or as a replacement for money market funds given the relatively low volatility of the fund. Lastly, CSHI can be utilized as a placeholder for unallocated funds or as a defensive position as part of a diversified portfolio strategy. Given the relatively strong liquidity and low bid/ask spread, the fund can be traded with ease without having to time the market.

Risks Related to CSHI

CSHI was designed to provide investors with direct exposure to the ultrashort-end of the Treasury yield curve while enhancing income through the use of an options trading strategy. Given the fund’s exposure to 1-3-month Treasuries, distributions may be sensitive to the relative yield of Treasuries added to the portfolio during periods of interest rate policy changes. If the Fed were to cut the key rate, new issuances may exhibit a relatively lower yield and result in less interest income earned from the fund. CSHI may experience some NAV decay as a result of the return of capital component. The fund’s call spread strategy may bear certain risks during volatile market periods despite the purchased put protection.

Final Thoughts

CSHI is a hybrid fixed income strategy designed to provide investors with exposure to the ultrashort-end of the yield curve while enhancing distributable income through the use of put spreads. CSHI can be utilized by a variety of investors, whether used to manage duration risk in a fixed income strategy or to enhance liquidity as a component of a diversified portfolio.

This article answers these three questions about CSHI:

• What are the different ways investors can use CSHI in their portfolios?
• Does CSHI offer appropriate liquidity for entering and exiting positions efficiently?
• What risks do CSHI investors face?