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3.99% SGOV versus 4.97% CSHI trailing 12 months distribution yield. How does CSHI generate this higher T bill yield?
Hello everyone and welcome back to Markets with Marcus. So quite a few in our diamond community have asked about CSHI in recent weeks. CSHI is the NEOS enhanced income 1 to three months T-bill ETF and at the time of this taping on April 20th, 2026, it had a trailing 12 months cash distribution yield per Morningstar of 4.97%. For comparison, the popular iShares 0 to 3 months Treasury bond ETF ticker SGOV only showed 3.99% over the same period.
As some of our regulars may already suspect, the secret source, so to speak, for the stronger historical performance of CSHI is that it applies an enhanced income strategy, as the name already says. So with that in mind, here are the three topics that we'll be covering today.
One, who is NEOS and how do they generate the extra returns for CSHI?
Two, what is CSHI's track record and how does this compare to SGOV and what are the risks of CSHI's enhanced income strategy?
And three, who might or might not want to consider CSHI. Let's get started.
Who is NEOS and how do they generate the extra returns for CSHI?
Neos Investments, or NEOS for short, was founded in July 2022, less than four years ago at the time of this taping, and is headquartered in Westport, Connecticut. As per Morningstar, NEOS Investments has a bit more than $20 billion in total net assets in its funds and has more than tripled its size over the past 12 months, as we can see from this impressive trailing 12 months asset growth rate of 334%.
NEOS is really positioning themselves as a specialist for ETFs that use options to generate extra income on top of a securities portfolio. Or to say it in NEOS' own words, NEOS ETFs aim to deliver the next evolution of option strategies where seeking income is the outcome.
The NEOS enhanced income one to three months T-bill ETF ticker CSHI was established in August 2022, meaning it was one of the first products to be launched by NEOS shortly after its founding. CSHI invests under normal circumstances at least 80% of its assets in one to three months T-bills, either directly or indirectly via other ETFs, options, forwards, futures, and swaps. On top of this core holding of short-term T-bills, meaning basically with the other at most 20% of its assets, CSHI may actively buy and sell put options.
Now, the description of this strategy can look confusing at first. As the prospectus says, the options strategy utilizes a put spread consisting of the sale of exchange-listed put options, so-called short puts, with a notional value up to 100% of the fund's net assets, and the purchase of put options, long puts. So, as we often do here at Diamond Nest, let's try to break down what this means.
CSHI's options strategy has essentially three key components.
First, CSHI sells put options on the S&P 500 index and collects option premiums from these put option sales. This basically makes CSHI an insurer against a drop in the S&P 500. In other words, CSHI earns some extra income from selling the put options but is now exposed to equity risk. If the S&P 500 falls below a certain threshold, CSHI will have to absorb the entire loss, which clearly doesn't sound very attractive.
Bringing us to the second key component of CSHI's options strategy. The second key component tries to limit its downside risk in the event that the S&P 500 drops sharply. CSHI uses a portion of the premium income from its put option sales. So this extra income that is earned here to now buy protection against the S&P falling too much. So in other words, it's exactly the reverse position from the first step. CSHI pays the premium to someone else who is then responsible for ensuring CSHI against the S&P 500 falling too much. Of course, this only makes sense if CSHI spends less on insuring itself here than it earns from selling the put options here in the first place. And this means that the protection that CSHI buys here will only kick in if the S&P 500 falls even more than the first threshold.
Let's go through an example here with some illustrative numbers which might make it a bit clearer. And let's assume that the S&P 500 is at 7,000 right now. CSHI collects $100 from put option sales here, and the buyer can exercise these options if the S&P falls below 6,500. And from this $100 that it collected, CSHI might then spend $80 to buy put options, and it can exercise these options if the S&P falls below 6,300.
In the best-case scenario, the S&P 500 never falls below this 6,500 here. The options buyer never exercises its options, and CSHI walks off into the sunset with $20 of extra income earned. That's this $100 it earned from the put option sales minus the $80 here it spent to buy protection against the S&P 500 falling too much.
If the S&P 500 does fall below this 6,500 here, then the buyer of this option will exercise it, meaning that they will now call on CSHI to make them whole for their loss from the falling S&P 500. In non-technical terms, in such a case, CSHI will have to pay up, so to speak. However, how much money CSHI may lose in such a case will depend on a number of factors, including how far the index falls, how much CSHI netted from these two positions, etc., etc. We won't get into the details today. That could be a whole separate video of its own.
But let's get to the worst case now. And let's assume the S&P 500 just keeps falling and falling. In this worst-case scenario, CSHI would have to bear all the losses from the S&P 500 going down to 6,300. But that's the maximum loss it would need to take, because if the S&P 500 falls below 6,300, CSHI would exercise the option that it purchased here from somebody else who has to bear the additional loss. Remember, that's why CSHI bought this put option here for protection against the S&P falling too much. So net net, CSHI may experience some downside if the S&P goes down, but CSHI's losses are kept once the S&P 500 falls to 6,300.
Another easier way to think about this is like insurance with a deductible. CSHI carries the first loss if the S&P 500 goes down below 6,500 in our example via this first component here. But its total losses are kept once the S&P reaches 6,300, and it will never be surprised by a larger loss than it could plan for via this second component. As always, keep in mind that this example and all the numbers that we've used here are for illustrative purposes only.
Moving on now to the third component of CSHI's options strategy, taxes. As the starting point, interest payments from the core T-bill holdings may be exempt from state and local income taxes. In fact, for the tax year 2025, NEOS reports that almost 90% of its ordinary income was attributable to US government obligations and might fall in this category. That said, option premiums are generally fully taxable at all levels.
CSHI also uses several additional tools to optimize shareholder taxation. According to its website, it seeks to take advantage of tax loss harvesting opportunities in addition to utilizing S&P index options classified as section 1256 contracts, 60% of whose capital gains might be classified as long-term by the IRS, meaning they might benefit from lower tax rates than the remaining 40% of short-term capital gains. Historically, CSHI has also distributed a part of its dividend as return of capital. For example, 24% here for the fiscal year 2025. Return of capital payments are tax-free when distributed but lower your cost base, which means that you may have to pay taxes on the corresponding capital gains when you sell your shares, for example.
Remember that Diamond Nest is not a tax advisor. So, please check with your trusted tax advisor for your personal situation. And as with every investment that you may be considering for your portfolio, please do refer back to CSHI's prospectus for more details, especially on any part of CSHI's options strategy that we just highlighted. I've linked CSHI's prospectus below this video for you.
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So now that we understand what CSHI means by its enhanced income strategy, let's move into the next part for today's discussion. What is CSHI's track record and how does this compare to SGOV and what are the risks of CSHI's enhanced income strategy?
So, this table with CSHI versus SGO is one that many of you in our diamond nest community should already be familiar with. As I mentioned earlier, the NEOS enhanced income 1 to 3-month T-bill ETF, ticker CSHI, was established in August 2022. It currently trades at $49.77 per share, has total assets of $1.00 billion, and is actively managed, which makes it relatively expensive for a treasury ETF at 39 basis points. Keep in mind though, that this expense ratio is already deducted from all distribution yields and total return numbers that we're going to discuss in a moment. So you do not need to subtract them again.
CSHI aims to pay a dividend monthly, meaning 12 times a year. If we take the actual cash distributions over the past year and divide them by the share price at the end of the latest observation period, we get to this trailing 12-month yield or TTM of 4.97%.
Now, CSHI's 30-day SEC yield of 3.19% is a fair bit lower than its TTM of 4.97%. But the 30-day SEC yield excludes any income from options premiums. So, it kind of defeats the purpose for a fund like CSHI, which prides itself on generating extra income from a put option strategy. So, instead of looking at the 30-day SEC yield, which excludes options premiums, let's look at the distribution rate of 4.70% that NEOS calculates for itself. The distribution rate that NEOS calculates for CSHI should be a close equivalent of the 30-day SEC yield, with the one key difference being that it does include income from option premiums. So, it takes the most recent distribution, multiplies it by 12, and then divides it by the fund's most recent ex-date net asset value or NAV.
Let's move on now to trailing total returns. What an investor would have earned on an annualized basis from both cash distributions and capital gains or losses. Essentially share price movements had he or she invested at the beginning of this year, one year ago, and three years ago. So the total return for CSHI would have been 1.68% since the beginning of this year, 6.08% from one year ago, and 5.58% from 3 years ago.
Let's compare these numbers now to iShares 0 to 3 months Treasury bond ETF, ticker SGOV, which was established in 2020. Please keep in mind that SGOV has a different risk profile from CSHI. SGOV is also significantly larger at $84 billion in assets. Unlike CSHI, SGOV is a straightforward index fund that holds T-bills only without any option strategies or any other active management, making it cheaper with expenses of only nine basis points. That said, a comparison may give you a first feeling for how much extra return CSHI generated with its options strategy over the more conservative SGO without any options involved.
So, let's look at the trailing 12 months cash distribution yield. Here, CSHI is ahead by about 1 percentage point, 4.97% versus 3.99% for SGOV. And if we look at just the last 30-day period, it shows an almost similar picture. A 4.70% distribution rate for CSHI versus only 3.54% 30-day SEC yield for SGOV. Now, these two rates may not be directly comparable, but they should give you a better feeling than if you used CSHI's 30-day SEC yield, which excludes income from options premiums, as we discussed before.
If we look at the trailing total returns for SGOV, there would have been 1.06% since the beginning of this year, 4.02% from 1 year ago, and 4.76% from 3 years ago. Meaning that an investor in CSHI may have earned a potential 62 basis points more since the beginning of the year, 2.06% more over the past year, and a more modest 82 basis points again over the past three years than an investor in SGOV.
As we always say though, past performance is not indicative of future results or outcomes. All the numbers on this table are, as of the time of this taping, April 20th, 2026, and they do change all the time. So, please check what the latest numbers might look like whenever you're watching this video. And another important point, unlike buying and holding individual treasuries to maturity, neither CSHI nor SGOV guarantee the future distributions or repay the principal at maturity. If you need access to your principal, you will always have to sell your shares at the then prevailing market prices.
Now that we have seen the historical yield and return advantage of CSHI over SGOV, let's look at the flip side, risk. As the iron rule of finance goes, higher return, higher risk. So both SGOV and CSHI have a very similar risk profile for their T-bill holdings, essentially no credit risk for all practical purposes and more or less limited interest rate risk given the short maturities of the T-bills that both funds own. In fact, because SGOV owns a straightforward portfolio of T-bills with no active management or options overlay, many advisors in the market would consider SGOV as a viable alternative to cash. Not quite cash itself, but still very stable and liquid with potentially a bit of a higher yield.
CSHI is different here. The put options introduce equity risk, which means that as an investor in CSHI, you may be on the hook, so to speak, for a certain degree of losses if the S&P 500 goes down. Also, as we discussed earlier, this chart here shows you the share price for both funds over the past three and a half years or so since the launch of CSHI. At first glance, you can already see that CSHI, the dark blue line, has seen more ups and downs compared to SGOV, the light blue line on top. And please note that the seesaw pattern for both funds essentially reflects the accumulation and then payment of the monthly distributions. But there is a dip here in the share price of CSHI around March-April 2025 that looks really steep. This was the period around President Trump's liberation day tariff announcement that rattled markets and drove volatility and uncertainty across practically all asset classes. However, in absolute numbers, this dip was only a bit more than 2% versus the share price at the beginning of this period.
Let's zoom out now and add this yellow line on top for VO, Vanguard's S&P 500 ETF, as a proxy for the S&P 500. And we can see that both SGOV and CSHI were relatively stable compared to VO. As expected, SGOV's light blue line is almost straight here. Remember, it's often considered a near cash equivalent. CSHI's dark blue line is not quite as stable in comparison, but you can also see that its dip in March-April 2025 that looked much bigger on the chart before really pales against the much sharper downturn that VO experienced at the same time, so to speak.
So, where does this leave us? Might you be interested in adding some CSHI to diversify the liquid end of your fixed income portfolio for a bit of potential higher yield? Or can you not get comfortable with CSHI's higher volatility and exposure to equity risk? Which brings us neatly to the next part of today's video.
Who might or might not want to consider CSHI?
So, in our personal opinion, you may want to consider CSHI as an addition to the more liquid end of a diversified portfolio if you check all of these five boxes.
One, you are an income-focused investor and really like the potential for higher cash distributions compared to holding short-term T-bills directly or via a fund like SGOV.
Two, you don't mind CSHI's potentially higher share price volatility and you like that its trailing total returns stayed ahead of SGOV over the past 3 years.
Three, you can accept the risk profile of CSHI, in particular that you become exposed to the downside of the S&P 500 to a certain extent via the put options that the fund rides. In our mind, the real risk for CSHI is a prolonged downtrend in the S&P 500. Being the first loss insurer in such a bare market will hurt you more the longer the market keeps falling.
Four, you expect to potentially benefit from the tax strategies used by CSHI, including the return of capital with some distributions as well as the use of 1256 contracts. Both these strategies may lead to exposure to capital gains taxes over time, which are generally not exempt from state and local taxation in contrast to normal treasury interest.
Five, you are comfortable with put options and don't mind the complexity that comes from CSHI's active management as compared to a more straightforward T-bill investment directly or via a fund like SGOV.
If you say no to even one of these boxes though, or if adding CSHI to your portfolio would keep you up at night for whatever reason, then CSHI may not be for you. Everyone's financial journey is different. And at the end of the day, you need to make the decision that's right for your individual circumstances, goals, and expectations.
What do you think of CSHI at this point? Are you considering adding a bit to your portfolio? And what else do you want to know about it? Or would you rather play it safe and stick to the more conservative SGOV with no options of any sort involved at all? Or is it buy and hold T-bills to maturity or something else altogether for you? Drop a comment below and let me, Chen, and the rest of our community know.
Or come join our VIP investment club to continue learning about the best rates, investment opportunities, and what others like yourself are doing right now for safety and inflation protection as well as for higher yielding growth. Visit our website at www.diamondnest.com diamondnest.com and click on this yellow private VIP investment club button to learn more.
Thanks for watching and see you again soon.