Parking Profits
I’ve got a couple of funds that I use to stash away my “dry powder” cash, money that’s earmarked for a future investment opportunity. While I’m willing to take a bit of risk with this cash, I need the investments to be relatively stable so that when the right opportunity comes knocking, I can seize it.
To this end, I don’t want money-market volatility, but I’m not comfortable with a standard deviation of over 4%.
This is different from the cash that moves around my account due to stock and options transactions, which I’ve got parked in the Fidelity Government Money Market Fund (SPAXX). I highly recommend this fund as a solid default core holding on Fidelity.
The two funds I’ve got my eye on are:
The iShares 0-3 Month Treasury Bond ETF (NYSEARCA:SGOV) and the Simplify Enhanced Income ETF (NYSEARCA:HIGH).
Cash park investors are absolutely thrilled about this new “higher for longer” macro environment. These funds are now dishing out yields of over 5% and it’s music to our ears!
According to the Fed, this party could continue for another year above 4%, followed by another year around 3% in 2026. However, who knows what happens when the Fed’s plans meet reality! Now that’s a story for another day.
Dry Powder Dilemma
Having cash stashed away in conservative ETFs or money market funds for future investment opportunities hasn’t exactly been a lucrative move in the last decade. The total return from 2010 to 2023 for money market investors was a measly 12.37%, which rounds up to just 0.95% per annum.
If you were willing to take on a bit of beta with short-term corporate bonds, the results were slightly better, but the ride was far bumpier. That’s not acceptable for most folks parking their cash.
However, the game has changed now that rates have surged to 5%, the highest we’ve seen in a long time. And according to the Fed, they plan to keep rates here for some time, making these cash vehicles suddenly much more appealing.
Investors caught in the cash trap are riding high now that these funds are sprouting 5%+ yields. The question is, will this party go on for long or will it be a fleeting moment?
Last time I talked about SGOV, I gave it a strong buy. And you know what? It’s performed exactly as expected since then!
The whipsaw in the chart tells the story. The fund drops when dividends are paid out, then picks up as the month progresses until the next payment rolls around. It’s a rinse and repeat cycle.
SGOV is a fund that holds T-Bills, treasury bonds that mature within a 90-day timeframe. These bonds are stable, predictable, and they are currently doling out the highest dividend yield of the maturity ranges iShares ETFs offer.
T-Bills are the least risky treasuries to own, and treasuries are considered the least risky bonds overall. It’s a win-win situation for short-term cash holdings – low volatility and high dividends, what’s not to love?
It’s important to note that SGOV’s distributions (along with ~5% of HIGH’s yield) are exempt from state taxes since they are coupons from treasuries. This means that my after-tax return for SGOV is higher than my return would be with a money market like VMFXX, which. . .
Unleashing the HIGH ETF: A Fiery Review of Simplify Enhanced Income ETF (HIGH)
Hey there fellow finance fanatics! Today we’ve got a scorching hot topic to discuss. I’m burning to talk about a recent release that’s been the burning bush of the financial world. Yes, you guessed right – it’s the Simplify Enhanced Income ETF (HIGH) that blazed onto the scene last November.
But let me tell you, how did a cannabis ETF not snatch “HIGH” before Simplify? Talk about a missed opportunity in the midst of this thrilling financial wildfire!
Simplify Enhanced Income ETF (HIGH) has become the most sought-after financial flame, seeking to provide blazing monthly income by selling short-dated put and/or call spreads on a variety of equity and fixed income instruments. It’s all about finding that smoking hot alternative high yield solution!
But check it out. Another Seeking Alpha analyst described HIGH as a “hedge fund in disguise”. Some say it uses its T-Bill holdings to write options on equities, wearing an invisibility cloak, so to speak. Now, despite their analysis of HIGH not aligning with mine, I think the moniker should stick. Hats off to Simplify for keeping things heated up!
A Potpourri of Fiery Stats
The underlying T-Bills provide the same exposure as SGOV, but allows us to add in an options overlay, adding some spice to the mix. It’s like eating your favorite dish with an extra kick of pepper! And you know what? It’s working like a charm so far!
By using an algorithm to write their spreads, Simplify is like a master chef who creates the perfect blend of flavors in every dish. The options it picks are like adding the perfect seasoning to a sizzling steak. Currently, it has spreads open on COP, CVS, CVX, RIVN, SPX, and TLT. Talk about a spicy menu!
Now, let’s talk numbers. Notice how far back, or “OTM” the spreads were sold. With 10 DTE, we’d have to see a 4% move to hit the breakpoint. That’s like having an almost guaranteed success rate of 97%. It’s like playing poker with a winning hand dealt to you from the start!
That being said, let’s not forget the major risk of holding funds that write options, like HIGH. It’s like craving spicy food while being aware that there’s a possibility of heartburn. Even though HIGH’s standard deviation is about 1.4%, it stills plunges into spicy territories that only adventurous souls dare to explore.
Conclusion: A Maestro of Fiery Finances
Investors are looking for good cash parks and have plenty of options now that we are looking at sustained rates that will be “higher for longer.” It’s like prowling through a wild forest of investments, and finding a hidden path leading to a tranquil lake.
Treasury bills remain one of the most attractive positions for “dry powder,” as it waits for investment opportunities to come along. Adding an options-overlay to the fund increases volatility and yield, like creating a spicy cocktail that packs a punch but leaves you with a taste of adventure.
As for me, I hold a mix of both ETFs to lessen my risk and exposure to the options overlay. Think of mixing the two like deciding to only sell options against a portion of your treasury bills. It’s like creating a financial masterpiece that blends boldness and safety to truly ignite the financial world! Now, keep your eyes on HIGH. You never know what other spices are yet to be added to this delectable dish of financial indulgence!
