Cash and cash alternatives are attractive because of their liquidity and the stability they can provide when stocks and/or bonds underperform or risk entering periods of excessive volatility, and even more than that when eyeing a possibility of recession. Even though defensive stocks and dividend plays may still be considered viable options, “cash is king” notion would be ear-pleasing for many. As such, cash proxy investments are seen as a safety net, and advisors have used fund allocations through funds such as the NEOS Enhanced Income Cash Alternative ETF (CSHI).

CSHI is an actively managed ETF generating strong monthly returns with a distribution yield of 5.91% as of March 31, 2023, according to Nasdaq.com, and trading at its highest level since inception. Launched in August 2022, the fund is already in the spotlight; it has brought in $30.5 million in net inflows so far this year.

The trick is that this is an options-based fund that is long 3M U.S. government bonds and also sells an out-of-the-money SPX index put spread that rolls weekly to reflect market changes and volatility. It's trying to outperform the 90-day Treasury yield by 100-150 basis points, while still taking advantage of the tax loss absorption and tax efficiency of index options. Treasuries: they are tax-free for residents at the state and local level. Interest earned on Treasuries is still taxed at the federal level, but it is not subject to taxes on state tax returns, providing yet another level of tax-efficient income for U.S.-based portfolios.