3 Cash-Like ETFs for Sleeping Well at Night

Amplify Samsung SOFR ETF

SOF

SOF stands out as a highly unique, actively managed ETF that specifically tracks the Secured Overnight Financing Rate (SOFR).

SOFR is crucial because it's the benchmark rate used for dollar-denominated derivatives and loans, replacing the older LIBOR. It represents the cost of borrowing cash overnight collateralized by U.S. Treasury securities.

When you invest in SOF, you're essentially placed in the position of lending cash overnight, secured by these high-quality government securities.

A typical holding in SOF might look like "SOF REPO 05/07/24 5.35% 05/07/2024." This indicates a repurchase agreement that matures on May 7, 2024, with a yield of 5.35%.

In simpler terms, SOF invests in very short-term instruments that are akin to overnight loans backed by Treasuries, which are considered very safe.

Currently, SOF offers a 5.22% 30-day SEC yield and provides monthly distributions, all for a low expense ratio of 0.20%.

WisdomTree Floating Rate Treasury Fund

USFR

+0.02%

If you're concerned about navigating a "higher for longer" interest rate environment, or even potential additional rate hikes, USFR could be a viable tool.

This ETF holds Floating Rate Notes (FRNs), which are unique because they pay a variable interest rate, which is typically set as a spread over the yield of the most recently issued 3-month Treasury Bills.

What does this mean for you? Essentially, FRNs like those held in USFR offer protection against rising interest rates. Since the payout adjusts with changes in short-term rates, your investment is shielded from the typical erosion in value that fixed-rate bonds face when rates climb.

Plus, these securities come with the robust credit rating of U.S. Treasuries, adding a layer of security. Currently, USFR boasts a 5.32% 30-day SEC yield as of May 7th and offers monthly distributions, all for a low expense ratio of 0.15%.

Alpha Architect 1-3 Month Box ETF

BOXX

+0.03%

For investors who prefer not to receive monthly distributions—particularly in a taxable account where these payouts might be a drag on total returns— BOXX offers an innovative solution.

This unique ETF uses a synthetic options-based strategy known as a "box spread" to replicate the total return of 1–3-month Treasury Bills, effectively transforming what would typically be interest income into capital appreciation.

In options trading, a box spread strategy creates a position that acts much like a bond. Essentially, you're dealing with the difference between what you pay and what you receive for certain options. This strategy includes buying a combination of bull call and bear put spreads.

Theoretically, this should yield a risk-free profit when the options expire. The returns you get from these spreads are similar to what you'd expect from short-duration Treasury Bills.

BOXX's performance chart historically shows a steadily upward, sawtooth pattern that reflects the stable, low-volatility returns associated with T-Bill investments.

Currently, investors can expect an average yield to options expiration of 5.73%, which is a measure of total return. The expense ratio for BOXX is also quite reasonable at 0.1949%.

Please note this article is for information purposes only and does not in any way constitute investment advice. It is essential that you seek advice from a registered financial professional prior to making any investment decision.