NestYield files a Treasury-bill fund targeting 6% to 12%, above bill yields
Tidal Trust III filed on October 1 to register the NestYield Ultra-Short Enhanced Treasury Income ETF, a proposed fund that would hold Treasury bills and target 6% to 12% a year against a 4.44% one-year bill yield.
Key takeaways
On Thursday, October 1, Tidal Trust III filed to register the NestYield Ultra-Short Enhanced Treasury Income ETF, a fund that would hold Treasury bills and aim to pay out 6% to 12% a year. The one-year Treasury yield that day was 4.44%, and the three-month yield was 4.17%.
The 6% to 12% target sits above 4.17% and 4.44% bill yields
The fund would target 0.50% to 1% a month of net asset value, the value of what it owns. If it met that target every month, the payout would add up to the 6% to 12%.
The trust asked for the registration to take effect 75 days after the filing, on Tuesday, December 15, unless the trust amends the document or the SEC takes longer. The shares cannot be sold until then.
Under normal circumstances, the fund would keep at least 80% of net assets in U.S. Treasury bills with a year or less to maturity. The filing expects that share to run from 90% to 98%.
Nest Egg ETFs, the firm behind the NestYield name, is named as sub-adviser and could allocate up to 10% of the fund to large U.S. stocks. The filing expects the options holding to stay between 0% and 5%. The filing says those options are meant to seek income beyond the interest on the bills.
Next to the gap over bill yields, a 0% to 5% options holding and a stock allocation capped at 10% are a small share of the fund. The fund would not sell an option unless something it holds, or an offsetting option, covers it. Tidal Investments LLC, the adviser, would buy the bills and place the trades as Nest Egg directs.
NestYield already runs three funds that own stocks and use options: NestYield Dynamic Income ETF EGGY, NestYield Total Return Guard ETF EGGS and NestYield Visionary ETF EGGQ. Together they held about $315 million in late September.
EGGY's summary prospectus of Monday, December 23, 2024 sought income at a monthly target of 1.5% to 3% of net asset value. On its site, NestYield says the fund targets an average annual yield of 25%.
As of August 31, NestYield estimated that return of capital, a payout not counted as investment income, made up 56.96% of EGGY's recent distributions, 78.04% of EGGS's and 0% of EGGQ's. NestYield labels those figures as estimates. The firm says EGGS targets an average annual income of about 15%.
NEOS Enhanced Income 1-3 Month T-Bill ETF CSHI holds bills of one to three months and uses S&P 500 put options to seek extra monthly income. It held $1.92 billion as of Friday, October 2, and charges 0.38%. Through Thursday, its one-year total return was 4.9%, with the share price almost unchanged, against the new filing's income target of 6% to 12%.
Simplify Treasury Option Income ETF BUCK invests primarily in Treasuries and writes option spreads. It held $530 million as of Friday, October 2, and charges 0.35%.
Simplify Enhanced Income ETF HIGH sells option spreads and says it seeks income beyond what Treasury bills pay. It held $59 million as of Friday. Of the three, CSHI is the largest.
The ticker, the exchange and the fee are still blank, including any waiver. The prospectus says the information is not complete and may change.
The three NestYield funds already listed each charge 0.95%. At the low end of this target, 1.56 percentage points is the whole gap over the one-year bill yield, so whatever fee fills the blank comes out of that gap.
The open questions are that fee, and how a fund the filing expects to keep 90% to 98% in bills would meet a payout well above the interest those bills pay.
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Frequently asked questions
When can the shares be sold?
The shares cannot be sold until registration takes effect, which the trust asked to set for December 15 unless it amends the filing or the SEC takes longer.
What would the fund hold?
The filing expects 90% to 98% of net assets in Treasury bills of a year or less, with the options holding between 0% and 5%.
How would the fund target more than bill yields?
The filing says the options are meant to seek income beyond the interest on the bills, and how a fund kept 90% to 98% in bills would meet that payout is still an open question.
What is the fee?
The fee is still blank, including any waiver, and the prospectus says the information is not complete and may change.
