The Best Goshdarn Safe Yield ETF There Is

By TradeSmith Research Team

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By Michael Salvatore, Editor, TradeSmith Daily

It’s Friday. Another week to look back on.

I’m wiped. And I say that in full confidence you can relate…

The news cycle has been exhausting the past couple weeks… Markets are choppy… And the holidays are right around the corner (two weeks to Halloween and I’m already getting foamy-mouthed Christmas ads from Amazon).

We all need to unwind a bit. To go old school and have a real conversation. It’s the perfect time to dive into the TradeSmith Daily inbox and see what you fine folks have been writing me.

The hottest topic — the one that’s top of mind — was my recent recommendation of the iShares 1-3 Month Treasury ETF (SGOV) as a safe place to sock away trading capital and earn an inflation-beating yield.

I boldly invited you, along with the hundreds of thousands of your fellow TradeSmith Daily readers, to tell me if you know a better place to stick your cash. And boy oh BOY did you have some strong feelings for me.

So strong, you challenged my assumptions about what “The Best Goshdarn Safe Yield ETF” truly is right now.

Today, we’ll set the record straight. We’ll unwind a bit with the low-stakes topic of safe cash yields. Your notes to me will set the agenda. And I’ll tell you, after much in-depth research, where I moved my own trading capital this week.

Let’s kick it off…

[Emails are edited for clarity and conciseness, and data is as of Wednesday, Oct. 18.]

My ego’s not too small to begin with this message from Ross, one of several readers who quite liked my recommendation…

Thank you for the heads-up on this ETF. I moved funds into SGOV from VGSH and SPTS for greater yield and less volatility.
— Ross

Good call, Ross. VGSH and SPTS both have slightly lower expense ratios, but both are also showing a 1% capital loss this year — definitely not making up for smaller fees.

And as of this writing, the yields are lower, too. VGSH sports a 30-day SEC yield of 5.17%, and SPTS 5.05%. SGOV sits comfy at 5.25%.

[For simplicity’s sake, I’m sticking with the 30-day SEC yield — or annualized equivalent — and the gross expense ratio as my comparison points for today.]

Granted, these are longer-duration Treasury funds. So it’s like comparing apples to… no, not oranges. Pears?

Yet the question remains, is SGOV truly the be-all/end-all safe yield ETF? Let’s keep digging into what your fellow readers had to say…

Why not Fidelity’s prime money market FZDXX at 5.17 or SPRXX at 5.05 SEC yield. Can trade at any brokerage.
— Susan

Thanks for the ideas, Susan. But I gotta say, neither of these seem like a great deal.

Let’s start with FZDXX. Granted, the 5.3% annualized 7-day SEC yield — what mutual funds use — is marginally higher than SGOV’s, but the fees absolutely eat you alive.

FZDXX carries a 0.36% expense ratio and a 0.25% management fee — much higher than what SGOV charges.

It also appears to charge that fee upfront, as my test order in TD Ameritrade’s thinkorswim platform added a fee of $49.95. Now, that may not be the case at Fidelity, but not everyone — including me — uses Fidelity to trade.

FZDXX is also $1,000 a pop, making it a bit less convenient than SGOV at about $100 per share.

SPRXX, meanwhile, is $1 a share. That makes it very accessible and convenient — a one-two punch I like a lot. But it also charges a whopping 0.42% expense ratio and a 0.25% management fee. And the current annualized yield is just 5.14%.

I won’t be moving my money into either of these for the time being. But hey, if these work best for you where you trade, then more power to you.

Next up, some notes on high-yield savings accounts and stocks from Johnny…

Instead doing the 5% APY with an expense of 0.13%, why not just open a high-yield savings account where you have immediate access to your money and don’t have to worry about share price?

I have SoFi and am making 4.5% monthly. I also have my emergency fund with Varo, and on the first $5k in your account, you make 5% APY.

I keep one traditional bank, PNC, which I believe still has an APY of about 4.2%, but this avoids keeping everything in your brokerage account.

Don’t get me wrong, still heavily in the market, but would rather invest in HRZN or AGNC for their dividend yields.

— Johnny

Hey Johnny, thanks for writing.

So, this exercise is about finding a SAFE place for immediately investable cash with a solid yield.

Are there higher yields in stocks? You bet.

Are they safe? Not on your life.

Let’s just look at AGNC, as you referenced. It yields 16.77% at writing, which sounds awesome. Until you look at the chart.

This REIT is down 52% in the last five years… during the strongest slice of the biggest bull market of all time. Not awesome.

And the nominal yield has shrunk over time. That’s a red flag. Not cutting it for me AT ALL on the safety front.

Now, HRZN has a slightly better track record. It’s been down and up again in the past five years — ultimately going about nowhere. It’s also had about the same dividend for 10 years.

But again, it’s a stock. It’s an investment company funding development-stage projects. That presents risk — and that’s simply not where I want my trading cash.

Want to speculate for yield? Go for it! But in my humble opinion, high-yield stocks are no place at all for liquid trading cash.

Now, regarding high-yield savings accounts…

Others may be different. But mine is nowhere near “get your funds in 30 seconds”-level convenient. And I doubt most of them are. It takes a few business days to move that money to another account, which is enough time for a can’t-miss investment opportunity to slip through your fingers.

I personally have a mix of HYSAs for emergencies, T-bills for long-term savings, and SGOV for idle trading cash. That works for me and I think it makes sense for most people, too.

Next up, valued TradeSmith Platinum member Martin…

SGOV yields 4.926% compared to BIL yielding 5.166% in past month. Is this correct? I know you can’t give investing advice, but I do think you could answer as to the correctness of my figures.
— Martin, Platinum Member

Thank you for writing, Martin. And thank you so much for being a TradeSmith Platinum member.

I don’t reckon an exercise in yield comparison constitutes direct investing advice. It’s not intended as such — from me or from TradeSmith. So let’s dive in.

The yields on these securities change all the time, and results can vary slightly from the official numbers. But, those official numbers are the best point of comparison.

As I write, SGOV’s 30-day SEC yield is 5.25% at a 0.13% gross expense ratio. BIL’s is also 5.25% right now. And the gross expense ratio is 0.1354%. So the scales are tipped in favor of SGOV by a barely perceptible, super-slim margin.

BIL’s a damn fine idle cash yield vehicle from what I see. And there may be times where it yields higher. But I don’t see any reason to rush over to it (or out of it, for that matter) right now.

Last up, a question from William…

With SGOV, is the monthly return placed back in SGOV or as cash in my trading account?
— William

Hey William, thanks for writing.

I use TD Ameritrade, so I can only speak to my experience there. But by default, any yield-generating security, including SGOV, will deposit the proceeds into your cash balance.

You can elect to reinvest the payouts toward fractional shares, but you have to do it manually. Take a look at your brokerage settings and I’m sure you’ll find the answer there.

That’s gonna do it for this week’s questions…

And now, for the grand reveal… Where did I move my money?

Okay, I confess. It was a trick question.

I’m sticking with SGOV. But I actually pulled some cash out of it this week, to add to my favorite stock positions at better prices. (Exactly what these vehicles are meant for.)

And I did that after using the incredible, free Portfolio Grader tool from our good friends at InvestorPlace.

This tool, powered by Louis Navellier’s proven stock-rating system, is a fantastic way to audit your portfolio for free.

My portfolio rated a B — not bad, overall. But there were some definite weak spots — stocks rated Ds and Fs per Mr. Navellier — which I was quick to trim. I cut some losses and took some profits, then plugged most of the proceeds back into my A-rated stocks.

I highly recommend checking out the Portfolio Grader when you get the chance.

And hey, once you have, why not write me with your experience?

The email is [email protected]. I’d love to hear what you learned from using this tool — or any other questions or insights on your mind.

Thanks to everyone who wrote in. I had a really fun time responding, and I look forward to doing so as often as possible in the future. Whenever we get enough great emails, I’ll draw up another “Feedback Friday” just like this one.

To your health and wealth,

Michael Salvatore
Editor, TradeSmith Daily