Treasury bills are short-term U.S. government securities with maturities ranging from a few days to 52 weeks. Bills are sold at a discount from their face value. A Treasury note is a U.S. government debt security with a fixed interest rate and maturity between two and 10 years.
Alexander Morris, F/m Investment’s president, CIO and co-creator of the U.S. Benchmark Series, said that his organization believes that “the U.S. Benchmark Series will revolutionize the financial markets, making the most liquid securities (U.S. Treasuries) accessible to everyone in a simplified way."
F/m Investments, a $4 billion Washington D.C.-based investment adviser, recently launched several Treasuries exchange-traded funds (ETFs), including the US Treasury 10 Year Note ETF (NASDAQ: UTEN), the US Treasury 2 Year Note ETF (NASDAQ: UTWO) and the US Treasury 3 Month Bill ETF (NASDAQ: TBIL).
The main purpose of these ETFs is to lower the barrier of entry into investing in Treasuries, with one T-bill having a minimum investment of $100 on average. The share prices of these ETFs fluctuate around $50.
Besides having lower entry prices, they offer greater liquidity, several tax advantages and higher, more transparent income via monthly dividends.
Like most bonds, long-term Treasuries offer higher yields compared to those with shorter maturity dates. This feature may be good for investors that can invest money for decades. However, other investors might have shorter time frames, which is why these Treasury ETFs could serve their needs.
You can trade ETFs anytime throughout the day, similar to a stock. Unlike fixed-income mutual funds, they reprice throughout the day, which provides greater liquidity.
More advanced traders can use riskier strategies like buying these ETFs on margin, short selling or trading derivatives contracts (options) on them. Margin refers to using debt to buy more securities, magnifying returns and losses.
You can buy Treasuries from TreasuryDirect, the official U.S. Department of the Treasury website for managing Treasury bonds. Investors can mitigate minimums and markups by buying these securities in $100 increments directly via the TreasuryDirect website.
Some brokers have higher minimum purchases for Treasury securities including T-bills, T-bonds and T-notes, which generally start at $1,000. Other brokers can have high markups built into their bid-ask spreads for these securities. A bid-ask spread of 50 basis points or half a percent might not seem like much, but it can cost investors at least hundreds of dollars long term.
Treasury ETFs like the US Treasury 10 Year Note ETF have lower bid-ask spreads, which are currently 0.01%. These ETFs also enable investors to avoid higher investment minimums.
ETFs offer many tax advantages compared to similar investments like mutual funds. For starters, they have lower turnover, which refers to how often the fund manager buys and sells securities.
Many ETFs, including these Treasury ETFs, are designed to mirror the performance of the underlying index. As a result, they have lower fees than many actively managed funds that aim to outperform their respective benchmarks.
For example, the US Treasury 10 Year ETF tracks the ICE BofA Current 10 Year US Treasury Index. As a result, the fees are lower. All three new F/m Investments ETFs have a 0.15% expense ratio, which is much lower than the typical 0.69% expense ratio for most actively managed ETFs.
Investors who frequently sell securities, including Treasuries that mature, can face higher capital gains taxes. Unlike investing in a traditional Treasury security, investors won’t need to roll over their investments with a Treasury ETF.
Another major tax advantage of these unique Treasury ETFs is that the Treasury securities that they hold are exempt from local and state taxes. Keep in mind that these securities aren’t exempt from federal income tax.
Frequent Income And Transparency
One of the greatest advantages of Treasury securities is that they offer guaranteed income via interest payments. However, these payments usually are paid out semi-annually.
Treasury ETFs pay out interest on a monthly basis. Interest payments can vary, but the greater consistency makes it easier for investors to use or reinvest these.
Besides offering more frequent income, these ETFs have greater price transparency. Since these ETFs are publicly traded and trade intraday, investors can get updated prices by the minute in real-time.
New Treasury ETFs Offer Simplified Access To U.S. Treasuries
One of the biggest benefits of investing in Treasuries is that they are rated AAA, the safest rating for fixed income investments. With yields ranging from 2.6% to 3.7%, they may not be the highest-yielding asset classes. However, they can provide investors with consistent interest payments.
Investing in Treasury ETFs can provide the best of both worlds: stability and flexibility. Investors can feel relief knowing that these securities will never default. Unlike directly investing in Treasuries, they don’t need to tie up their money until a Treasury’s maturity date.
These ETFs are relatively new and are just beginning to gain traction among retail investors.
"The potential applications of these ETFs are limitless and still being discovered," said Peter Baden, Chief Investment Officer of Genoa Asset Management, co-creator of the US Benchmark Series, and portfolio manager of the funds.
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