BIL: Still Shines And Is Worth Holding

seekingalpha06-27

Torsten Asmus In the last Federal Reserve meeting on 11-12 June 2024, the Federal Open Market Committee decided to keep the interest rates at 525 to 550 basis points. The dot plot reflects that the ...

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The dot plot reflects that the ...</p>\n\n<a href=\"https://seekingalpha.com/article/4701295-bil-still-shines-worth-holding\">Source Link</a>\n\n</div>\n","source":"seekingalpha_fund","html":"<!DOCTYPE html>\n<html>\n<head>\n<meta http-equiv=\"Content-Type\" content=\"text/html; charset=utf-8\" />\n<meta name=\"viewport\" content=\"width=device-width,initial-scale=1.0,minimum-scale=1.0,maximum-scale=1.0,user-scalable=no\"/>\n<meta name=\"format-detection\" content=\"telephone=no,email=no,address=no\" />\n<title>BIL: Still Shines And Is Worth Holding</title>\n<style type=\"text/css\">\na,abbr,acronym,address,applet,article,aside,audio,b,big,blockquote,body,canvas,caption,center,cite,code,dd,del,details,dfn,div,dl,dt,\nem,embed,fieldset,figcaption,figure,footer,form,h1,h2,h3,h4,h5,h6,header,hgroup,html,i,iframe,img,ins,kbd,label,legend,li,mark,menu,nav,\nobject,ol,output,p,pre,q,ruby,s,samp,section,small,span,strike,strong,sub,summary,sup,table,tbody,td,tfoot,th,thead,time,tr,tt,u,ul,var,video{ font:inherit;margin:0;padding:0;vertical-align:baseline;border:0 }\nbody{ font-size:16px; line-height:1.5; color:#999; background:transparent; }\n.wrapper{ overflow:hidden;word-break:break-all;padding:10px; }\nh1,h2{ font-weight:normal; line-height:1.35; margin-bottom:.6em; }\nh3,h4,h5,h6{ line-height:1.35; margin-bottom:1em; }\nh1{ font-size:24px; }\nh2{ font-size:20px; }\nh3{ font-size:18px; }\nh4{ font-size:16px; }\nh5{ font-size:14px; }\nh6{ font-size:12px; }\np,ul,ol,blockquote,dl,table{ margin:1.2em 0; }\nul,ol{ margin-left:2em; }\nul{ list-style:disc; }\nol{ list-style:decimal; }\nli,li p{ margin:10px 0;}\nimg{ max-width:100%;display:block;margin:0 auto 1em; }\nblockquote{ color:#B5B2B1; border-left:3px solid #aaa; padding:1em; }\nstrong,b{font-weight:bold;}\nem,i{font-style:italic;}\ntable{ width:100%;border-collapse:collapse;border-spacing:1px;margin:1em 0;font-size:.9em; }\nth,td{ padding:5px;text-align:left;border:1px solid #aaa; }\nth{ font-weight:bold;background:#5d5d5d; }\n.symbol-link{font-weight:bold;}\n/* header{ border-bottom:1px solid #494756; } */\n.title{ margin:0 0 8px;line-height:1.3;color:#ddd; }\n.meta {color:#5e5c6d;font-size:13px;margin:0 0 .5em; }\na{text-decoration:none; color:#2a4b87;}\n.meta .head { display: inline-block; overflow: hidden}\n.head .h-thumb { width: 30px; height: 30px; margin: 0; padding: 0; border-radius: 50%; float: left;}\n.head .h-content { margin: 0; padding: 0 0 0 9px; float: left;}\n.head .h-name {font-size: 13px; color: #eee; margin: 0;}\n.head .h-time {font-size: 11px; color: #7E829C; margin: 0;line-height: 11px;}\n.small {font-size: 12.5px; display: inline-block; transform: scale(0.9); -webkit-transform: scale(0.9); transform-origin: left; -webkit-transform-origin: left;}\n.smaller {font-size: 12.5px; display: inline-block; transform: scale(0.8); -webkit-transform: scale(0.8); transform-origin: left; -webkit-transform-origin: left;}\n.bt-text {font-size: 12px;margin: 1.5em 0 0 0}\n.bt-text p {margin: 0}\n</style>\n</head>\n<body>\n<div class=\"wrapper\">\n<header>\n<h2 class=\"title\">\nBIL: Still Shines And Is Worth Holding\n</h2>\n\n<h4 class=\"meta\">\n\n\n2024-06-27 20:33 GMT+8&nbsp;&nbsp;&nbsp;<a href=https://seekingalpha.com/article/4701295-bil-still-shines-worth-holding><strong>seekingalpha</strong></a>\n\n\n</h4>\n\n</header>\n<article>\n<div>\n<p>Torsten Asmus In the last Federal Reserve meeting on 11-12 June 2024, the Federal Open Market Committee decided to keep the interest rates at 525 to 550 basis points. The dot plot reflects that the ...</p>\n\n<a href=\"https://seekingalpha.com/article/4701295-bil-still-shines-worth-holding\">Source Link</a>\n\n</div>\n\n\n</article>\n</div>\n</body>\n</html>\n","isBrief":false,"type":0,"news_type":1,"symbol":"TLT","symbol_name":"20+年以上美国国债ETF-iShares","start_time":0,"source_url":"https://seekingalpha.com/article/4701295-bil-still-shines-worth-holding","article_id":"2446532242","we_media_id":null,"thumbnails":["https://static.seekingalpha.com/cdn/s3/uploads/getty_images/1440707692/image_1440707692.jpg"],"rights":null,"url":"https://stock-news.laohu8.com/highlight/detail?id=2446532242","pubTimestamp":1719491584,"sourceInfo":{"source_id":"seekingalpha_fund","name":"Seeking Alpha"},"weMediaInfo":null,"summary":"It is common for bond-based ETFs to be sensitive to interest rate variation. However, to elaborate more, we must distinguish between ETFs with different fund Average Durations, a standard of the sensitivity of bond—and bond mutual fund—prices to interest rate directions . For example, if a bond lasts three years, its price would drop by about 3% when interest rates increased by one percentage point. Conversely, the bond's price would increase by about 3% when interest rates fell by one percentage point.  However, once the interest rate experiences a cut, funds with a short to ultra-short average duration, such as the BIL ETF in our case, will not see an increase in fund price; instead, the fund price decreases. This is because the funds' underlying assets  mature quickly and need to be renewed. The new T-Bills yield will be directly correlated with the new interest rate and, therefore, in our case, less, which will eventually drive the fund's yield to be demolished at each rate cut.  D","collect":0,"end_time":0,"defaultTopTitle":"seekingalpha.com","property":[],"viewcount":null,"language":"en","relate_stocks":{"TLT":"20+年以上美国国债ETF-iShares","BND":"债券指数ETF-Vanguard美国","TBIL.AU":"VANECK 1-3M UST BOND ETF","GOVT":"iShares安硕核心美国国债ETF","FDN":"First Trust Dow Jones Internet I","IEF":"债券指数ETF-iShares Barclays 7-10年","VGLT":"美国长期国债ETF-Vanguard","CLIP":"Global X 1-3 Month T-Bill ETF","BK4585":"ETF&股票定投概念","IEI":"iShares Barclays 3-7 Year Trea","TBIL":"US Treasury 3 Month Bill ETF","SHY":"债券指数ETF-iShares Barclays 1-3年国债","BIL":"债券指数ETF-SPDR Barclays美国1-3月国债","BK4550":"红杉资本持仓","BK4588":"碎股"},"translate_title":"BIL：依然闪耀，值得持有","themeId":null,"isJumpTheme":false,"ttsUrl":null,"symbols_score_info":{"TBIL":1,"VGLT":1,"TBIL.AU":1,"BIL":1,"CLIP":1,"BND":1,"FDN":0.9,"US7Y.BOND":0.9,"US6M.BOND":0.9,"US5Y.BOND":0.9,"US3Y.BOND":0.9,"US30Y.BOND":0.9,"US2Y.BOND":0.9,"US12M.BOND":0.9,"US10Y.BOND":0.9,"ZBmain":0.6,"US912797HE00.BOND":0.6,"US912797GW17.BOND":0.6,"US912797GL51.BOND":0.6,"US912797GK78.BOND":0.6,"US912797GB79.BOND":0.6,"TNmain":0.6,"UBmain":0.6,"SHY":0.6,"ZFmain":0.6,"ZTmain":0.6,"GOVT":0.6,"IEF":0.6,"IEI":0.6,"TLT":0.6},"content_text":"Torsten Asmus In the last Federal Reserve meeting on 11-12 June 2024, the Federal Open Market Committee decided to keep the interest rates at 525 to 550 basis points. The dot plot reflects that the Fed will only cut the interest rate once in 2024 (press conference and projections materials here). This higher-for-longer interest rate preserves the shiny T-Bill as one of the most desirable, moderately high-yield, and non-questionable safe investments.  SPDR Bloomberg 1-3 Month T-Bill ETF (NYSEARCA:BIL) is an ETF that holds Treasury Bonds with effective maturities between one and three months. It guarantees remarkable stability at no risk and has a yield of 5.21% per year, which is paid as monthly base dividends. Therefore, the fund is worth holding for 2024.  Fund Facts BIL ETF seeks to provide investment results that, before fees and expenses, correspond generally to the price and yield performance of the Bloomberg 1-3 Month U.S. Treasury Bill Index. The fund exposes investors to treasury bills remaining in maturity for one to three months.  BIL has assets under management of $32.5B, with a competitive SEC Yield of 5.21% per year, paid monthly as dividends. The fund has a low expense ratio of 0.14%, reflecting low amortization of investment capital in the long term. Moreover, the fund has a very low Effective Duration of only 0.14 years, which makes the fund price very stable for the entire holding period as long as the interest rate remains unchanged, as we are going to explain explicitly down (for more fund details about the fund, you can visit here). BIL's total holdings are roughly governmental T-Bills with investment grades AA. Therefore, BIL is considered a safe investment for shorter or longer holding periods.  BIL's Holding Portfolio (Morning Star) What will happen when the Fed starts rate cutting?  It is common for bond-based ETFs to be sensitive to interest rate variation. However, to elaborate more, we must distinguish between ETFs with different fund Average Durations, a standard of the sensitivity of bond—and bond mutual fund—prices to interest rate directions (Good explanation here). For example, if a bond lasts three years, its price would drop by about 3% when interest rates increased by one percentage point. Conversely, the bond's price would increase by about 3% when interest rates fell by one percentage point.  However, once the interest rate experiences a cut, funds with a short to ultra-short average duration, such as the BIL ETF in our case, will not see an increase in fund price; instead, the fund price decreases. This is because the funds' underlying assets (T-Bills) mature quickly and need to be renewed. The new T-Bills yield will be directly correlated with the new interest rate and, therefore, in our case, less, which will eventually drive the fund's yield to be demolished at each rate cut.  Do the interest rates cut near? As per the last Federal Reserve meeting on 11-12 June 2024, the Fed speech was hawkish, indicating no losing monetary policy ahead. Consequently, the published dot plot projected only one interest rate cut (25 basis points) this year. However, the Fed keeps commenting that there will be continuous updates for new upcoming economic data reports and will cooperate with it to determine the future monetary policy. It also notes that unfavorable data, hotter-than-expected inflation figures, and similar dark scenarios make the one rate cut even more irrelative in 2024 and can be shifted to 2025.  Readers can find a lot of impressive details in this article. June 2024 Fed Dot Plot (bondsavvy.com) Additionally, using the Fed watching tool to determine the nearest interest rate cut, we can notice that the economists and analysts are very rate cut-oriented; they expected that there would be two interest rate cuts this year. Yet, the optimistic, futuristic outlook had proven wrong since last year, when we expected the rate cuts to start in March 2023. Now, we have yet to experience even a close rate cut. Ultimately, rate cuts and monetary policy are all about economic data reports and correspond to the Fed's decision, where the Fed considers the totality of the data, resulting in solid evidence that inflation is cooling down to the level targeted at 2%. At that point, investors and markets can start pricing their investments, trusting there will be a first-rate cut, and accordingly, their expectations will be close to the real-case scenario.  Conditional Meeting Probability (cmegroup.com) Other Similar Funds to Consider.  The US Treasury 3 Month Bill ETF (TBIL) and the Global X 1-3 Month T-Bill ETF (CLIP) are proximate funds to BIL. Comparing the three total returns, the BIL ETF delivers slightly more pleasing price returns at 5.34%, tracked closely by CLIP and TBIL at 5.3% and 5.26%, respectively. Currently, BIL has the highest assets under management at $32.7B, compared to $454M for CLIP and $24.3B for TBIL. Moreover, BIL is the most liquid ETF with the lowest BID/ASK spread and generally scores better at the Seeking Alpha Grading System, which makes BIL one of the choices to consider when choosing ultra-short bond ETFs for Investment.  Peers Total Return and Grades (Seeking Alpha) Risks and Future Weaknesses Ultra shorts T-Bills funds are almost risk-free; they have a short maturity period, investment-grade assets, and no risk exposure to market instability. However, as demonstrated before, there will be a few drawbacks to being in such funds:   As said, they are so sensitive to interest rate cuts that the fund price will decline once the Fed starts to cut interest rates. Conversely, ETFs that hold medium—to long-maturity bonds will experience price appreciation once the interest rate declines.  The opportunity cost of holding ETFs with a yield of approximately 5% is high. For example, the S&P 500's total return is 27.76% in one year, compared to only 5.34% for the BIL ETF.  S&P 500 and BIL Total Return (Seeking Alpha) BIL is considered tax inefficient; each dividend payment by BIL is subject to a tax deduction. However, you can consider some other solutions that can be more tax efficient, such as capturing the total yield (Approximately 5.3%) as a price appreciation ( find the following interesting article for such a solution here). How Can Improve Hedging Strategy?  We have to consider adding medium- and long-duration bond ETFs to enhance the future growth of a portfolio with short-term bond ETFs like BIL. This holding strategy of short-, medium-, and long-term-effective maturity ETFs can maximize the possibility of capturing future price appreciation once the Fed starts cutting interest rates; for instance, adding Vanguard Long-Term Treasury Index Fund ETF Shares (VGLT) and Vanguard Total Bond Market Index Fund ETF Shares (BND). VGLT's effective duration is 15.17 years, and BND's Effective Duration is almost 6 years; that will help to improve the ability to capture future gain when the Fed starts to cut the interest rates and can reimburse for the depreciation that can be associated with BIL. The capital gain for each 1% rate cut is approximately 15% for VGLT and 6% for BND. This composite of effective durations can be considered a good balance, where your holdings are bond ETFs with investment-grade underlying assets and fixed monthly income. It can capture any future capital appreciation resulting from interest rate cuts.  Summary And Investor Take Away BIL is an ETF whose underwriting assets are investment-grade ultra-short T-bills with a 0—to 3-month maturity duration. Accordingly, the fund can be considered risk-free, and its price is consistent and not subject to market price oscillations. The fund yields approximately 5.3% and pays monthly dividends.  However, all of this positivity comes with a few imperfections. The fund dividends are taxable, which makes it an inefficient investment. Moreover, the fund return is low compared to the total market return, which makes the opportunity cost of having your money invested in such an ETF genuinely high. Furthermore, even though the fund yield is low, when the Fed starts to cut interest rates, BIL will not capture any future capital appreciation; on the contrary, its price will depreciate; this can be compensated by adding some medium—to long-maturity bonds ETFs to the portfolio, which can help to improve the overall capital gain in case of interest rate curing.   Finally, the first-rate cut is not close. The economic data reported still needs to be at a level that can convince the Fed to start cutting interest rates. Therefore, a fund with 5.3% without risk is considered a HOLD for the near future.","kind":"highlight","is_publish_news":true,"is_publish_highlight":false,"is_publish_live":false,"is_publish_wemedia":null,"editions":null,"column":"","sentiment":"0","news_tag":"","news_rank":0,"symbols":[],"gpt_button":0},"commentList":[],"isCommentEnd":true,"newsSizeData":{"likeSize":0,"commentSize":0,"repostSize":0,"favoriteSize":0,"likeStatus":false,"favoriteStatus":false},"APP":{"userAgent":"Mozilla/5.0 AppleWebKit/537.36 (KHTML, like Gecko; compatible; ClaudeBot/1.0; +claudebot@anthropic.com)","isDev":false,"isTTM":true,"deviceId":"web-server-community-laohu8-v3","version":"4.29.3","shortVersion":"4.29.3","platform":"web","vendor":"web","appName":"ttm","isIOS":false,"isAndroid":false,"isTiger":false,"isTHS":false,"isWeiXin":false,"isWeiXinMini":false,"isWeiBo":false,"isQQ":false,"isBaiduSwan":false,"isBaiduBox":false,"isDingTalk":false,"isToutiao":false,"isOnePlus":false,"isHuaWei":false,"isXiaomi":false,"isXiaomiWebView":false,"isOppo":false,"isVivo":false,"isSamsung":false,"isMobile":false},"href":"/m/news/2446532242"}