Global X Launches New 1-3 Month Treasury Bill ETF on NYSE ARCA

Best known for their popular lineup of thematic equity funds and covered call derivative income ETFs, Global X recently launched the Global X 1-3 Month T-Bill ETF (CLIP) on June 21st, 2023. Debuting on NYSE ARCA, this ETF provides investors with exposure to the short end of the Treasury yield curve, targeting Treasury Bills (T-Bills) with maturities of one to three months.

Thanks to the current inverted yield curve, short-term rates are markedly elevated right now, with the three-month T-Bill rate sitting at 5.24% as of June 26th, 2023. For investors looking for a combination of high income plus safety of principal, Treasury Bill ETFs are an increasingly attractive asset relative to risker dividend stocks. Here's all you need to know about CLIP and how it stacks up against similar ETFs.

CLIP analysis

CLIP tracks the Solactive 1-3 month US T-Bill Index, which as its name suggests holds T-Bills with one to three remaining months of maturity. Hallmark of these assets are two qualities:

• Very low interest rate risk, as evidenced by a modified duration of 0.13 years for CLIP.
• Very low default risk, with all of CLIP's T-Bills boasting AAA credit ratings.

In a rising rate environment, CLIP is able to reinvest quickly in newer and higher-yielding T-Bill issues, which greatly reduces its interest rate sensitivity. In addition, should a market crash occur, the ironclad credit rating of T-Bills makes them one of the few "flight to quality" assets available as panicked investors seek a safe haven for their cash.

As noted earlier, the current macroeconomic environment, characterized by an inverted yield curve is highly beneficial for CLIP. Here's what Rohan Reddy, Director of Research for Global X ETFs had to say about that to me:

"An inverted yield curve occurs when shorter-dated U.S. Treasury yields surpass longer-term treasury yields. This bond market phenomenon has resulted in higher yields for short-term treasuries, making them an attractive choice for investors seeking a cash position with a yield. By strategically investing in the front end of the Treasury curve and emphasizing T-Bills with maturities between 1-3 months, CLIP is well positioned to capitalize on the increased yields offered by short-term treasuries during an inverted yield curve environment. Furthermore, an inverted yield curve has historically signaled lower anticipated economic growth, thereby positioning investing in short-term Treasurys as a potential safe haven for investors in uncertain market conditions."

CLIP advantages

When it comes to its objectives of preservation of capital and steady income, CLIP competes with two types of investment products – Certificates of Deposit (CD) and money market mutual funds. The main advantages of CLIP over these options as a cash management tool are:

• Greater liquidity versus CDs, as there is no lock-up period where an investor cannot sell.
• Lower credit risk, as CLIP does not hold the repurchase agreements and commercial paper common to most money market funds.
• No mutual fund gimmicks like sales loads, the minimum required investment, or 12b-1 fees.

Finally, a prominent feature of CLIP is its low expense ratio of 0.07%. This is highly competitive with existing T-Bill ETFs. For instance, the popular SPDR Bloomberg 1-3 Month T-Bill ETF (BIL) charges 0.15%, while the iShares 0-3 Month Treasury Bond ETF (SGOV) charges 0.05%, but only after a waiver from an original expense ratio of 0.12% through June 30th, 2023. Here's what Reddy had to say about fees:

"The expense ratio of the CLIP ETF stands at 0.07%, which is half the average expense ratio of passive, ultrashort bond ETFs available in the market at 0.14%. This cost advantage becomes even more significant when compared to active ultrashort bond ETFs, which have an average expense ratio of 0.25%. The low expense ratio of CLIP underscores its cost-effectiveness, making it an attractive choice for investors seeking a relatively stable and low-cost investment option within the ultrashort Treasury Bill ETF space."

This content was originally published by our partners at ETF Central.