Box Spread ETFs Offer T-Bill-Like Returns With Less Tax Drag
A group of options-based ETFs uses four-leg box spreads to target returns similar to short-term Treasury yields while deferring most taxable income. BOXX, CBOX, and XBOX are among the funds, with BOXX holding about $14.5 billion and charging a 0.1949% expense ratio. The main benefit is tax deferral rather than a higher pre-tax return, and taxable distributions can still occur.
These funds rely on a four-part options structure rather than direct bill ownership. A common version pairs a bull call spread with a bear put spread at one expiration, using two strike prices. If European-style and held to maturity, the payoff is fixed at the strike gap, so buying the package below that amount can mimic accrued interest.
The category includes BOXX, CBOX, and XBOX. BOXX is largest at about $14.5 billion and charges 0.1949%, with a 4.39% average yield to options expiration; CBOX and XBOX cost 0.14% and 0.1449%. Tax deferral is the central draw, though distributions can still happen, as BOXX showed in August 2024.
Investors seeking short-term yield, especially those in higher tax brackets, may find these funds appealing because they could defer taxes while approximating T-bill returns. That may shift some cash-like allocations away from Treasury bill ETFs or direct bills, potentially affecting fund flows and tax revenue timing. However, because taxable distributions can still occur and the strategy is complex, outcomes may vary, and less sophisticated investors could face unexpected tax or trading risks.