TBIL: This New T-Bill ETF Is A Buy

By Rob Isbitts

Strategy

The US Treasury 3 Month Bill ETF (NASDAQ:TBIL) is a very straightforward security. It aims to track the performance of 3 month US Treasury Bills. It does so by buying 3 month Bills at each weekly Treasury auction of such securities. Then, it replaces each maturing issue by buying more at the next auction. Essentially, TBIL is a “rolling” investment in 3 month T-Bills.

Proprietary ETF Grades

• Offense/Defense: Defense

• Segment: Cash Alternatives

• Sub-Segment: US Treasury

• Risk (vs. S&P 500): Very Log

Proprietary Technical Ratings*

• Short-Term (next 3 months): N/A

• Long-Term (next 12 months): N/A

* Our assessment of reward potential vs. risk taken

(Rating Scale: A=Excellent, B=Good, C=Fair D=Weak, F=Poor)

Holding Analysis

The portfolio is a bond “ladder” except that it is a very short-term version of that concept. At any point in time, it will own the most recently-issued 3 Month T-Bill, as well as several shorter-term Treasury Bill issues from very recent weekly auctions.

Strengths (and a note about T-Bill investing in 2023)

I have spent hours discussing different types of T-Bill ETFs and comparing them to buying Treasury Bills directly, either in a brokerage account or through TreasuryDirect.com. It may help for me to clarify a few things. First, no one, including me, will tell an investor that it is a bad idea to buy T-Bills in a manner other than owning an ETF that invests in T-Bills. This and every other report I write, and that investors see on Seeking Alpha is NOT personalized advice for anyone. It is my opinion, based on my research and experience. What a reader does with that information is a completely separate item. And frankly, it is none of my business. Because this is not personalized advice.

It is, however, the opinion of someone who writes about ETFs on Seeking Alpha, a platform that covers ETFs and stocks. At least in my case, it does not extend to anything outside of analyzing ETFs, which I have done for 30 years (since that’s how long ETFs have been around – before that we only had mutual funds). Other than the strategy articles I write, on broad markets, technical analysis, etc. that’s the full extent of the mission.

With that said, among the many short-term bond ETFs I cover, TBIL is one of my favorites. That’s because it appears to have been built with the idea of provide convenient exposure to what has become a very attractive investment for the first time in a long time. With the ETF format, the fund’s manager, relatively unknown North Slope Capital, can be very current and flexible in its portfolio activity. By participating in each weekly auction, the managers can keep up with rapidly-changing short-term rates. And if there has ever been a time when that was relevant, it is now.

Furthermore, TBIL uses that constant rollover feature to provide an extra benefit to investors: monthly dividends. So, as opposed to waiting 3 months to get each dividend payment from the ETF, the holders of TBIL get theirs monthly.

As the ETF’s own factsheet says, it is able to “minimize transaction costs and the operational burden required to continually roll to the new US Treasury Security as it is issued – and enjoy the potential tax efficiencies of an ETF.”

Weaknesses

The only weakness here is the limited upside of T-Bills. Because if an investor buys T-Bills in a manner other than via owning an ETF, by definition this is not a weakness. It is a non-factor. They would have no business even reading this report (but I certainly appreciate anyone who did!).

Opportunities

There are a lot of stories and trends on Wall Street that Main Street never hears about. The compelling yields of T-Bills versus other types of bonds on a return/risk tradeoff basis is one that I suspect many investors have heard about. The Federal Reserve’s series of rate hikes in 2022 have made Treasury Bills relevant, after a long period where, let’s face it: it was embarrassing to own them, with such puny yields. 2023 will likely bring further rate hikes.

And, even if those hikes are much smaller and few in number than what we saw in 2022, there is a growing possibility that inflation will moderate, while T-Bills yields stay elevated. The more that spread narrows, the more T-Bills look even more like the portfolio anchor they once were, back before most of us were investing (with apologies to those who invested actively in the 1970s).

Threats

This is a very new ETF. So, TBIL just made its debut in August of 2022. That brief history means that there is no long track record. For T-Bill investing, that is not a huge concern. However, there is a possibility that the ETF is still getting its processes in place, and that it may find difficulty as market conditions change. Now, I’ll admit I’m reaching there. But part of Modern Income Investor’s mantra is to consider as many positive and negative features and scenarios, then render an opinion.

Conclusions

ETF Quality Opinion

I like TBIL. I think there’s some nice innovation here, albeit for a very mundane asset class. Despite its young tenure, this ETF has a decent asset base of over $230mm, and trades more than $5 Billion in average daily volume.

ETF Investment Opinion

There are plenty of ETFs that invest in T-Bills. I like several of them. TBIL is the newest member of that squad. I rate it a Buy.