What is SGOV?

SGOV is iShares 0-3 Month Treasury ETF (SGOV). It invests in ultra-short-term treasuries, is passively managed, has a low expense ratio of 0.07%, and has an average bond duration of 0.09 years.

 

What is the investment thesis?

At the time of this writing (December 2023), cash represents more than 16% of the portfolio. Schwab’s cash account currently yields only 0.45% annually. In the current high-interest rate environment, with the federal funds rate over 5%, our cash should be earning far more.

This transaction is not a portfolio investment, rather it is a part of treasury management – making sure that our cash earns appropriate return. Ultra-short-term government bonds are considered cash equivalent. Given that these are U.S. government bonds, there is a minimal default risk, and given that the duration is under three months, there is virtually no interest rate risk. Interestingly, Schwab lists SGOV under fixed income, but Bloomberg readily recognizes SGOV as cash equivalent. 

 

Are there alternatives to SGOV?

SGOV is one of many ultra-short ETFs available on the market. State Street’s BIL is one of the largest but SGOV is by far the cheapest. Buying an ETF is a convenient alternative to purchasing treasury bills directly. Given that our transactions are made through the Union’s finance office, maintaining positions in bills that mature in less than three months would be logistically difficult.

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by Jake Ben-Ishay