Short-term Treasury bills are still clearing the 4% mark at the 52-week point, and the FDIC national average on a 12-month CD sits at 1.65%. The gap between the two explains why cash management has stopped being a set-and-forget decision. Once federal, state, and local taxes come out of a money market distribution, the headline yield can lose a third or more of its value depending on the investor’s bracket and zip code. Three ETFs approach that problem from different angles: Alpha Architect 1-3 Month Box ETF (NYSEARCA:BOXX), Janus Henderson AAA CLO ETF (NYSEARCA:JAAA), and iShares Treasury Floating Rate Bond ETF (NYSEARCA:TFLO).
Each uses a different mechanism to deliver more after-tax income than a taxable money market fund. BOXX restructures the character of returns from ordinary income into capital gains. JAAA reaches slightly further out the credit curve for a spread pickup while staying in AAA-rated paper. TFLO holds Treasury floaters whose interest is exempt from state and local income tax. The Fed funds rate is now 3.75% after cuts in October and December of last year, so the window for locking in cash-like yields has narrowed, and the tax layer has become a bigger share of the total-return equation.
BOXX: Turning T-Bill Returns Into Capital Gains
Aimed at taxable investors in a high federal bracket is this fund. The strategy uses box-spread options on the S&P 500, combining long and short call and put positions to lock in a defined return that closely tracks short-term Treasury yields. Returns come through as price appreciation on the fund’s shares rather than monthly distributions of ordinary interest. Held for more than a year, gains are taxed at long-term capital gains rates, which top out at 20% federally versus 37% on ordinary income above $640,600 for single filers in 2026. BOXX offers a tax-efficient alternative to traditional money market funds for high-income investors.
The strategy has tracked its intended benchmark. BOXX returned about 4% over the past year and about 2% year to date, in line with rolling T-bill returns. The fund’s expense ratio is 0.19%, and it carries roughly $13 billion in assets, enough scale to support tight bid-ask spreads.
The tradeoffs matter. Because gains accrue as appreciation, holders who sell within a year owe short-term capital gains, which are taxed as ordinary income and nullify the strategy’s core advantage. The IRS has not issued specific guidance blessing the box-spread structure, so there is a small risk that the tax treatment could be challenged. For investors with a multi-year horizon and a taxable account, BOXX converts a 4% cash-equivalent yield into a lower-taxed return.
JAAA: Credit Spread From the Top of the CLO Stack
A different route is taken by this fund. Instead of engineering the tax character of returns, it earns a higher pretax yield by owning AAA-rated collateralized loan obligation tranches. CLOs pool senior secured leveraged loans, and the AAA tranche sits at the top of the capital structure, absorbing losses only after junior tranches have been wiped out. The historical default rate on AAA CLO paper is effectively zero, which is why the fund can offer higher income than Treasury alternatives without meaningful credit risk.
This fund carries a distribution yield of roughly 4.95% paid monthly, on a share price of $50.57. The portfolio holds 608 positions across major institutional CLO managers, with the largest single holding at just 1.04% of assets. The fund manages roughly $27 billion in net assets, making it the dominant vehicle in the AAA CLO ETF category. The expense ratio is 0.20%. JAAA’s scale and credit quality make it a core holding for income-seeking investors.
Distributions from JAAA are taxed as ordinary income. The advantage is roughly 90 basis points of extra yield over comparable Treasury products, which more than compensates for the modest additional credit exposure for most investors. The floating-rate structure of the underlying loans means duration risk is minimal, though a sharp widening in credit spreads could cause a short-term drawdown, as happened briefly in March 2020.
TFLO: State Tax Exemption on Treasury Floaters
Oriented toward residents of high-tax states is this fund. The fund holds 99.6% of its assets in U.S. Treasury floating-rate notes across eight distinct maturities, with the remainder in a Treasury cash sweep. Interest on those Treasuries is exempt from state and local income taxes under federal law, which can add anywhere from 50 to 130 basis points of effective yield for investors in California, New York, or New Jersey compared with a taxable money market fund holding commercial paper. TFLO offers a tax-advantaged cash management solution for high-tax-state investors.
The floating-rate structure resets weekly against the 13-week T-bill auction rate, so the fund’s yield tracks short-term Treasury rates almost in real time. That is useful in a stable-to-rising-rate environment and less useful if the Fed cuts aggressively, because distributions will drop within weeks. The current distribution yield sits at 3.8%, and the fund posted about a 4% total return over the past year. Net assets are around $6.7 billion, and the expense ratio is 0.15%, the cheapest of the three.
For an investor in a state with no income tax, the case for TFLO over a plain money market fund weakens considerably, since the federal treatment is identical.
Which Fund Fits Which Investor
The three funds sort cleanly by tax situation and risk tolerance. BOXX makes the most sense for high-income earners in taxable accounts who can hold for more than a year and want the return character shifted to long-term capital gains. JAAA fits investors willing to accept AAA-rated credit exposure in exchange for a yield premium of close to 1% over Treasury alternatives, and works well in tax-deferred accounts where the ordinary-income treatment is neutralized. TFLO is the default choice for residents of California, New York, and other high-tax states who want Treasury-level safety and are willing to accept a lower headline yield in exchange for state and local exemption.
An investor comparing these funds to a money market fund yielding around 4% gross should run the math after taxes rather than on the headline. In a top federal bracket with a state income tax of 6% or more, the ranking of these three against a standard prime money market fund often flips once withholding is accounted for.
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