Investors parking cash in short-Treasury ETFs such as iShares 0-3 Month Treasury Bond ETF (NASDAQ:SGOV) collect a yield near 3.83%, matching the 13-week T-bill. SGOV pays that yield out every month as taxable interest income. Alpha Architect 1-3 Month Box ETF (NYSEARCA:BOXX) targets the same short-Treasury rate but delivers it as price appreciation rather than monthly distributions, which changes the after-tax math for anyone holding these funds in a brokerage account.
Why the T-Bill ETF Trade Got Crowded
Short-Treasury ETFs like SGOV became the default cash sleeve when the Fed hiked to 5.5%. They hold bills maturing in under three months, so duration risk is minimal and the yield resets with market rates. The Fed Funds upper bound now sits at 3.75%, unchanged since December 11, 2025, following a step down from 4.5% a year earlier.
Bills across the curve now yield between 3.69% at 4 weeks and 4.04% at 52 weeks, well above the FDIC national average 12-month CD rate of 1.68%. That gap explains why cash flooded into T-bill ETFs.
The Tax Drag Most Holders Ignore
Each month, SGOV distributes its interest income, which is taxed at the holder’s marginal federal rate. For a filer in the 32% bracket (income over $201,775 single in 2026) or the top 37% bracket (over $640,600 single), a 3.83% pretax yield shrinks materially once federal tax is applied. Treasury interest is exempt from state tax, though there is no mechanism to defer the federal portion. Every dollar of income shows up on a 1099 in the year it is paid.
How BOXX Delivers the Yield Without the 1099
Rather than Treasury bills, BOXX holds box spread options on the S&P 500 index, currently sitting at 92.38% in SPY August 18, 2026 puts and 7.65% in calls. A box spread is a four-leg options combination that locks in a fixed payoff at expiration, effectively replicating the return on a short Treasury. Because the fund earns its return through options price appreciation rather than interest or dividends, it has paid no recent dividend distributions since its December 28, 2022 inception.
The tax result is straightforward. Gains stay inside the NAV. A holder pays nothing until they sell. If shares are held longer than a year, the sale qualifies for long-term capital gains treatment (0%, 15%, or 20%). The index options within the fund are subject to Section 1256, which the fund manages at the portfolio level rather than passing annual mark-to-market gains through to shareholders.
Performance closely tracks that design. BOXX returned 4.08% over the past year and 4.70% annualized since inception, closely mirroring the short-Treasury curve. The expense ratio is 0.19%, above SGOV’s roughly 0.09%. The 10-basis-point fee gap is small next to the tax deferral for a taxable-account holder in a high bracket.
The Tradeoffs Worth Naming
Government guarantees are not something BOXX operates under, and box spreads carry counterparty and settlement risk, though they do clear through the Options Clearing Corporation. The structure is more complex than a straightforward T-bill portfolio, and the IRS has not issued dedicated guidance on box spread ETFs. That regulatory ambiguity is the main reason a conservative holder might choose to stay in SGOV instead. Liquidity is adequate, with BOXX trading roughly 3.47 million shares daily and holding $13.64 billion in assets.
Where the Swap Actually Helps
The tax angle only matters in a taxable brokerage account. Inside an IRA or 401(k), SGOV and BOXX produce nearly identical outcomes, and the lower-fee, government-backed option wins on its merits. For investors holding six-figure cash positions in a taxable account, particularly those in the top two brackets, deferring interest until a chosen sale year or waiting for more than 12 months for long-term rates can add roughly 50 to 100 basis points of after-tax yield relative to SGOV.
Reading the Decision
The choice comes down to when the tax hits. A holder in a low bracket, or one using an IRA, captures little from the swap. A high-bracket holder with a long horizon in a taxable account captures the full benefit. Splitting the position, keeping short-term spending cash in SGOV and parking longer-hold reserves in BOXX, is one way to isolate the tax advantage without giving up the Treasury guarantee on money that may be needed within a year.
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