Should Investors Dine at the Cash ETF Buffet?

Should Investors Dine at the Cash ETF Buffet?

Warren Buffett’s Berkshire Hathaway owns 3% of the T-bill market.

Reviewed by: Staff
Edited by: James Rubin

Warren Buffett might be the king of modern-day stock investing. But his firm just happens to own 3% of the U.S. Treasury bill market.  

That is not a misprint, and the decimal point is in the correct place. So, by the old transitive property, that should make T-bills the king of the ETF market. And, since the old expression “cash is king” has never been more appropriate in our investment lifetimes. That should remind investors that cash-like investments are a central part of today’s ETF marketplace. 

To understand that logic one needs to do is look at the level of interest rates. Treasury bills from those maturing days from now through 12 months from now are yielding at least 5%. That’s still the highest spot on the yield curve out to 30 years. This is not new information to market participants.  

However, as an investor who lives on a steady diet of investment-related content, I have seen a significant increase in recent months in one type of message from a range of money managers: “get out of cash.” Sometimes the suggestion is to go further out on the yield curve, or to take on more credit risk. Other times, it is to consider having more money allocated to stocks.  

Will T-bill ETFs Great Yields Last? 

Every investor ultimately fends for themselves, since even when they have an advisor making decisions for them, the ultimate wealth available to spend, retire on and not outlive is determined by the decisions the investor makes. One of those decisions is to decide who makes the decisions. So, when the volume from the “cash is a temporary holding place” crowd starts to increase, it is a good time for investors to understand the tradeoffs.  

Mr. Buffett’s iconic Berkshire Hathaway is the classic long-term growth business. While it is a “value” approach to investing, for decades he and his late great partner Charles Munger tried to identify companies they could hold for decades or forever, to get access to the long-term growth potential of earnings and dividends.  

Investing in T-bill ETFs is characterized by many as a short-term investment. Whether through the $32.8 billion SPDR Bloomberg 1-3 Month T-Bill ETF (BIL) which owns the very shortest maturities, the $19.1 billion iShares Short Treasury Bond ETF (SHV) which allocates its assets among the full one to 12 months T-bill maturity range, or the $621 million US Treasury 6 Month Bill ETF (XBIL) which focuses on a single point within the T-bill market, the formula is simple: own securities that are guaranteed by the US Treasury, and are paid back in months, not years. BIL three-month performance

How T-bill ETFs Differ from T-bills 

However, many ETFs that focus on Treasury bills as their main investment are not thinking that way. They are managing the portfolio according to their stated objectives, which typically includes a predetermined mechanism for replacing bills as they mature or prior to that. So, if rates stay above other types of bonds and well above the dividend yields on the main stock market indexes, perhaps those joining Buffett at the T-bill “buffet” will decide to stick around for a while.  

Because as is the case with a food buffet, it is all you can consume, and at least for now, the product may stay fresh for a long time. Maybe they won’t stay fresh as long as Twinkies stay edible. But they may stay fresh long enough for cash-heavy investors to allow some of the biggest threats to the broader bond and stock markets to be resolved. 

Rob Isbitts' Wall Street career spans 5 decades and multiple roles, all dedicated to providing clarity to investors by busting classic myths and providing uncommon perspective. He did so as a fiduciary investment advisor, Chief Investment Officer and fund manager for 27 years before selling his practice in 2020. His efforts now focus exclusively on investment research, education and multimedia. He started ETFYourself and SungardenInvestment to provide straightforward commentary and access to his investment intellectual property for portfolio construction, stocks and ETFs. Originally from New Jersey, Rob and his wife Dana have 3 adult children and have lived in Weston, Florida for more than 25 years.