BOXX ETF Doubles in Size as Investors Chase Tax-Efficient Yield

The Alpha Architect 1–3 Month Box ETF (BOXX) is having a breakout year. The fund has attracted $4.1 billion in inflows since January, nearly doubling its assets under management to $8.8 billion.

That makes BOXX one of the year’s biggest success stories among short-term income ETFs, a segment that’s seen explosive demand as investors park cash in vehicles yielding north of 4%.

Turning Interest Into Capital Gains

BOXX’s appeal comes from an unusual strategy. The fund uses box spreads, which are paired options positions that effectively mimic lending at a fixed rate, to generate a return similar to Treasury bills. The difference is in how that return is taxed.

Instead of paying out interest income like a money market fund or a typical ultra-short-term bond ETF, BOXX reinvests the income it earns. As a result, investors don’t receive distributions; the fund’s net asset value rises instead. When investors eventually sell their shares, the gain is treated as a capital gain rather than ordinary income.

That distinction can be significant. Long-term capital gains are taxed at a maximum federal rate of 20%, versus 37% for ordinary income. The ability to defer taxes indefinitely and potentially pay a lower rate later is what’s driving much of the fund’s popularity.

Tax experts, however, have described this as a form of tax arbitrage that exploits a gray area in the code. The Urban-Brookings Tax Policy Center’s Steve Rosenthal has argued that box-spread income shouldn’t be treated as capital gains and that regulators may eventually close the loophole. For now, though, BOXX remains fully compliant under current rules.

Demand for Short-Term Income 

The rise of BOXX mirrors a broader surge in short-term income ETFs. The iShares 0–3 Month Treasury Bond ETF (SGOV) has pulled in $31 billion this year, while the SPDR Bloomberg 1–3 Month T-Bill ETF (BIL) has added $7 billion. SGOV now manages $61 billion, compared to BIL’s $43 billion.

BOXX is smaller than both but it's growing quickly. Its 3.68% total return this year is in line with SGOV’s, and since its late-2022 debut, BOXX has returned 14.61%, nearly matching SGOV’s 14.79%.



BOXX charges an expense ratio of 0.25%, compared to 0.09% for SGOV and 0.14% for BIL. 

While BOXX’s box-spread positions are considered ultra-low risk, they aren’t government-backed like T-bills. The positions are guaranteed by the Options Clearing Corporation, which is designated as a “systemically important financial market utility” by U.S. regulators.

BOXX offers a novel way to earn near-risk-free yields with potential tax benefits, but the strategy’s long-term viability will depend on whether regulators take issue with how its income is classified.