Cash has been a better portfolio diversifier than Treasurys, Morningstar finds. Where to nab attractive yields

Cash-equivalent assets have grown to $7.64 trillion, while the Crane 100 taxable money fund yield stands at 3.45% and SGOV's 30-day SEC yield is 3.55%. Morningstar argues cash has been a better diversifier than Treasurys recently, with cash showing the lowest stock correlation over the last three years as stock-bond correlations turned positive in 2022. The article also highlights 4% APYs at Bread Financial and LendingClub and notes that money remains attractive in a steady-rate environment.

Analysis

The key second-order effect is not that cash is “competitive” with risk assets, but that it compresses the urgency to rotate out of money funds and into duration. That keeps a large reservoir of sidelined capital sticky, which supports liquidity in front-end bills and high-grade floating-rate products while capping the willingness to reach for long-duration exposure. In practice, this means cash is still a better short-horizon shock absorber than Treasurys because it does not reprice on growth scares; the market keeps rediscovering that lesson every time stocks and bonds sell off together.

For the named financial beneficiaries, the real edge is in deposit beta and client behavior. Bread and Capital One can defend or selectively raise rates because higher-for-longer expectations reduce the need to subsidize deposits, but the more important opportunity is retaining “sticky” low-cost balances from users who are migrating out of sweep accounts and traditional savings. LendingClub’s online deposit franchise can compound this if it keeps pricing above the pack, but the risk is that the moment policy cuts re-enter the tape, these high-APY franchises lose their headline advantage faster than their funding costs reprice.

Morningstar’s takeaway is subtly bearish for long-duration bond allocators and neutral-to-bullish for very short paper. The market is still assuming cash becomes less useful as soon as rates normalize, but if rate volatility stays elevated, the diversification argument for cash remains intact even as yields drift lower. That creates a window where front-end carry remains attractive without forcing duration risk, while conventional 60/40 allocators remain exposed to positive stock-bond correlation episodes during growth or geopolitical stress.

The contrarian miss is that cash’s popularity can become self-reinforcing: as long as investors are comfortable earning mid-3s to 4s without mark-to-market risk, re-risking into equities may stay slower than consensus expects. The portfolio implication is not to chase the headline yield, but to treat cash as a strategic option premium that can be monetized selectively when volatility spikes or policy expectations shift.

Key Decisions for Investors

• Long BFH / long LC vs short regional bank basket for 1-3 months: own the online deposit franchises with the most visible pricing power and avoid balance-sheet-heavy lenders that must pay up to retain funding; target 8-12% relative outperformance if front-end rates stay anchored.
• Add SGOV or similar T-bill exposure as a volatility buffer, not duration: use cash-equivalent carry to fund equity hedges; risk/reward is attractive if realized volatility stays elevated because mark-to-market risk is minimal versus longer Treasurys.
• Underweight long-duration Treasurys versus front-end bills for the next 2-6 months: if equities and bonds remain positively correlated in risk-off events, duration is the wrong ballast; prefer 0-6 month instruments where carry is captured without convexity bleed.
• For MORN, stay neutral to modestly long: the company benefits from persistent investor demand for asset-allocation guidance and portfolio analytics, but the upside is limited unless cash starts to leave money markets en masse; better as a quality hold than a momentum trade.