Janus Henderson Investors has launched a new fixed income ETF providing actively managed exposure to highly rated collateralized loan obligations (CLOs).
Nick Cherney, Head of ETPs at Janus Henderson Investors.
The Janus Henderson AAA CLO ETF (JAAA US) has listed on NYSE Arca and launched with $120 million in assets under management.
The fund comes with an expense ratio of 0.25%, matching the cost of the first pure-play CLO ETF – the AAF First Priority CLO Bond ETF (AAA US) – which debuted last month.
Both ETFs offer low-cost, liquid access to a segment of the fixed income market that has historically only been available to institutional investors.
CLOs are debt securities issued in different tranches by a trust or other special purpose vehicle and backed by an underlying portfolio consisting typically of below-investment-grade corporate loans.
The underlying loans, which are selected by a CLO’s manager, typically may include domestic and foreign senior secured loans, senior unsecured loans, and subordinate corporate loans.
AAA-rated CLOs can help diversify a traditional fixed income portfolio while exhibiting low volatility and low downgrade risk.
Nick Cherney, Head of ETPs at Janus Henderson Investors, commented, “Providing high-quality floating rate exposure, JAAA is designed to provide investors with access to an asset class that has the potential to address today’s low-interest-rate environment while mitigating unwanted credit risk.
“CLOs are a +$700 billion asset class and yet most investors have little to no exposure to this segment of the fixed income market. With the launch of JAAA, investors can gain access to the high-quality, floating rate CLO market, including Janus Henderson’s rigorous CLO manager due diligence and portfolio construction process.”
John Kerschner, Head of US Securitized Products at Janus Henderson Investors and the ETF’s Portfolio Manager, added, “In the current rate environment, AAA-rated CLOs are an attractive asset class for investors seeking income while managing risk in their fixed income portfolios. From the global financial crisis that started in 2007 to the economic disruptions created by Covid-19 this year, markets have endured a seemingly endless series of extraordinary events, and notably, not a single AAA-rated CLO has defaulted.”
Investment process
The ETF seeks to provide capital preservation and current income by investing at least 80% of its net assets in CLOs of any maturity that are rated AAA or equivalent.
The fund may temporarily deviate from the 80% policy, however, while deploying new capital as the result of cash creation or redemption activity, or during highly unusual market conditions such as a downgrade in the rating of one or more securities.
The fund may invest its remaining assets in other high-quality CLOs with a minimum rating of A- at the time of purchase. After purchase, a CLO may have its rating reduced below the minimum rating required by the fund for purchase. In such cases, the fund will consider whether to continue to hold the CLO.
Only CLOs with a minimum initial total offering size of $250m and a minimum initial AAA tranche size of $100m are eligible for inclusion. No more than 5% of the ETF’s portfolio may be invested in any single CLO or more than 15% in CLOs managed by a single CLO manager.
The fund will invest primarily in CLOs that are US dollar-denominated but may from time to time invest up to 30% of its net assets in CLOs that are denominated in foreign currencies. When it does so, the fund will seek to hedge foreign exchange exposure.