Janus Henderson lists actively managed MBS ETF

Sep 17th, 2018 | By | Category: Fixed Income

Janus Henderson Investors has unveiled the Janus Henderson Mortgage-Backed Securities ETF (JMBS US) on NYSE Arca. The fund is the first actively managed ETF to provide exposure to the US mortgage-backed securities market.

John Kerschner, Head of US Securitized Products at Janus Henderson

John Kerschner, Head of US Securitized Products at Janus Henderson.

JMBS is also the first ETF to be introduced since Denver-based Janus Capital Group merged with London-based Henderson Group in May 2017.

The new fund’s benchmark is the Bloomberg Barclays US MBS Index, an index tracking the performance of agency mortgage-backed pass-through securities guaranteed by Ginnie Mae, Fannie Mae and Freddie Mac. It is one of the most well-known references for the general health of the US MBS market.

As a general indication of the fund’s targeted risk/return profile, the managers will seek to invest in mortgage-related instruments that can provide a return of 0.50% (net of fees) over the benchmark, while generally maintaining an investment return with substantial correlation to the it.

To achieve its stated goal, the managers may invest in both residential and commercial MBS assets, issued either through a government agency or privately, as well as in other ETFs covering the space. The managers will select predominately high-quality MBS securities but may dip into lower quality assets to enhance returns.

The prospectus also notes that the fund’s managers may endeavour to enhance returns through the use of derivatives, shorting strategies, and securities lending.

Applying a bottom-up approach, Janus Henderson believes the fund differentiates itself by employing fundamental loan-level analysis and quantitative modelling in an effort to identify mispriced assets with attractive borrower behaviour.

“We are hyper-focused on modelling borrower behaviour to appreciate why and when home owners refinance or move,” said Nick Childs, Securitized Products Analyst at Janus Henderson and co-manager of the fund “Our bottom-up approach — where we analyse the idiosyncrasies and key fundamentals of each security rather than relying on a top-down macro view — is critical to our ability to outperform the Bloomberg Barclays US MBS Index.”

“We believe this product meets an important investor need, balancing current income and total return in one of the largest fixed-income markets in the world,” added John Kerschner, Head of US Securitized Products at Janus Henderson, who also acts as co-manager of JMBS.

Collectively, Kerschner and Childs have nearly 45 years of financial industry experience between them.

The funds comes with an expense ratio of 0.35%.

“JMBS gives investors seeking liquidity and minimal credit risk a strong option to potentially generate better risk-adjusted returns than low-cost passive MBS ETFs or higher fee active MBS mutual funds,” said Nick Cherney, Head of Exchange Traded Products at Janus Henderson.

While the fund’s price tag may be relatively low compared to some actively managed MBS mutual funds, investors can obtain cheaper exposure to this market through passive ETFs. Both BlackRock and State Street Global Advisors offer funds tracking the returns on the Bloomberg Barclays US MBS Index.

The iShares MBS Bond ETF (MBB US) is the largest of these with over $12 billion in assets under management. It comes with an expense ratio of 0.09%. The SPDR Bloomberg Barclays Mortgage Backed Bond ETF (MBG US) is somewhat smaller with $190m in AUM but comes with an expense ratio of just 0.06%.

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