Janus Henderson’s AAA CLO ETF hits $4bn AUM milestone

Oct 19th, 2023 | By | Category: Fixed Income

Janus Henderson Investors has announced that the Janus Henderson AAA CLO ETF (JAAA US) has eclipsed the $4 billion AUM mark shortly before its third anniversary.

Janus Henderson’s AAA CLO ETF hits $4bn AUM milestone

Janus Henderson offers two active ETFs targeting different segments of the CLO market.

JAAA is an actively managed fixed income ETF providing exposure to high-quality collateralized loan obligations (CLOs).

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.

Although the underlying loans are rated below investment grade, most CLO tranches are typically rated investment grade because they benefit from diversification, credit enhancements, and subordination of cash flows.

AAA-rated CLOs have a first priority on the interest and principal from the underlying pools of senior secured loans. By investing in this tranche, investors can gain access to a diverse pool of bonds which, collectively, may offer higher yields than other AAA-rated investments.

AAA-rated CLOs can help diversify a traditional fixed income portfolio while exhibiting low volatility and low downgrade risk. These characteristics have clearly been attractive to investors recently – according to Bloomberg data, JAAA’s rapid accumulation of assets since its inception in October 2020 positions it as the largest fixed income ETF launch in the past three years.

John Kerschner, JAAA Portfolio Manager and Head of US Securitized Products at Janus Henderson, commented: “We’ve witnessed an overwhelming response to JAAA. The fund has offered an enticing mix of attractive yield and income, diversification, and exposure to high-quality floating-rate credit, making it even more appealing in the current high-rate, uncertain economic landscape.”

Nick Cherney, Head of Innovation at Janus Henderson, added: “The success of JAAA underscores the innovative strength of Janus Henderson’s active ETF offerings. These products fill gaps in the market that are often overlooked or underrepresented, aligning with our mission to deliver superior financial outcomes to our clients.”

Investment thesis

JAAA aims to safeguard capital while generating current income by allocating at least 80% of its net assets to AAA-rated CLOs. The fund has the flexibility to momentarily diverge from this strategy under unique market conditions, such as the degradation of the credit rating of one or more underlying securities.

The fund invests its residual assets in other high-quality CLOs that have at least an A- rating at the time of acquisition.

Each CLO included in the ETF must have a minimum initial total offering size of $250 million and a minimum initial AAA tranche size of $100 million. Portfolio diversification limits restrict the ETF to investing no more than 5% of its portfolio in a single CLO or 15% in CLOs managed by a single entity.

While primarily focused on US dollar-denominated CLOs, JAAA retains the flexibility to allocate up to 30% of its net assets in CLOs denominated in foreign currencies. In such instances, the fund employs hedging strategies to mitigate foreign exchange risks.

Since its inception, JAAA has delivered an annualized return of 3.04%, although this performance lags the 3.29% per annum return of the benchmark JP Morgan AAA CLO Index.

JAAA is listed on NYSE Arca with an expense ratio of 0.22%.

Janus Henderson also offers a second CLO ETF – the Janus Henderson BBB CLO ETF (JBBB US) – which targets CLOs at the lower end of the investment-grade spectrum.

Tags: , , , , ,

Leave a Comment