One company, Janus Henderson, is taking an increasingly dominant position in the emerging market for ETFs that track collateralized loan obligations. Since its introduction in October 2020, the Janus Henderson AAA CLO exchange-traded fund (ticker JAAA) has exploded to a record $3.9 billion in assets, dwarfing at least nine other CLO-focused funds. The VanEck CLO ETF (CLOI), the closest runner-up, has approximately $146 million after its introduction in June 2022. It can be said that JAAA’s command was successful due to its readiness and low cost. The $7.4 million AXS First Priority CLO Bond ETF (AAA), which started trading a month earlier, took first place in the category; the Janus fund came in second. Not to mention, the actively managed ETF has a 22 basis point expense ratio, which is comparatively modest.
Despite BlackRock Inc. launching a CLO ETF this past January with a 20 basis points charge, JAAA has so far easily defeated that competition thanks to its multi-year head start. According to Eric Balchunas, senior ETF analyst at Bloomberg Intelligence, “it is definitely unusual for the second launch to dominate but Janus did launch shortly after and had the advantage of being an established brand for active management as well as a low-fee.” Two basis points simply don’t have the same impact as when BlackRock entered at 20 basis points. BlackRock would do better with 20 basis points if JAAA were 50 basis points. This year, JAAA’s assets under management have surged. With less than $2 billion in the beginning of 2023, the fund has nearly doubled in size in that time. According to Bloomberg data, it hasn’t had an outflow since June 2022. Given the floating-rate nature of the product, which means it has benefited from the Federal Reserve’s raising campaign, John Kerschner, the head of US securitized products at Janus, claimed that unusually steady demand is coming from a “broad swath” of investors.
On Bloomberg Television’s ETF IQ, Kerschner stated that “retail investors, institutional investors, pretty much anybody, this ETF works for.” The reason for this is that the ETF’s variable rate. Bond prices decreased as a result of rising interest rates, and several fixed-income assets experienced double-digit declines. Last year, JAAA showed promise, and this year has been no different. On a total return basis, JAAA has increased by more than 6% so far this year, whereas the $32 billion iShares iBoxx $ Investment Grade Corporate Bond ETF (LQD) and the $95 billion Vanguard Total Bond Market ETF (BND) have increased by 1.7% and 0.6%, respectively. In general, money managers believe that the $1.3 trillion CLO market will continue to gain steam in the months to come. Despite low M&A activity and a lack of demand for liabilities, numerous new managers have lately closed agreements in the US, even though issuance has been reduced. The $109 million Janus Henderson B-BBB CLO ETF (JBBB), which tracks riskier credits, has struggled to establish an audience since its inception in January 2022, although Janus has found success with JAAA. Despite the fund’s roughly 13% total return increase this year, Kerschner claims that prospective investors prefer to have a longer track record given the fund’s risk profile.
Please note that this article does not offer any instructions or suggestions regarding investment decisions. Therefore, it is essential that you carefully evaluate your financial situation and conduct thorough analysis, or seek advice from a qualified professional, before making any investment decisions.