Janus Henderson should launch CLO ETF in Europe

A short-duration bond ETF with a 6.39% yield

Jamie Gordon

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Janus Henderson’s acquisition of Tabula Investment Management has sparked questions around which parts of its existing roster could disrupt European ETFs – and its largest US-listed ETF could do just that.

The firm stated it will use the UCITS ETF structure to tap its existing European clients and demand in Latin America and Asia, with plans to launch a suite of active ETFs alongside Tabula’s 10-strong range of fixed income ETFs.

Following the acquisition, fund selectors told ETF Stream they expect Janus to target Europe’s under-cultivated active fixed income ETF segment.

“Active bond ETFs have more room to grow than just more ‘exotic’ equity products,” Goncalo Machado, investment manager at InvestEngine, said.

“With the way most fixed income ETFs have been built so far, there is scope for a huge amount of innovation given the current credit environments.”

This is a reasonable assumption, considering of the $15.9bn assets under management (AUM) split across the firm’s 11 US-listed ETFs, a considerable $9.1bn is housed within the Janus Henderson AAA CLO ETF (JAAA).

CLOs – or collateralised loan obligations – are bundles of non-investment grade loans, often first lien bank loans to businesses or private equity borrowers, which are grouped into tranches of 150 to 250 loans by CLO managers and sold to investors.

While this may cast minds back to the CDOs and ‘bespoke tranche opportunities’ at the heart of the Global Financial Crisis (GFC), the key difference is CDOs are comprised of mortgage pools, whereas CLOs are backed by corporate credit with a leverage factor of no more than 6x.

Janus Henderson is the largest issuer of CLO ETFs with a 95% market share and JAAA is both the world’s first CLO ETF – after launching in 2020 – and the firm’s only product that has a five-star Morningstar rating.

The active ETF boasts a high 12-month yield of 6.39%, a low 0.22% gross expense ratio and low default risk, with no tranche of AAA-rated CLOs ever having defaulted.

It also appeals to investors conscious of duration risk, with its 362-strong basket boasting an effective duration of 0.27 years.

However, it is worth noting the product’s 34.2% 12-month turnover means it is far more dynamic than the ‘index-plus’ approach that has dominated inflows into active ETFs in Europe to-date.

US investors have so far been convinced, with the ETF’s AUM surging by $7bn from $2.1bn, as at 6 February 2023, and only a marginal portion of this owing to performance, with a 1.6% return over the past 14 months.

European investors may still be wary of more niche fixed income exposures in the wake of the Credit Suisse AT1 debacle last March, but JAAA would become the continent’s first CLO ETF and could offer a unique alternative to conventional high yield strategies.

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