Janus Henderson Tightens Grip on CLO ETFs with JAAA's $10 Billion Milestone

2024

The Janus Henderson AAA CLO exchange-traded fund (ticker JAAA) has reached a significant milestone, amassing over $10 billion in assets. This achievement underscores Janus Henderson's leading position in the growing niche of collateralized loan obligation (CLO) ETFs. According to a Monday press release, JAAA now controls roughly 90% of the market share for top-rated CLO ETFs.

Janus Henderson's closest competitor in the CLO ETF space is its own Janus Henderson B-BBB CLO ETF (JBBB), which has gathered about $666 million in assets. This contrast highlights the substantial lead that JAAA maintains within this investment category.

CLOs are bonds backed by leveraged loans that pay floating rates, making them attractive as yields rise. JAAA, although not the first mover in the market, was the second fund of its kind, launched in October 2020. It offers actively managed exposure to CLOs for a fee of 21 basis points, positioning it as one of the more cost-effective options available.

Despite new entries from major players like BlackRock Inc., Janus Henderson has maintained its dominance. JAAA is noted for its institutional use case, such as hedging, as highlighted in a recent Citigroup report. This feature distinguishes it from other CLO ETFs, although Citigroup strategists suggest that the category is still evolving and may eventually support multiple products with institutional applications.

“The CLO category is still in its early innings,” Citi strategists, including Drew Pettit, wrote. “There is a possibility that more than one product can have an institutional use case, which is common in other credit ETF categories.”

The current high-interest rate environment has benefited JAAA significantly. The fund has nearly doubled in size in the first half of the year, ending 2023 with approximately $5.3 billion in assets. Over the past year, JAAA has delivered a total return of about 9%, compared to roughly 2% for the iShares Core US Aggregate Bond ETF (AGG).

John Kerschner, head of US securitized products at Janus Henderson, emphasized the benefits of AAA CLOs, stating, “We believe AAA CLOs are an attractive addition to portfolios due to their diversification benefits, low interest rate volatility, attractive returns, and strong credit ratings.”

JAAA's investment strategy focuses on capital preservation and current income, aiming to provide floating-rate exposure to high-quality AAA-rated CLOs. The fund invests at least 90% of its net assets in CLOs rated AAA at the time of purchase or deemed of comparable quality by the adviser if unrated. The remaining assets may be invested in other high-quality CLOs with a minimum rating of A- or similarly assessed by the adviser.

In conclusion, Janus Henderson's JAAA ETF has solidified its position as a leader in the CLO ETF market. Its growth reflects both the fund's strong performance and the broader appeal of CLOs in a rising interest rate environment. As the market for CLO ETFs continues to expand, Janus Henderson's strategic positioning and product offerings are likely to remain influential.