Equities
Janus Henderson's JAAA ETF Hits $10 Billion, Dominates 90% of CLO Market Share
The Janus Henderson AAA CLO exchange-traded fund (ETF), ticker JAAA, has reached a significant milestone by amassing over $10 billion in assets. This achievement solidifies Janus Henderson's dominant position in the market for top-rated collateralized loan obligation (CLO) ETFs, commanding approximately 90% of the market share. The closest competitor in this niche is the Janus Henderson B-BBB CLO ETF (JBBB), which holds around $666 million in assets.
CLOs are bonds backed by leveraged loans that pay floating rates, making them attractive in a rising yield environment. JAAA, which launched in October 2020, offers actively managed exposure to this asset class for a fee of 21 basis points. Despite not being the first or the cheapest fund in the market, JAAA has managed to outpace competitors, including a rival product from BlackRock Inc.
According to a recent Citigroup report, JAAA is currently the only CLO ETF that screens as having an institutional use case, such as hedging. However, this dynamic could evolve as the category is expected to grow significantly. "The CLO category is still in its early innings," Citi strategists, including Drew Pettit, noted. "There is a possibility that more than one product can have an institutional use case, which is common in other credit ETF categories."
Elevated interest rates have been particularly beneficial for JAAA, which has nearly doubled its assets in the first half of the year, ending 2023 with about $5.3 billion. Over the past year, the fund has gained approximately 9% on a total return basis, significantly outperforming the iShares Core US Aggregate Bond ETF (AGG), which returned around 2%.
John Kerschner, head of US securitized products at Janus Henderson, highlighted the fund's appeal: "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."
The future looks promising for the CLO ETF market, with expectations of substantial growth. The Citigroup report suggests that the category could triple in size, potentially allowing for more products to serve institutional use cases. This growth could introduce more competition and innovation within the space, benefiting investors looking for diversified and high-yielding investment options.
"The CLO category is still in its early innings. There is a possibility that more than one product can have an institutional use case, which is common in other credit ETF categories."
"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."