Janus Henderson Investors has launched its first actively managed fixed income ETF in Europe, providing focused exposure to high-quality collateralized loan obligations (CLOs).
Colin Fleury, Head of Secured Credit at Janus Henderson.
The Janus Henderson Tabula EUR AAA CLO UCITS ETF (JCL0 GY) is now listed on Xetra in euros, with an expense ratio of 0.35%.
Listings on the London Stock Exchange and Borsa Italiana are anticipated soon.
CLOs are structured credit instruments issued in tranches by a trust or special purpose vehicle and backed by a diversified portfolio of loans. These loans, selected by the CLO’s manager, predominantly include domestic and foreign senior secured loans, along with senior unsecured and subordinate corporate loans. Most of these loans feature floating interest rates and are typically characterized by sub-investment-grade credit ratings.
While the underlying loans are generally rated below investment grade, the tranching structure of CLOs ensures that most tranches are investment grade. This is achieved through diversification, credit enhancements, and subordination of cash flows.
AAA-rated CLOs, for instance, enjoy the highest priority on interest and principal payments from the underlying loans. This priority, combined with a diverse pool of loans, often results in yields higher than other AAA-rated investments.
AAA-rated CLOs provide several advantages for fixed income portfolios. They offer diversification through exposure to a broad array of underlying loans, which helps mitigate idiosyncratic risk. They also exhibit low volatility, with historically stable performance and minimal sensitivity to interest rate fluctuations, thanks to their floating-rate coupons. Additionally, they typically deliver enhanced income compared to comparably rated corporate debt. Over the past 30 years, default rates for higher-quality CLO tranches have been negligible and significantly lower than those of similarly rated corporate bonds.
Investment approach
The Janus Henderson Tabula EUR AAA CLO UCITS ETF primarily invests in European AAA-rated CLOs but can allocate up to 30% of its portfolio to non-European AAA CLOs that comply with European securitization regulations.
Should a CLO in the portfolio be downgraded below AAA, Janus Henderson will aim to divest it promptly.
The fund is managed by Colin Fleury, Head of Secured Credit, along with portfolio managers Denis Struc and Ian Bettney. The team, which has been working together at Janus Henderson since 2010, has a strong track record in CLO investing.
Leveraging insights from Janus Henderson’s CLO management team and its broader fixed income group, the portfolio managers focus on key principles such as examining loan types, jurisdictions, and historical performance; assessing managers, servicers, and hedge providers; understanding legal frameworks, noteholder rights, and default controls; and evaluating expected and stressed cash flows and allocation.
Colin Fleury, Head of Secured Credit at Janus Henderson, said: “AAA CLOs are a compelling alternative to investment-grade corporates, typically offering higher yields and more credit spread for a better-quality asset with lower sensitivity to interest rate volatility. They can significantly enhance clients’ potential to achieve higher levels of income in their fixed income or cash allocations. As a global leader in CLOs, we believe our rigorous due diligence and portfolio construction process can provide competitive risk-adjusted returns relative to traditional fixed income asset classes”.
Globally, Janus Henderson is the fourth-largest provider of actively managed fixed income ETFs and a leading manager of securitized active ETFs. The firm’s US offerings include the $17.7 billion Janus Henderson AAA CLO ETF (JAAA US), the largest CLO ETF globally, and the $1.6 billion Janus Henderson B-BBB CLO ETF (JBBB US), which targets riskier CLO tranches.