British-American asset manager Janus Henderson plans to grow its investment in the primary US CLO market through its triple-A CLO exchange-traded fund (ETF), portfolio manager John Kerschner told GlobalCapital.
Last week, the investment firm said that its JAAA fund has surpassed $4bn in assets under management, making it the biggest fixed income ETF of those launched in the past three years, according to Bloomberg data cited by Janus Henderson. It also dwarfs other CLO ETFs. The closest second is the VanEck CLO ETF, with $192m of AUM.
So far, JAAA has mostly bought assets in the secondary market. It held back from investing in newly issued CLOs partly because of the four to six week period between the pricing and settlement of a deal.
“Almost all our investors are buying based on yield,” said Kerschner. “They love the monthly dividend distribution income, and you lose some of that from participating a lot in the primary market.”
However, participating in new CLOs has several advantages, according to Kerschner.
“You have more access to the managers you want in the size you want, and hopefully at the spreads you want,” he said. “A nuance that people don’t appreciate is that CLOs are pretty much the one asset class within securitization where documentation isn’t standardized, so you can drive some of the document legal language if you’re buying big blocks.”
To influence the language of CLO documentation, an investor needs to buy around 50% of the triple-A tranche, he added, which means an order of at least $100m.
“Until very recently that would have been too big for our ETF, but now we’re at a size where we can do that,” said Kerschner. ”Assuming that issuance is strong, we will look to do more in the primary market.”
JAAA was launched as an actively managed CLO ETF in October 2020. The investor base ranges from retail investors with excess savings to institutional investors. According to the Janus Henderson website, the fund has yielded returns of 6.4% in the year to date. It charges a fee of 22bp.
Janus Henderson also manages several other fixe income ETFs. Its first launch was a mortgage-backed securities ETF in 2018. The asset manager also offers a BBB CLO ETF and a global short duration income ETF.