For investors yearning for an ETF focusing on collateralized loan obligations (CLO), the wait could soon be over as Janus Henderson revealed it filed plans with the Securities and Exchange Commission (SEC) for the Janus Henderson AAA CLO ETF.
The actively managed ETF will trade under the ticker “JAAA” and could come to market in late October, according to a statement. A CLO is a single security backed by a basket of debt.
“Collateralized loan obligations (CLO) are often backed by corporate loans with low credit ratings or loans taken out by private equity firms to conduct leveraged buyouts. A collateralized loan obligation is similar to a collateralized mortgage obligation (CMO), except that the underlying debt is of a different type and character—a company loan instead of a mortgage,” according to Investopedia.
First of its Kind
The fixed income ETF universe, though rapidly growing, currently doesn’t feature a CLO product.
“The new actively managed exchange-traded fund (ETF) focused on AAA-rated Collateralized Loan Obligations (“CLOs”) is expected to be the first of its kind in the industry, demonstrating Janus Henderson’s innovative strategy,” according to Janus Henderson. “The investment objective of the Fund will be to seek capital preservation and current income by seeking to deliver floating-rate exposure to high quality AAA-rated CLOs.”
Focusing on highly rated CLOs could give JAAA a leg up with investors because CLOs are often viewed as carrying elevated default risk.
“With a CLO, the investor receives scheduled debt payments from the underlying loans, assuming most of the risk in the event that borrowers default,” notes Investopedia. “In exchange for taking on the default risk, the investor is offered greater diversity and the potential for higher-than-average returns. A default is when a borrower fails to make payments on a loan or mortgage for an extended period of time.”
The Janus Henderson statement doesn’t mention an expense ratio for JAAA.
“The Fund will be managed by Portfolio Managers John P. Kerschner, CFA and Nick Childs, CFA. Jessica Shill will serve as Assistant Portfolio Manager on the Fund,” according to the release.