CLO ETF crowd grows as Janus Henderson ETF passes $1bn

Michelle D’souza

Reporter

CLO exchange traded funds are flourishing as investors flock to floating rate assets, and New York-based managers AXS and VanEck are taking advantage by registering CLO ETFs with US regulators.

These moves came as Janus Henderson AAA CLO ETF (JAAA) experienced a $600 million surge of inflows in February, raising its assets to $1.19 billion by 1 April.

John Kerschner, head of US securitised products at Janus Henderson, says investors are seeing the value of high credit quality, floating-rate, liquid products. “The market continues to price in additional Fed rate hikes, which, if they are realised, will only increase the yield of JAAA,” says Kerschner.

“This month over 90% of the CLOs in JAAA will reset to a three-month Libor rate of currently 96 basis points, bringing the current yield to approximately 225bp. In January, at the time of the last reset for most CLOs, three-month Libor averaged only about 25bp.”

This market dynamic, he says, has been the catalyst for increasing investor inquiries into the fund, especially as most fixed income funds and ETFs are showing significant negative returns in 2022.

“Investors see the value of high credit quality, floating-rate, liquid products”

John Kerschner, Head of US securitised products | Janus Henderson

JAAA and Alternative Access Funds’ AAF First Priority CLO Bond ETF were the first CLO ETFs when launching in October 2020. As part of a restructuring of its CLO ETF, AXS recently registered a new vehicle (AXS First Priority CLO Bond ETF), which will acquire the former’s assets and liabilities.

Like its predecessor, AXS First Priority CLO Bond ETF will target triple A-rated CLO debt, investing in CLOs with a minimum size of $300 million (and minimum $150 million triple A tranche). It will invest in CLOs with a maximum warf of 3,000.

VanEck CLO ETF has a broader mandate. It has the ability to invest 80% in CLO tranches rated triple A to triple B. The fund will focus on US CLOs, with a 30% scope for European deals. It can invest up to 10% of assets in affiliated or non-affiliated ETFs.

CLO ETFs have had plenty of opportunity to source assets in March, with triple A tranches the most readily available of any part of the CLO capital stack in the secondary market.

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Global credit funds & CLO's

April 2022 | Issue 244

Published in London & New York.