Janus Henderson AAA CLO ETF

Janus Detroit Street Trust-Janus Henderson B-BBB CLO ETF

JBBB is an actively managed fund of floating-rate collateralized loan obligations (CLOs) of varying maturities, rated between BBB+ and B- from global issuers.

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This article covers a five-ETF portfolio built to replace and beat out a traditional 60/40. This portfolio could be built by a DIY investor with ease. It would be simple to monitor and rebalance. The goal is to create a >4% yield while providing as much or more safety than a traditional 60/40.

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Janus Henderson B-BBB CLO ETF offers a high dividend yield of 7.7%, making it a reliable income source, especially in a low-return market environment. The ETF's diverse portfolio of B to BBB rated CLO debt investments mitigates sector-specific risks and benefits from floating interest rates. Historical data shows CLO default rates have remained low, suggesting the perceived risk of JBBB is overblown.

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Several firms are planning to launch collateralized loan obligation (CLO) ETFs, enhancing options for investors. CLOs have provided attractive risk-adjusted returns over the past decade, especially when compared to other fixed income investments.

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CLOs have several tranches. Equity tranches are the riskiest ones, but also have the highest yields, and strongest potential returns. Debt tranches are safer and lower-yielding, some significantly so, some moderately so.

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The JBBB ETF gives investors access to BBB-B rated CLO debt tranches. The JBBB ETF has benefited from credit spreads collapsing to cycle-lows, driving strong performance in the last few months despite elevated credit defaults. However, recent weak economic data is spurring a rapid re-pricing of credit risk which may act as a headwind for the JBBB ETF.

JBBB: Time For A Pause?

Equities are down, due to bearish sentiment, mediocre economic news, and the unwinding of the Japanese carry trade. High-yield bonds and senior loans are seeing some pain too, albeit much reduced. CLO ETFs keep chugging along, without significant losses or underperformance.

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Undervalued industries, regions, and equity market segments offer investors the potential for strong, market-beating returns. There are ETFs tracking most of these. An overview of the cheapest sectors, and ETFs tracking these, follows.

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CLO ETF performance has been outstanding these past few years. Most have seen below-average drawdowns, significant dividend growth, and massive outperformance with above-average yields. Yields range from 6.4% to 8.9%, and that is without leverage or excessive credit risk.

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It is prudent to consider risk management in high-yield investments during a potential market correction. JBBB offers lower risk CLO investment with 7.8% yield, suitable for a cash-like alternative. CLOs offer high yield with low risk due to structural protections, JBBB provides one attractive risk-reward alternative.

JBBB: Balancing Risk Vs. Reward

JAAA and JBBB are both actively-managed ETFs investing in senior loan CLO tranches. JBBB focuses on BBB-rated tranches, CLOZ an even mix of BBB and BB. Both funds are broadly similar, with strong yields and performance track-records, and low volatility. There are some important differences between these, however.

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CLO ETFs offer investors strong yields with little credit or interest rate risk. These are variable rate ETFs, and should see declining dividends as the Fed cuts rates. I still think they are buys, for three key reasons.

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Janus B-BBB Clo ETF JBBB is probably on the radar for investors seeking momentum. The fund just hit a 52-week high and moved up 8.78% from its 52-week low price of $44.97/share.

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Investment-grade bonds offer investors strong yields with low credit risk. A couple of ETFs offer exposure to these securities with some added benefits, including potential tax advantages and above-average yields. JBBB, CARY, and BOXX look like particularly strong ETFs in this space. A quick overview of these follows.

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The Janus Henderson B-BBB CLO ETF offers exposure to U.S. collateralized loan obligations within the category of securitized fixed income securities. The fund has a distribution yield of 8.1% and has outperformed traditional bond ETFs with a return of 13% over the past year. We advise caution at the current level considering historically tight credit spreads, and the potential for declining interest rates making fixed-rate debt more attractive.

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Collateralized loan obligations, or CLOs, are complex financial instruments consisting of a pool of loans, offering a way to invest in corporate debt with a mechanism to mitigate interest rate risk. The Janus Henderson B-BBB CLO ETF provides access to floating-rate CLOs and is a unique investment opportunity for individuals and institutions. The JBBB fund offers diversification potential and floating rate exposure, but investors should be aware of the higher credit risk associated with B to BBB-rated CLOs.

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The consensus is turning against floating-rate securities but a move away from them is much too soon in our view. Recent data, such as strong payrolls and increased average hourly earnings, suggests that the Fed may take time to kickstart the rate cutting cycle. Also, markets have already priced in substantial rate cuts, leading to a significant drop in long-term rates, creating a potential risk for a back-up in longer-term rates.

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Sustained core inflation suggests an interest rate pivot isn't a given. However, we think the probability of a mid-to-late 2024 pivot remains high.

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ETFs offer investors diversified exposure to different asset classes, including U.S. and international equities, fixed-rate and variable rate bonds. Within each market sub-segment some ETFs offer particularly compelling yields. A short, curated overview of some of these ETFs follows. Yields range from 5% - 10%.

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On Seeking Alpha, I focus on dividend ETFs targeted towards income investors and retirees. Dividend ETFs focusing on bonds and fixed-income securities have seen significant dividend growth these past two years. Some offer incredibly compelling yields. Of these, five funds stand out. A quick look at these follows.

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JBBB invests in CLO tranches of senior secured loans, focusing on BBB tranches. The fund yields 7.9% with below-average credit risk, a strong value proposition and risk-return profile. The fund has benefited from rising rates over the last few years, and rate cuts could impact the fund going forward.

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Janus Henderson Investors has launched an active ETFs that covers almost the entire U.S. investable securitized market. The Janus Henderson Securitized Income ETF (NYSE Arca: JSI) seeks high income by investing across the U.S. securitized market.

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The Janus Henderson CLO ETFs offer investors opportunities to invest in higher spread, lower risk loans. Rising default rates are affecting credit differently across the board, and CLOs show strength that other fixed income products have not. The comparison to investment grade corporate bonds shows CLOs as clear winners, with quality credit shining above lower quality.

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Floating rate securities have strong yields, low duration, and have significantly outperformed YTD. There are several strong floating rate funds available to investors. Credit risk varies, but there are options with minimal risk and high yields in the floating rate space.

The Best Floating Rate Funds For Income Investors And Retirees

The Janus Henderson BBB CLO ETF provides exposure to floating-rate CLO tranches rated from B to BBB. CLOs have historically had better credit performance than similarly rated corporate bonds, but with rising interest rates and increasing corporate bankruptcies, their credit performance may be at risk. The JBBB ETF can be thought of as a leveraged play on senior bank loans - BKLN. Depending on your forward views on credit, JBBB can be attractive or unattractive.

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Federal Reserve hikes have led to strong dividend growth in most variable rate securities and funds. Two of these are senior loans and CLO debt tranches. A look at the similarities, and differences, between these two asset classes follows.

News for Janus Detroit Street Trust-Janus Henderson B-BBB CLO ETF ETF (JBBB)