Janus Henderson Mortgage-Backed Securities ETF's JMBS focus on agency mortgages coupled with an allowance for sizable nonagency allocation makes it a straddler between categories.

One of a handful of actively managed mortgage exchanged-traded offerings in a passive-dominated space, the Janus Henderson Mortgage-Backed Securities ETF enjoys the leeway to carry up to 20% in exposure to non-US-government securities, and 10% is the upper limit for inclusion in the intermediate government Morningstar Category. The fund has been exceeding that level of late, though, and given its flexibility to do so, will be moving to the intermediate-term core bond category.

While that exposure can be anything from asset-backed securities to high-yield corporates, the majority of the portfolio consists of agency mortgages, and the managers look to the Bloomberg U.S. Mortgage-Backed Securities Index as their benchmark. The team focuses its efforts on prepayment analysis, using loan-level data, quantitative modeling, and analyst research in an attempt to identify areas of greatest dislocation from the market and associated value opportunities while keeping the fund's sensitivity to interest rates close to the benchmark's. At the same time, the managers' willingness to use leverage to increase the portfolio's net asset exposure leads to a risk profile that isn't plain-vanilla.

The managers steering this strategy, Nick Childs and John Kerschner, bring deep securitized expertise, specifically in mortgage investing. Childs came to the firm in 2017 with a background in managing mortgage assets and became a manager here in 2018. Kerschner, an industry veteran with over three decades of experience, joined in 2010 to head up the firm's US securitized effort and has built out his Denver-based team from the ground up, from the original team of one (himself) to a crew consisting of four research analysts, two quantitative analysts, and a trader.

Launched in September 2018, this strategy just recently reached its five-year anniversary, and its track record is strong against the intermediate government category. Over the trailing five years through February 2024, the exchange-traded fund's 0.25% annualized return beat over 85% of its distinct peers. That outperformance was accompanied by category-topping volatility, however, over the same period, making this strategy less appealing for investors wanting a more stable investment experience.

Compared against the intermediate core bond category, though, its performance record is more middling. Over the same trailing five-year period through February 2024, the fund landed in the middle of that category's rankings. Its 0.25% annualized return trailed the median's 0.27%, but that performance came with less volatility given the fund's emphasis on agency mortgages in the context of a peer group that tends to draw from more return sources.

Analyst Rating

A government fund with eclectic flourishes.

Analyst

Chiayi Tsui

For a strategy that competes in a predominantly passive ETF space, this offering's active management presents some advantages, but a generous dose of leverage amplifies risks, supporting an Average Process Pillar.

The fund's goal is to beat its benchmark by 50 basis points annualized after fees and is driven by the team's prepayment modeling and analysis. The team layers assumptions on top of third-party models, slicing and dicing the underlying mortgage pools to identify loans and borrowers that exhibit the desired characteristics. The team also uses monthly prepayment forecasts to calibrate the portfolio to the current environment to see where there is value.

A duration-neutral approach helps the fund maintain a tight correlation to the Bloomberg US MBS Index and keeps its interest-rate sensitivity close to the benchmark's. Instead, its managers look to capitalize on their flexibility to take risks elsewhere, whether the ability to use leverage via the use of TBAs, or the flexibility to invest up to 20% in nonagency securities. While there is virtue in the process, leverage in particular introduces more risk than that taken by most competitors.

Average

Process

The management duo and its crew have come a long way. The supporting group, while small, has gradually evolved. The strategy earns an Average People Pillar rating.

Nick Childs and John Kerschner are the key portfolio managers here and have been with this strategy since its 2018 inception. Childs joined Janus Henderson as an analyst in 2017 from hedge fund Proprietary Capital, where he managed MBS-focused strategies. Before that, he worked with securitized products at Barclays Capital. Kerschner, an industry veteran with 30-plus years of experience, joined Janus Henderson in 2010 to build out the firm's securitized efforts. As head of US securitized products, Kerschner has handpicked every member of his small but tight group and has gradually and thoughtfully added to it over the past decade.

While the managers have access to London-based securitized analysts and portfolio managers thanks to the 2017 Janus/Henderson merger, the impact of the London-based team is limited given this strategy's focus on US debt. The team most relevant to this strategy is based in Denver and consists of two managers (Childs and Kerschner), four securitized analysts, two quantitative analysts, and one trader.

As of the most recent regulatory filing, Childs had at least $500,000 in the fund and Kerschner at least $100,000.

People

Under new leadership, Janus Henderson Investors is in the early paces of a fortified vision. It maintains an Average Parent rating.

Ali Dibadj took the CEO reins in June 2022 when the public company's board made a leadership change after the firm, formed by the 2017 merger of Janus Capital and Henderson Group, stagnated. Dibadj, who has a background in investment management (most recently as AllianceBernstein's strategy head and CFO), has energetically engaged the organization to develop his strategic road map: protect and grow the core business; amplify existing capabilities; and diversify into new areas, which could include acquisitions. While these ideas aren't unique in today's asset-management industry or brand new to Janus Henderson—its former CEO espoused similar ones—Dibadj added his stamp by refreshing the firm's executive committee and investment team leadership. This has also included the basic but necessary addition of scorecards to measure progress on strategic initiatives that include new vehicles like exchange-traded funds and separate accounts, among other things.

Time will tell if Dibadj and team can deliver. The firm's equity analysts continue to turn over, but portfolio managers have executed their strategies consistently, and some key figures returned. In 2023's first quarter, the firm saw net inflows for the first time since the merger—a sign of a nascent turnaround.

Parent

Janus Henderson Mortgage-Backed Securities ETF

JMBS is an actively managed fund of mortgage-backed securities. The fund seeks a high level of total return.

SPDR Bloomberg 1-3 Month T-Bill ETF

iShares Russell 2000 ETF

iShares iBoxx $ Investment Grade Corporate Bond ETF

iShares MSCI USA Quality Factor ETF

SPDR S&P 500 ETF Trust

iShares 20+ Year Treasury Bond ETF

iShares Edge MSCI Min Vol USA ETF

During Lipper's fund flows week that ended November 29, 2023, investors were overall net purchasers of fund assets for the sixth week in a row, adding a net $63.6 billion. Exchange-traded equity funds recorded $2.5 billion in weekly net inflows, the ninth straight week when ETFs attracted new capital. Exchange-traded taxable fixed income funds observed a $610 million weekly inflow - the macro group's eighth straight weekly inflow.

U.S. Weekly FundFlows Insight Report: Multi-Cap Equity Funds Suffer Largest Weekly Outflow Since 2018

JPMorgan BetaBuilders Japan ETF

JPMorgan Equity Premium Income ETF

iShares MBS ETF

Invesco S&P 500 Low Volatility ETF

Meet a Strategist is a feature where Evan Harp talks to different strategists about how their firms are responding to the current moment. This week, he sat down with Rob Williams, chief investment strategist of Sage Advisory.

Meet a Strategist: Rob Williams of Sage Advisory

Janus Henderson AAA CLO ETF

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

Janus Henderson Short Duration Income ETF

Janus Henderson Securitized Income ETF

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.

Janus Henderson Launches Active Securitized Income ETF

U.S. homes may be wildly unaffordable for first-time buyers, but mortgage bonds backed by those same properties could be dirt cheap.

Homes are expensive right now, but these mortgage bonds look cheap

Avantis International Small Cap Value ETF

Avantis Emerging Markets Equity ETF

Avantis US Equity ETF

Avantis U.S. Small Cap Value ETF

Vanguard Total Bond Market ETF

Capital Group Dividend Value ETF

Capital Group Growth ETF

Dimensional US Core Equity 2 ETF

Dimensional International Core Equity Market ETF

Dimensional Core Fixed Income ETF

Dimensional Emerging Markets Core Equity 2 ETF

Dimensional Emerging Markets Value ETF

Dimensional International Core Equity 2 ETF

Dimensional International Value ETF

Dimensional US Equity ETF

Dimensional US High Profitability ETF

iShares MSCI Emerging Markets ETF

Fidelity Total Bond ETF

First Trust TCW Opportunistic Fixed Income ETF

JPMorgan Nasdaq Equity Premium Income ETF

Putnam ESG Core Bond ETF

PGIM Ultra Short Bond ETF

And, plenty of ink has been spilled about how much money has gone into active ETFs in 2023, and from a pure top-line flows perspective, it's true. A significant chunk of the $289 billion that has entered U.S.-listed ETFs year to date went into active products — 22%, in fact.

2023's Overactive Active ETF Flows Are Mostly a Mirage

JMBS is an actively managed ETF focused on producing alpha on mortgage-backed securities. The ETF managers employ leverage to give an extra push to long allocations focused on agency MBS. There is downside risk in the event of a recession, but JMBS may provide some protection due to its longer duration and historical outperformance during credit crunches.

JMBS: When Employment Falls, Mortgages Fall Into Focus

JPMorgan BetaBuilders MSCI US REIT ETF

Invesco S&P 500 Equal Weight Real Estate ETF

Fidelity MSCI Real Estate ETF

First Trust S&P REIT Index Fund

Hoya Capital Housing ETF

iShares Cohen & Steers REIT ETF

Pacer Benchmark Industrial Real Estate SCTR ETF

iShares U.S. Home Construction ETF

Invesco Real Assets ESG ETF

iShares U.S. Real Estate ETF

Janus Henderson U.S. Real Estate ETF

Invesco KBW Premium Yield Equity REIT ETF

First Trust Low Duration Opportunities ETF

VanEck Mortgage REIT Income ETF

Direxion Daily Homebuilders & Supplies Bull 3X Shares

NETLease Corporate Real Estate ETF

Nuveen Short-Term REIT ETF

Invesco Dynamic Building & Construction ETF

US Diversified Real Estate ETF

Invesco Active US Real Estate

iShares Global REIT ETF

ALPS Active REIT ETF

iShares Mortgage Real Estate ETF

iShares Residential Real Estate ETF

IQ US Real Estate Small Cap ETF

SPDR Dow Jones REIT ETF

Schwab U.S. REIT ETF

SPDR Portfolio Mortgage Backed Bond ETF

Global X SuperDividend REIT ETF

Pacer Funds Trust-Pacer Benchmark Data & Infrastructure Real Estate Sector ETF

iShares Core U.S. REIT ETF

Vanguard Mortgage-Backed Securities ETF

Vanguard Real Estate ETF

SPDR S&P Homebuilders ETF

Real Estate Select Sector SPDR Fund

Mortgage rates have not been this high since before the housing crisis. And while the housing market is slowing, prices are still high.

High Mortgage Rates And High Inflation

JHMM is the second actively managed mortgage-backed security ETF.

John Hancock Launches Active MBS ETF

iShares Core U.S. Aggregate Bond ETF

The market offers ample challenge and opportunity, especially across the passive/active divide.

What To Do About Bond ETFs Now

News for Janus Henderson Mortgage-Backed Securities ETF ETF (JMBS)