Janus Henderson B-BBB CLO ETF: A Diversification and Yield Strategy

The Janus Henderson B-BBB CLO ETF is a diversified investment option that can help pick up yield. The ETF is backed by the Janus Henderson B-BBB CLO fund, which invests in senior secured bank loan debt with investment-grade credit quality. The fund's diversified portfolio and potential for higher yields make it a great option for investors looking to diversify their portfolio.

The Janus Henderson B-BBB CLO ETF (JBBB) offers investors a compelling opportunity to diversify their portfolios and pick up yield. Backed by the Janus Henderson B-BBB CLO fund, this ETF invests in senior secured bank loan debt with investment-grade credit quality, providing a high yield with low correlation to traditional asset classes.

Investment Thesis

The Janus Henderson B-BBB CLO ETF presents an attractive investment thesis. It offers an 8.04% annualized yield, with low correlation to traditional asset classes such as government bonds (0.25), VBMFX (0.31), and SPY (0.45) from February 2022 to June 2025 [1]. This low correlation makes JBBB an excellent diversifier within a portfolio. Additionally, the fund’s credit enhancements, including overcollateralization and subordination, provide risk protection absent in equivalently rated high-yield bonds.

Market Growth and Performance

CLOs have seen significant growth in recent years, with CLO ETFs expanding by 2.3x since Q1 2024, outpacing crypto ETFs at 1.9x [1]. The Janus Henderson B-BBB CLO ETF has grown in a similar pattern, providing investors with a stable and diversified investment option. Since its inception on January 12, 2022, JBBB has delivered a total return of 23.77%, outperforming both SRLN and BKLN [1].

Diversification and Risk Management

One of the key strengths of JBBB is its diversification benefits. It offers high yield with low correlation to traditional asset classes, making it an attractive option for retirees seeking income. The fund’s credit enhancements, such as overcollateralization and subordination, offer risk protection, which is a significant advantage over high-yield bonds [1].

Potential Risks

While JBBB offers attractive yields, it is not without risks. The fund’s limited liquidity is a concern, with lower-rated CLO tranches facing higher credit risk and lower market demand. This results in reduced trading volumes and wider bid-ask spreads, which can impact the fund during market stress [1]. Additionally, the floating-rate nature of underlying loans could reduce yields if interest rates decline. Yield compression is also a concern as the CLO market grows, potentially tightening spreads on new-issue CLOs compared to secondary ones [1].

Conclusion

The Janus Henderson B-BBB CLO ETF presents a compelling opportunity for investors seeking to diversify their portfolios and pick up yield. With its high annualized yield, low correlation to traditional asset classes, and robust credit enhancements, JBBB offers a balanced risk/return profile. However, investors should be aware of the fund’s liquidity risks and floating-rate sensitivity. A buy-and-hold strategy is advisable to minimize liquidity costs and navigate market fluctuations.

References

[1] https://seekingalpha.com/article/4805282-jbbb-etf-great-way-further-diversify-portfolio-pick-up-yield