(Bloomberg) -- An exchange traded fund that buys exposure to lower-rated collateralized loan obligations has surpassed $1 billion of assets, another milestone for fast-growing CLO funds in a market once open only to institutional investors.
The ETF by Janus Henderson (ticker JBBB) has grown by around 50% over the last month thanks to an influx of cash into retail funds that buy CLOs. Total flows into CLO ETFs reached $1 billion in April alone, up from nearly none a year ago. The first CLO ETF was launched in late 2020.
Though most of that growth has focused on ETFs that target highly rated CLO debt, JBBB and a handful of other CLO ETFs aim for exposure to lower-rated CLOs. JBBB primarily buys investment-grade CLOs.
Reaching the $1 billion mark helps Janus Henderson further cement its grip on the nascent CLO ETF space, coming not long after the asset manager’s AAA-focused ETF surpassed $10 billion in assets under management. In the market for top-rated CLO ETFs, Janus had a 90% share as of early June.
With $1 billion in assets for JBBB, the ETF now also has 55% of all assets under management in the market for structures rated below AAA.
“CLOs have historically been less correlated with the investment grade and high yield segments of the bond market and offer attractive yield on a relative basis,” said John Kerschner, a portfolio manager and head of US securitized products at Janus Henderson.
Collateralized loan obligations pull in cash flows from leveraged loans, which are similar to junk bonds, and then distribute them to investors in the form of bonds. AAA rated bonds have a first priority on the cash flows, while those with lower ratings get paid afterward and run the risk there isn’t enough money left in case stressed economic conditions impair income.
(Adds context for type of debt purchased by ETF.)
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