The Janus Henderson B-BBB CLO ETF (BATS:BATS:JBBB)

The Janus Henderson B-BBB CLO ETF (BATS:BATS:JBBB) invests in CLO tranches of senior secured loans, with a current focus on BBB tranches. This means that the fund invests in bundles of bank loans to companies with below-average credit risk, providing investors with a yield comparable to a high-yield corporate bond while maintaining the credit risk of an investment-grade bond.

Overview

Senior secured loans are variable rate loans from banks to riskier companies, which are secured by company assets. These loans are bundled together in CLOs, with each CLO divided into tranches. JBBB focuses on BBB-rated CLO tranches, providing a significant benefit for the fund and its shareholders.

Dividend Analysis

JBBB currently yields 8.1%, with a strong yield on an absolute basis and higher than that of most bonds and bond sub-asset classes. The fund’s underlying holdings are variable rate products, so dividend growth is expected when the Federal Reserve hikes rates.

Credit Risk Analysis

JBBB focuses on BBB-rated CLO tranches, which have extremely low credit risk with annual default rates effectively equivalent to zero. The fund yields around the same as B-rated bonds but with the credit risk of bonds rated AAA-AA, resulting in a significant advantage for the fund and its shareholders.

Interest Rate Risk Analysis

CLO debt tranches and JBBB itself have negligible interest rate risk and duration, resulting in rapid dividend growth when the Fed hikes rates. The fund should see swift dividend cuts if the Federal Reserve were to cut rates, but dividends would remain attractive enough even after rates are cut.

Volatility

Despite the low credit and interest rate risk, JBBB experiences higher-than-expected volatility due to liquidity issues and perceptions of risk with CLO debt tranches. Share prices fluctuate month to month, but the fund’s fundamentals point towards continued strength.