🔓Unlocking Wall Street's Best-Kept Secret: The JAAA CLO Strategy

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Welcome back to ETF UNO, fellow investors! Today, we are exploring one of the most intriguing and rapidly growing areas of the ETF universe: the Janus Henderson AAA CLO ETF $JAAA ( 0.0% ) . For investors looking to diversify their fixed-income exposure while capturing attractive yields in today's complex interest rate environment, JAAA has become increasingly hard to overlook.

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What is JAAA?

The Janus Henderson AAA CLO ETF burst onto the scene in October 2020, and its growth story has been nothing short of remarkable. JAAA has surpassed $20 billion in assets under management (AUM) and is the largest CLO ETF, as measured by AUM and ranked first in year-to-date net flows for all active ETFs. To put this into perspective, the Fund's AUM experienced significant growth, starting in 2024 at $5.3 billion and soaring to $16.6 billion by year-end, representing a growth rate of over 200%.

So, what is JAAA investing in? The fund aims to provide floating-rate exposure to high-quality, AAA-rated collateralised loan obligations (CLOs). It's akin to gaining access to an exclusive club that was once only available to institutional investors, now packaged in the convenient and liquid form of an ETF.

A collateralised loan obligation (CLO) is a single security backed by a pool of debt. CLOs combine multiple loans but do not transmit the loan payments equally to the CLO owners. Instead, the owners are divided into different classes, called "tranches", with each class entitled to more of the interest payments than the next, but with them being ahead in line to absorb any losses among the loan group.

The beauty of JAAA's focus on AAA-rated CLO tranches lies in its impressive track record. No AAA-rated CLO has ever defaulted. CLOs experienced significantly lower default rates than corporate bonds.

What makes CLOs particularly attractive in today's environment is their floating-rate nature. CLOs are floating-rate securities, meaning their coupon payments adjust periodically in response to changes in short-term interest rates. If interest rates rise, the coupon payments on CLOs could be reset to higher rates, benefiting investors by providing greater income in a rising-rate environment.

Investors can trust Janus Henderson with their CLO exposure due to its strong credentials. With 45 years in fixed income investing and over 100 professionals averaging 21 years of experience, the firm is dedicated to helping clients achieve their financial goals. Furthermore, Janus Henderson leads in active fixed income ETF innovation, positioning itself well to navigate the complexities of the CLO market.

Investment Strategy📊

For ETF investors, JAAA can serve multiple roles within a diversified portfolio:

• 🗻Core Fixed Income Allocation: JAAA can complement traditional bond holdings by providing exposure to a different segment of the credit markets. Its floating-rate nature makes it particularly attractive when interest rate volatility is a concern.

• 💵Tactical Income Play: With AAA CLOs yielding around 6.0% as of May 2025, JAAA offers attractive income potential with superior credit quality.

• 🌐Diversification Tool: CLOs have historically shown a low correlation to traditional fixed-income asset classes, making JAAA an excellent portfolio diversifier.

• 🏋🏿Barbell Strategy: Investors can use JAAA as the "safe" end of a fixed-income barbell, pairing it with higher-risk, higher-reward credit exposures.

JAAA at a glance

ETF Issuer: Janus Henderson

Inception: 2020-10-16

Asset Class: Fixed-Income

Underlying Index: JAAA is an active ETF

Geographical Focus: Global

Expense Ratio: 0.20% (as of last data point)

Dividend Yield: 6.03% (as of last data point)

Distribution Frequency: Monthly

Historical Performance

JAAA's performance track record, while relatively short given its 2020 inception, has been impressive. Recent performance data show JAAA with returns of 8.58% over one year and 7.42% annualised returns, demonstrating its ability to generate attractive, risk-adjusted returns.

Since the strategy's inception in October 2020, the ETF has grown to exceed USD 20 billion, making it one of the largest actively managed strategies in the ultrashort bond Morningstar Category. This growth isn't just about marketing—it reflects genuine investor appetite for the strategy's risk-return profile.

ETF Radar View

The radar chart below shows the general characteristics of the ETF:

Top 3 Reasons to Invest

1. Exceptional Credit Quality with Attractive Yields: JAAA offers a rare combination - AAA credit quality with yields that exceed those of many lower-rated alternatives. This "free lunch" scenario exists because of the complexity and limited accessibility of the CLO market, which JAAA democratizes for retail investors.

2. Professional Active Management: Unlike passive bond ETFs that mechanically track indices, JAAA benefits from active management by specialists who understand the nuances of individual CLO structures and can make tactical allocation decisions based on market conditions.

3. Diversification Benefits: CLOs offer exposure to a different segment of the credit markets than traditional corporate bonds or government securities. This diversification can help reduce overall portfolio volatility while maintaining attractive income generation.

Top 3 Reasons Not to Invest

1. Complexity and Transparency Concerns: CLOs are inherently complex securities, and even with AAA ratings, understanding the underlying collateral and structure requires specialised expertise.

2. Interest Rate Sensitivity While floating-rate features provide some protection, CLO spreads can still widen during periods of market stress, potentially leading to principal losses even if the underlying credit quality remains sound.

3. Liquidity Considerations Although JAAA itself is liquid as an ETF, the underlying CLO market can experience liquidity constraints during stressed market conditions. This could impact the fund's ability to meet redemptions without impacting pricing.

🌊The Janus Henderson AAA CLO ETF Revolution

The Janus Henderson AAA CLO ETF represents an innovative solution for investors seeking high-quality, floating-rate fixed-income exposure. Its impressive growth trajectory and strong performance track record reflect genuine market demand for access to this previously institutional-only asset class.

For investors comfortable with moderate complexity who seek higher risk-adjusted returns, JAAA offers a compelling opportunity. Its AAA credit quality, floating-rate protection, and diversification benefits are especially appealing in today’s fixed-income environment. However, thorough due diligence is essential, as it should be part of a diversified portfolio rather than a standalone investment.

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DISCLAIMER: This article is for informational purposes only and should not be considered as investment advice. Always conduct your own research and consult with a financial advisor before making investment decisions.