Janus Henderson Starts ETF Giving Global Access to US CLOs
(Bloomberg) -- The firm behind the largest ETF in the US's $816 billion market for collateralized loan obligations is launching a European-regulated fund, aimed at giving global investors tax-efficient access to the US securities.
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Janus Henderson Group Plc is following in the footsteps of Invesco Ltd., which launched a similar dollar-denominated vehicle in February, alongside a product priced in euros. Interest in CLO ETFs, an asset class that's only been around since 2018, is picking up, with the number of funds doubling since August to a total of 24, according to data compiled by Bloomberg.
Funds governed by the European Union's regulatory framework, known as UCITS, recently gained the ability to invest in these pools of leveraged loans sliced and diced into bonds of various risk and reward. Crucially, they also offer non-US investors a route into the US asset class without hitting them with a punitive withholding tax — typically amounting to 30%.
The new fund will invest in US CLOs that are compliant with European regulation — currently around 20% market. That's roughly equivalent to the $233 billion size of the European CLO market, according to data compiled by Bloomberg.
'There is appetite for a UCITS ETF investing in US CLOs and we think this new fund can reach up to a few billions' in assets under management, said John Kerschner, head of US securitized products at Janus Henderson.
The safest, or triple A, tranches of CLOs appeal to a large number of investors due to their floating rate nature that frequently offers a pick-up in yield relative to other fixed-income assets, particularly during periods of elevated interest rates.
'People are looking at an alternative to two-year sovereign debt at 2%,' Roger Coyle, partner at Fair Oaks Capital, said.
Exchange-traded funds that invest in US CLOs have attracted just under $8 billion in capital so far this year. Nevertheless they have suffered — along with other US asset classes — in recent days as investors grow increasingly worried about the outlook for the economy.
Janus Henderson's $21 billion CLO ETF, the industry's top fund with 70% market share in the US in terms of assets, saw its largest daily outflow on record — of $450 million — last week. On Monday PGIM AAA CLO ETF, the second biggest, recorded $205 million of outflows, its biggest to date.
Laila Kollmorgen, portfolio manager, CLO tranche at PineBridge Investments, notes that UCITS-compliant US CLO ETFs in Europe differ significantly from their US equivalents. Notably, they're only available to advanced retail investors. Still, managers of the investment vehicles are confident there's appetite from global institutional investors.
'The US and European products are not directly comparable,' Kollmorgen said. 'In Europe these are not true ETFs, because of their limited distribution to only institutional investors and limitation to most senior tranches.'
Fair Oaks Capital introduced the first European CLO ETF in Europe in September, while Janus Henderson followed in December. This year, Invesco brought two of the vehicles to market, one focusing on euro-denominated securities and the other on dollar tranches. Palmer Square Capital Management plans three more of the funds.
To broaden the appeal of its European vehicles, Janus Henderson and Fair Oaks Capital have recently added share classes in other currencies, including sterling and dollar.
(Updates with new chart and size of UCTIS-compliant US CLO market in fourth paragraph)
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