For this episode of “ETF 360,” VettaFi’s head of research, Todd Rosenbluth, spoke with Nick Cherney, head of exchange traded products at Janus Henderson, and John Kerschner, head of U.S. securitized products at Janus Henderson.
ETF adoption is on the rise and has been over the course of the last few decades, with real headway being made in recent years.
“I think for a lot of particularly newer asset classes, unique exposures, some of the more nontraditional investment management products, ETFs have just become sort of the default vehicle, and so you see people moving to ETFs for a range of reasons,” said Cherney.
Janus Henderson tends to choose ETFs when looking to debut new thematic, innovative ESG, and fixed income strategies for two primary reasons. Due to the accessibility and underlying demand that currently exists for ETFs, as well as the product innovation opportunities within the ETF industry, they have become the preferred vehicle by firms like Janus Henderson for launching certain strategies.
The biggest mistake that Cherney sees investors making this year is letting fear dictate their decisions in an environment where both equities and fixed income are challenged.
“The problem, of course, is that with inflation, it leaves you not many places to hide, and so I think you do see people potentially allocating more to cash, more to short-duration than is really reasonable given the inflationary environment,” Cherney explained.
Kerschner believes that collateralized loan obligations (CLOs) prove promising in the current environment because they are a floating-rate instrument in an environment where most fixed income options are fixed-rate and because most floating-rate securities are high-quality ones.
“Adding floating-rate securities to a portfolio helps keep your portfolio closer to that efficient frontier,” Kerschner said.
CLO trading volumes experienced peaks during the two most challenging market environments in recent years, once in March 2020 and then again in March 2022 during market dislocations.
The Janus Detroit Street Trust Janus Henderson AAA CLO ETF (JAAA) has experienced increased interest in the last year because of its potential to utilize the interest rate increases by the Fed as a tailwind versus the headwind that interest rate hikes typically are for fixed income.
“Before we launched JAAA, there was no liquid product available to investors, or at least small investors, to invest in this space. CLOs trade at a minimum size of $250,000, so if you wanted a diversified portfolio, you really needed to invest millions of dollars in this product [speaking of CLOs]. Now with JAAA, you obviously don’t need to do that,” explained Kerschner.
For more ETF 360 videos, visit our ETF 360 Channel.