Fixed income ETFs gathered $51 billion of new money in the first quarter. This represented 26% of the industry’s net inflows. With the asset class comprising 18% of the assets, it is great to see fixed income punching above its ETF weight.
Broad market ETFs like the iShares Core Aggregate Bond ETF (AGG) and the Vanguard Total Bond Market ETF (BND) were the most popular products to start 2024. These low-cost, well-diversified ETFs often serve as building blocks for asset allocation strategies. AGG and BND each have $100 billion in assets, so their place toward the top of the leaderboard is unsurprising.
However, I am encouraged to see more moderately sized ETFs among the top-20 first-quarter fixed income asset gatherers. Two that caught my eye were the Janus Henderson AAA CLO ETF (JAAA) and the Invesco Senior Loan ETF (BKLN).
Loan ETFs Take Seniority
BKLN gathered $1.1 billion in new money in the first three months of 2024 to raise its assets to $7.2 billion. Senior loans are high-yielding, less-rate-sensitive investments.
This Invesco ETF takes an index-based approach to own the largest leveraged loans based on market weightings, spreads, and interest payments. Approximately half of BKLN’s assets are in bonds rated B. Jason Bloom, Invesco’s head of fixed income and alternatives ETF product strategy, will be talking with VettaFi during the Fixed Income Symposium about BKLN on April 18 at 12:50 p.m. ET.
There are also actively managed senior loan ETFs like the PIMCO Senior Loan Active ETF (LONZ). Jason Duko, a co-manager for LONZ, will be joining VettaFi at 1:15 p.m. ET during the Fixed Income Symposium. For this ETF, PIMCO actively takes a top-down approach to identify secular and cyclical trends. Then Duko and the team deploy a bottom-up approach to find undervalued securities.
CLO ETFs Catching On
Meanwhile, JAAA added $2.1 billion to start the year to push its asset base to $7.5 billion. The actively managed ETF invests in high-quality collateralized loan obligations (CLOs). Historically, CLOs have provided strong risk-adjusted returns, and they have a low correlation to traditional fixed income asset classes. They are also floating rate instruments with relatively low duration risk.
The type of collateral inside CLOs and senior loans are similar. However, CLOs have less issuer concentration and there’s an equity cushion protecting the debt holders.
The CLO market was recently a $1.2 trillion market. VettaFi spoke to Danielle Gilbert, managing director of business development at Panagram, at the Exchange conference about how this market is expected to get even larger this year.
Gilbert’s colleague Tim Wickstrom, will also be speaking with VettaFi during the April 18 Fixed Income Symposium at 1:15 p.m. ET. Wickstrom co-manages the Panagram BBB-B CLO ETF (CLOZ) and the Panagram AAA CLO ETF (CLOX) that launched in 2023.
CLOZ has a higher yield than CLOX in exchange for incurring elevated credit risk. Both are well-diversified across industries and companies.
Given the popularity of CLO and senior loan ETFs, I’m excited advisors will hear from Bloom, Duko, and Wickstrom to learn more about the fundamental drivers. Register for the April 18 Fixed Income Symposium to join us.
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