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  • This will be a sibling to Janus Henderson's AAA CLO, JAAA. Both funds are managed by the same pair of managers.

    I'm wondering how a fund like this would compare with bank loan funds. CLOs are generally bundles of senior bank loans, sliced and diced into tranches. As a structured product, CLOs would seem to add another component of risk. OTOH, this ETF includes some investment grade (BBB) holdings, while bank loan funds typically start at BB and work their way down.

    JAAA is a relatively new ETF that I had not run across. A cursory look suggests it might be interesting as well - very short duration because it invests in CLOs which in turn invest in floating rate debt. But it has less credit risk than typical floating rate funds. SEC yield of 0.93%, which looks good (actually, too good) compared with other ultrashort term ETFs like ICSH, JPST, and MINT.
  • What would be the use case for such ETF's? It would seem to me that you are assuming some amount of default risk for very limited upside in a vehicle that would likely move directionally with stocks. I would think something like BSV would be far better even at a much lower yield since it provides at least some downside market protection. That being said, I like JH ETFS and have money in VNLA and JMBS.
  • You're right that JAAA tends to move a bit more in tandem with stocks (R² of about 0.5) than the other ultrashort term bond ETFs I mentioned. Though there's not much default risk in AAA tranches of CLOs (vs CDOs).

    On the upside, there's that higher yield:
    To be sure, AAA-rated CLOs and the new ETFs investing in them offer the much safer corners of the leveraged-loan market, with layers of default protection yet higher yields than investment-grade bonds. As of Sept. 30 [2020], the average yield of AAA-rated CLOs was 1.6%, more than double the 0.78% yield of AAA-rated corporate bonds.
    (This was written just as JAAA launched; since then it has done well in part because of those higher yields and in part, as you said, because it moved up somewhat along with stocks.)

    JBBB is a different story. Lower credit rating => moves more closely with stocks, more risk of default.
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