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CLO ETFs experienced no “dislocations or surprises” during the April volatility, and the structures behaved “exactly as we had anticipated,” said Ali Dibadj, CEO of Janus Henderson Investors.
As reported by Bloomberg and the Financial Times, CLO ETFs listed in the U.S. swung to wide discounts in early April—on average, more than 1% on April 4—as investors made large withdrawals during the market volatility.
Even the $20 billion Janus Henderson AAA CLO ETF (JAAA), by far the world’s largest CLO ETF, was changing hands more than 1% below its net asset value (NAV).
CLOs, or collateralized loan obligations, are securities providing exposure to an actively managed pool of loans made to companies—typically private equity.
The CLO pool is then sliced into tranches, ranging in seniority from AAA to equity, with each tranche enjoying different claims on the cash flows of the loans as well as protections from credit losses.
JAAA Leads Among CLO ETFs
JAAA launched in October 2020 and has demonstrated very strong asset-gathering ability. Janus Henderson boasts roughly an 80% market share in the category.
Speaking at the group’s first-quarter earnings call, Dibadj said, “Investors in this ETF … tend to be medium- to long-term holders. That said, there are also some shorter-term investors, and that is where you can see the turnover in the market that creates the volatility.”
The outflows highlighted that ETFs with somewhat illiquid underlying securities can detach from NAV in stressed scenarios, with the ETF itself acting as a price-discovery mechanism.
For Dibadj, however, the redemptions from Janus Henderson’s ETFs were soaked up as expected, with “very little impact” on the CLO market or the underlying portfolio.
“We have seen no dislocations or surprises. In fact, we have been quite pleased with how the market reacted—in a very measured and disciplined way—exactly as we had anticipated, even given the scale of our position.”
Janus Henderson debuted a European iteration of JAAA in January, and the fund has gathered $101 million in assets since inception.
This article was originally published at etf.com sister publication ETF Stream.