Janus Henderson is extending its offering of securitized income ETFs by launching a broader based fund. Its JSI ETF builds on the success of its JAAA, AAA-rated CLO ETF, launched in October 2020—which now has $4.85 billion under management—and its JMBS MBS ETF, launched in September 2018, which has AUM of $2.1 billion.
"JSI was launched as a comprehensive fund for a lot of people who see securitized assets as one asset class, and want a general allocation to the asset class rather than allocation to individual components of it," said John Kerschner, head of U.S. securitized products at Janus Henderson.
Janus is promoting the JSI ETF to bond investors as a means of improving the credit quality of their portfolio, increasing yield and reducing risk. Investment-grade assets represent about 70% of holdings; it has a yield of 8.0% to 8.5%, and a duration of two to three years. These characteristics make the JSI ETF attractive to investors who don't want to take much duration risk, Kerschner said.
The wider yield spread of securitized assets compared with corporate assets provides investors with the opportunity to outperform versus corporates, Janus Henderson said in a report, although it expects the spread difference to narrow over time.
JSI is suitable for all types of Janus Henderson clients, approximately one third of whom are institutional, Kerschner said.
"We've seen significant client uptake in our active fixed-income ETF suite and expect strong interest in JSI from both retail and institutional investors," he said.
ETFs offer institutional investors a lower cost path to investing in asset-backed securities, compared with managing their own investments or using a fund manger to create a custom portfolio, Kerschner said. JSI has an expense ratio of 50 basis points, which will be reduced on a fixed schedule as the fund grows.
Janus Henderson expects JSI to scale up in a similar way to its earlier securitized income ETFs, giving it liquidity and making it suitable for institutional investors. "These investors will be attracted to JSI as a 'pure play' vehicle in the securitized investment grade space, which currently doesn't exist at a scalable size," Kerschner said. "The product is also suitable for retail investors who need income and yield."
While institutional investors comprise a significant portion of Janus Henderson's clients, retail investors account for two thirds of its constituency, and market participants see clear opportunities for that segment, according to Andrew Besheer, Datos Insights' practice director for wealth management. The JSI ETF gives retail investors opportunities to invest in assets normally only available to institutional investors and high net worth investors.
"We're seeing larger and larger allocations to alternative asset classes such as private debt, private equity and private credit, across investor portfolios," Besheer said, adding that whenever Datos Insights surveys financial institutions in the U.S. or Canada about [retail] investor uptake of alternatives, they uniformly expect investor allocations to alternatives to increase in the next three years.
Indeed, two thirds of 60 U.S. wealth management firms participating in a third quarter Datos Insights survey showed that they expect investors to have 6.0%-25% of their allocations in alternatives and only a third see 5% or less in three years' time, Besheer said.
"Retail investors don't have the investable assets to acquire an appropriate alternative investment portfolio on their own," said Besheer. "So, getting access to alternatives in a mutual fund or ETF is an excellent way to get that exposure to alternatives."
Besheer says he believes the JSI ETF is filling a niche that will likely generate opportunities for Janus Henderson's own business, and the broader securitized income ETF market.
"I don't think this one is going away," he said. "If people see that JSI is successful for Janus Henderson, then other fund managers will come up with similar offerings."
