Episode summary
Inside JAAA: John Kerschner on CLOs, Yield Strategy & Navigating Interest Rate Volatility
ETF Spotlight
· · Guests: John Kerschner
Summary
JAAA is presented as an ETF designed to give retail investors access to AAA CLOs, a market that has traditionally been difficult to buy individually because minimums can be $250,000. John Kerschner says Janus Henderson launched the fund after seeing a white space in ETF land and strong AAA CLO performance during the COVID dislocation.
Kerschner frames the fund around capital preservation and income. He says JAAA is built for investors who want high-quality floating-rate fixed income, with a yield around 5.5% and year-to-date performance near 3%, while annualized returns over the last three years have been about 7.5%.
He also argues that the fund can be a useful hedge in uncertain rate environments. Kerschner says AAA CLOs have historically beaten cash by 150 to 175 basis points over several years, and that JAAA held up well in 2022 when many fixed income funds were negative. He expects rates may not fall as quickly as many assume, and says the product could do especially well if rates rise again.
Key takeaways
- Kerschner says JAAA was created to give retail investors access to AAA CLOs, which are hard to buy directly because the minimum lot size is $250,000.
- He says JAAA is built around capital preservation and income, with a yield of about 5.5% and a 7.5% annualized return over the last three years.
- Kerschner says AAA CLOs have historically outperformed cash by 150 to 175 basis points over several years, though that spread may narrow as the market grows.
- He argues JAAA can hedge portfolios if rates stay higher or rise again, since the fund should benefit less from rate cuts than duration-heavy fixed income.
- Kerschner says JAAA stayed liquid through stress events and that the bid-ask spread remained tight during a dislocation.
- He expects more products and derivatives to be built around JAAA as the ETF and CLO market expands.
Notable quotes
“AAA CLOs, you can -- the minimum amount you can buy is $250,000”
“capital preservation is paramount to fixed income, right? Because it's very difficult to make up lost ground, particularly if you have defaults in your portfolio, right”
“JAAA, as I said, is one of the really quality instruments for that, because it is vast majority AAA and yet it's still paying out a pretty high yield of about 5.5%”
“traditionally AAA CLOs over time, so not one month or one quarter, but over several years have outperformed cash by about 150 to 175 basis points, so 1.5% to 1.75%”
“JAAA stayed at a penny. It performed as advertised”
How the episode opens
Past performance is no guarantee of future results. Content is offered for information purposes only. Unless stated otherwise, any and all individuals participating in the video are third parties that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.
Unless stated otherwise, the views or opinions expressed may not reflect those of Seeking Alpha as a whole. The accuracy and completeness of content shared cannot be guaranteed. Seeking Alpha does not take account of your objectives or financial situation, and does not offer any personalized investment advice.
Seeking Alpha is not a licensed securities dealer, broker, US investment adviser, or investment bank. Hey, everyone. Daniel Snyder.
Welcome back to another episode of ETF Spotlight here on Seeking Alpha. Today, we are diving into the world of CLOs with the JAAA fund given to you by Janus Henderson. And we are joined by none other than John Kerschner.
He's Portfolio Manager, but also Global Head of Securitized Products over there. We can't thank you enough for the time to dive into this world that not many -- just the everyday - retail investor might know about in the CLO realm. So, really looking forward to our conversation today.
I was hoping, John, can we start things off by just maybe talking about the history of this fund, how it was created and where we are today? Yeah. Thanks, Daniel.
Pleasure to be here. Thanks for having me. So, the history is pretty simple.
It's not our first ETF and definitely not our first fixed income ETF for securitized products, that went to JMBS that we launched in 2018 actually. That came about after I hired Nick Childs, who's my co-PM on both strategies. And we were talking to the head of our ETF group, Nick Cherney.
From the episode’s captions: roughly the first two minutes, lightly cleaned. Keep watching on YouTube →
Topics
- clos
- floating-rate etfs
- yield strategy
- interest rate volatility
- securitized products
Companies and tickers mentioned
- Janus Henderson
Watch the episode
Summary, takeaways and quote selection by Octagon. Quotes are short excerpts; the full conversation is in the episode.
More from ETF Spotlight
-
CGDV Fund: Misleading Name, Exceptional Performance -
Extreme Tech Sentiment: Put Buying Spike Points to XLK Rally -
BIZD vs PBDC ETF: High-Yield Income from Top BDCs -
The Alpha Analyst: STCE ETF: AI-Driven Strategy For Crypto And Fintech Exposure -
Harrison Schwartz: Why PPLT Is My Top Platinum ETF Pick Through 2030 -
Covered Call ETFs vs. Dividend Growth: Gary Gambino Explains DGRO and DIVO
ETF Spotlight, this episode and its artwork belong to Zacks Investment Research. Octagon is not affiliated with the show; this page is an independent summary.
