On November 8, Janus Henderson Investors launched the Janus Henderson Securitized Income ETF on the New York Stock Exchange (NYSE) under the ticker symbol JSI.
Investors looking to diversify their fixed-income portfolio in a new direction have a unique niche exchange-traded fund (ETF) to consider. With interest rates at record highs, now may be an ideal time to tap the lucrative world of corporate debt recycling.
The London-based asset manager claims its latest active ETFs will grant exposure to “the most attractive opportunities” in the U.S. securitized market on a risk-adjusted basis. It is casting its net wide, covering almost the entire U.S. investable securitized market. JSI will invest in ABS, CMBS, CLOs, mortgage credit, agency MBS, and other sectors.
According to a spokesperson, the fund anticipates delivering investors a monthly dividend between 7.5 and 8.5 percent.
“The securitized market is sizable and provides a significant opportunity for investors,” says Janus Henderson’s Head of Innovation Nick Cherney. “JSI is another example of Janus Henderson addressing client needs through our highly differentiated suite of ETFs.”
Securitization 101
Most funds focus on stocks or bonds, making securitized products a somewhat niche play for average retail investors.
“Investors are generally underexposed to securitized credit,” explains fund manager John Kerschner. “JSI offers direct exposure to key areas of the securitized markets that investors otherwise” couldn’t access.”
Before investing, it’s vital to understand the processes behind securitization.
A securitized product is essentially a pool of corporate assets repackaged as interest-generating securities. When a company (or “originator”) wants to remove assets from their balance sheet, it creates what is called a “reference portfolio,” which is then sold to an issuer, who then offers the repackages of the portfolio as a tradable security for investors to buy. It then generates a set rate of return for holders based not only on the principal but on repayments from loans the assets are underwriting.
Recklessly overleveraged securitization played a central role in the subprime mortgage crisis that began to unravel in 2007, triggering a broader financial crisis the following year. Yet regulatory oversight has changed the rules of the game considerably since then. Banks are required to hold larger capital sums relative to their risk-weighted assets on their books. To this day, new rules are being introduced. For instance, JP Morgan Chase is currently accelerating the securitization of billions of dollars worth of its loan portfolio ahead of proposed new U.S. capital requirements that will require banks to hold an extra $2 of capital for every $100 of risk-weighted assets.
Despite regulatory oversight, securitized corporate debt can carry risks, and returns cannot be guaranteed, as with almost every investment. According to the fund’s prospectus, almost a third of the fixed-income holdings have an A.A. credit rating, while about 18 percent of them are unrated.
The fund manager, Janus Henderson, had over $300 billion in assets under management (AUM) as of the end of September. JSI has a net annual expense ratio of 0.5 percent.
This article was produced and syndicated by Wealth of Geeks.