Every week, we’ll profile a high yield investment fund that typically offers an annualized distribution of 6-10% or more. With the S&P 500 yielding less than 2%, many investors find it difficult to achieve the portfolio income necessary to meet their needs and goals. This report is designed to help address those concerns.
Investors have grown comfortable with capturing 5% yields on risk-free Treasury bills and that’s finally given them some real choices in the fixed income space. There’s no longer the need to take on a lot of duration or credit risk just get a halfway decent yield. Income seekers can now find it on the shortest and safest place on the curve!
That doesn’t mean there aren’t still opportunities to improve your risk/return profile in the fixed income market. In fact, you can actually maintain a top-tier credit profile, take duration risk down to virtually nothing and boost your yield by more than 100 basis points over what Treasury bills are paying. The fund is the Janus Henderson AAA CLO ETF (JAAA). CLOs, of course, can be risky as many come in the form of bank loans or leveraged loans with below investment-grade credit ratings. Funds that are willing to pull out just the highest rated securities from that pool, however, can produce a portfolio that is highly attractive to income seekers.
Fund Background
JAAA is an ETF investing in high-quality CLOs, which seeks to deliver investors risk-managed access to an asset class that may provide consistent risk-adjusted returns and low correlation to traditional fixed income asset classes while exhibiting low volatility with low downgrade risk.
Just like other types of fixed income, CLOs can be assigned a credit rating anywhere along the spectrum from ultra-high quality to deeply speculative. CLOs may not be the most intuitive asset class to many investors, but that doesn’t mean it can’t be valuable. These have emerged within the ETF space in recent years as a viable high yield alternative without overexposing shareholders to risk. JAAA is the cream of the class with nearly $8 billion, so it’s certainly not flying under the radar. An expense ratio of just 0.21% also helps its investment case. Most are floating rate in nature, so they can also provide interest rate volatility protection in rising rate environments.
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