AI Summary
5 min readThe Case for Securitized Bonds: Inside the $27 Billion CLO ETF
When Michael Bannett asked Michael Offlin, executive director at Janus Henderson Investors, why his firm's Triple A CLO ETF (JAAA) has grown from zero to $27 billion since launching in 2020, the answer came down to three numbers: a roughly 5% yield, volatility around 1%, and zero defaults in the history of the asset class. "2008, 2020, 2022, period full stop," Offlin said. "There's never been a default in a triple A CLO."
That combination of attributes arrived just as the Federal Reserve launched the fastest rate hiking cycle in a generation, making floating-rate debt suddenly attractive to investors who had spent decades ignoring it. But the product's success also reflects a deeper shift: after the 2022 bond rout, many fixed-income investors realized they needed to understand parts of the market they had previously ignored.
What a CLO Actually Is
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What you'll learn
- 1 (00:50) **Why This Fixed Income Product Exploded** - Ben and Michael introduce the episode by framing the past decade as the weirdest ever for fixed income, which created a "light bulb moment" for investors needing to expand horizons.
- 2 (05:00) **The Asset Class History and the "Lack of Understanding Premium"** - A discussion on why this asset class offers a spread over corporate bonds despite its pristine track record.
- 3 (08:25) **What Is a CLO? The Nuts and Bolts Explained** - Michael Offlin breaks down the structure of a CLO in plain English, starting from the underlying collateral.
- 4 (10:15) **How the Waterfall Provides Protection** - A detailed explanation of how the structure creates AAA-rated bonds from below-investment-grade loans.
- 5 (13:08) **The Sweet Spot: When Does This Strategy Work Best?** - An analysis of the three reasons to own fixed income and how JAAA fits each scenario.
- 6 (14:33) **How the ETF Works with Daily Flows** - The mechanics of managing a massive ETF in a less-liquid institutional market.
- 7 (15:14) **Variation in CLOs and Active Management** - Why not all AAA CLOs are created equal and how Janus Henderson adds value.
+ Full timestamped outline available in the app
Show Notes
On this episode of Animal Spirits: Talk Your Book, Michael Batnick and Ben Carlson are joined by Mike Laughlin from Janus Henderson Investors to discuss: how securitization works, investing in CLOs, the size of the securitized market, how fixed income investing has changed and much more.
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Ben Carlson’s A Wealth of Common Sense
Michael Batnick’s The Irrelevant Investor
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Investing involves the risk of loss. This podcast is for informational purposes only and should not be or regarded as personalized investment advice or relied upon for investment decisions. Michael Batnick and Ben Carlson are employees of Ritholtz Wealth Management and may maintain positions in the securities discussed in this video. All opinions expressed by them are solely their own opinion and do not reflect the opinion of Ritholtz Wealth Management. See our disclosures here:
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