After cementing its position as the dominant player in the US for a niche but highly lucrative investment vehicle, Janus Henderson is looking to try its luck in Europe.
The asset manager just launched its first ETF tracking European collaterized loan obligations, the second vehicle of its kind to be listed on the continent. The fund’s managers are hoping to replicate the success of the their US-focused ETF, which has amassed $17.2 billion in assets under management in less than five years.
The launch will give European investors access to a market that boomed last year as CLO issuance skyrocketed and high interest rates boosted returns. Last year the US saw the launch of eight new ETFs tracking these securities that repackage leveraged loans into bonds, pushing up the total size of this asset class to $23 billion.
“It’s a gold rush,” said Kenneth Lamont, a senior manager and strategist at investment research firm Morningstar Inc. “Asset managers are aware of the good opportunity and are jumping in.”
Europe’s CLO market is about a quarter of the size of its US counterpart, but has experienced strong growth in recent years, with the total amount of paper available jumping fourfold to more than €200 billion ($206 billion) since 2018. Triple-A rated CLOs returned 5.6% in 2024, compared with 4.7% for European investment-grade corporate bonds, according to a recent Citi Research report.
The Transatlantic shift was delayed by regulators, who only gave the green light for CLO ETFs to be registered on the continent last year. UK-based Fair Oaks Capital Ltd. launched a Europe-focused fund in September that has yet to see much asset growth.
In a key divergence from the US market, the European watchdogs stipulated that the funds can’t be marketed at retail investors, who have been an important driver of growth in the US. Janus is also launching its fund just as interest rates are starting to come down, though Colin Fleury, one of the fund’s managers says he doesn’t see this curbing demand.
Senior CLO floating-rate tranches can still be a “sensible risk-aware way to maintain an attractive yield,” Fleury said.
Liquidity Concerns
Morningstar’s Lamont says there are some question marks around whether CLO ETFs will catch on in Europe and what effect they’ll have on market dynamics.
While ETFs allow investors to pour money in and withdraw quickly, CLOs are sold in auction processes called bid-wanted-in-competition, which normally take a couple of days to clear. Liquidity is mainly provided by asset managers buying the paper, instead of trading desks and exchange platforms.
Lamont says fund managers can get around this by holding a buffer of cash or extremely sellable assets. Denis Struc, one of the managers of the new Janus Henderson fund, says it can also be achieved by managing the fund’s cash balance very closely.
The new ETF is actively managed and invests in AAA European CLOs. It can also buy up to 30% in non-European AAA CLOs. The fund is currently registered for sale in Germany, Italy and Luxembourg, and is in the process of being registered in Austria, Denmark, Finland, France, Ireland, the Netherlands, Norway, Spain, Portugal, Sweden, Switzerland and the United Kingdom.
