Janus Henderson’s Debut ETF Pulse Report

Investment Themes

1. U.S. Large Caps: U.S. large-cap opportunities

• • Beyond the top holdings: Rethinking diversification within U.S. large-cap. Large-cap dominance is creating unintended risk.
  • Insight: Investor portfolios are overweight large caps, with much of that allocation concentrated in a handful of mega-cap growth stocks.
  • Implication: While many of these largest companies are very profitable and have wide moats, finding other opportunities outside of the largest names while staying in large caps may mitigate index-driven volatility and broaden return drivers.
  • Insight: While current market leadership may persist into the future, historically this has been more of the exception than the rule.
  • Implication: Understanding the key secular growth drivers is certainly important, but equally important is identifying those companies that can be disrupters, while avoiding those that are more
  • likely to be disrupted over time.
  • Featured ETF: JXX: Transformational Growth ETF

2. Securitized Credit: High-quality fixed income with resilience & diversification

• • Securitized credit (ABS, CMBS, CLOs, MBS) is a $5 trillion asset class, reflecting the broader economy, yet largely ignored by fixed income benchmarks. Outside of agency MBS, other securitized sectors have less than 3% Agg exposure.
  • Insight: Securitized credit is a complex and often misunderstood asset class, despite financing much of the U.S. economy (e.g., mortgages, auto loans, student loans).
  • Implication: Securitized credit’s lack of inclusion in the largest fixed income benchmarks may provide opportunities for active managers to drive alpha via security selection while also providing fixed income investors diversification benefits within their fixed income portfolios.
  • Insight: Securitized credit structures are heavily weighted toward investment-grade credit yet often provide spreads similar to or higher than comparably-rated corporate credit.
  • Implication: Securitized credit may dampen overall portfolio duration and increase average credit quality while potentially offering superior risk-adjusted forward returns given current spread levels and decade-high yields.
  • Featured ETF: JSI: Securitized Income ETF

3. Emerging Market Debt’s underrated appeal

• • EM Hard Currency Debt (EMD HC) can offer attractive risk-adjusted yields and structural mispricing
  • Insight: Roughly 50% of the EM hard currency universe is investment grade. Much of the 2022 drawdown was driven by rising U.S. rates, not deteriorating credit quality.
  • Implication: The “emerging market” label masks material credit differentiation. Many sovereigns in the index maintain solid fiscal profiles and benefit from International Monetary Fund backstops, which can provide a meaningful anchor in volatile periods.
  • Insight: The sovereign hard currency EM debt market is $1.5T (larger than U.S. HY) and has provided similar returns to HY over time, along with portfolio diversification benefits. Yet U.S.-based advisor portfolios are currently less than 1% allocated to the EM debt asset class.
  • Implication: For investors seeking income with geographic diversification, EM debt provides a compelling complement, with historical returns and Sharpe ratio improved when incorporating into client portfolios.
  • Featured ETF: JEMB: Emerging Market Debt ETF

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