Talk Your Book: Investing in Securitization
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In this episode of Animal Spirits, Michael Batnick and Ben Carlson dive into the world of securitization, focusing on collateralized loan obligations (CLOs) and the rise of CLO ETFs like Janus Henderson's JAAA. The conversation centers on why JAAA—a $27 billion AAA-rated CLO ETF—has become one of the fastest-growing fixed-income products, offering a compelling combination of 5% yield, near-zero volatility, floating rates, and a perfect default record over decades. The hosts unpack the mechanics of CLOs, explaining how they pool senior secured bank loans from U.S. companies, structure them into tranches with subordination and overcollateralization, and deliver safety through diversification and waterfall protection. They contrast JAAA with traditional corporate bonds and money markets, highlighting its resilience during rate hikes and even in falling rate environments. The discussion also explores JSI, Janus Henderson’s broader securitized income ETF, which invests across asset-backed securities, commercial mortgages, and even unique assets like music royalties. The episode emphasizes the educational challenge of explaining these complex instruments, especially given their historical association with the 2008 crisis, and underscores how modern CLOs are fundamentally different and far safer. Advisors and investors are encouraged to consider these products for income, capital preservation, and diversification in today’s volatile fixed-income landscape.
JAAA, a AAA CLO ETF, has grown to $27 billion in AUM since 2020 due to its 5% yield, 1% volatility, floating rate structure, and zero defaults in history.
CLOs are securitized pools of senior secured bank loans to U.S. companies, with credit quality derived from structural features like overcollateralization and subordination, not the underlying loans.
The AAA tranche in a CLO is protected by lower tranches absorbing losses first, making it highly resilient even during market stress like March 2020.
Securitized ETFs like JSI offer diversified exposure across asset-backed securities, commercial mortgages, and unique assets like music royalties, with strong borrower profiles and attractive yields.
These products are ideal for investors seeking income with low volatility, inflation protection via floating rates, and diversification beyond traditional fixed income.
…and 2 more takeaways available in PodZeus
Introduction to Securitization and JAAA
“This thing has only been around since late 2020. That is a lot of money. It's a massive, massive... Obviously, the timing could not have been better for them.”
Understanding CLOs: Structure and Safety
“You're over collateralized by 35% just in the structure itself. And that stack functions kind of like a waterfall in the sense that... losses flow up.”
Why CLOs Outperform Traditional Bonds
“In this asset class, you own a AAA CLO and you out yield a BBB corporate bond... by call it 35 basis points. That's pretty attractive to your point with very, very low volatility.”
The Mechanics of JAAA and JSI ETFs
The hosts and guest discuss how JAAA and JSI ETFs work, including cash inflows, portfolio construction, and the role of active management in selecting high-quality CLO issuers and structuring diversified portfolios.
Addressing Investor Concerns and Misconceptions
“Even in a scenario where First Brands... goes bankrupt, you are not only diversified across hundreds, tens of thousands of loans, but then you're protected by the structure itself.”
“You're over collateralized by 35% just in the structure itself. And that stack functions kind of like a waterfall in the sense that... losses flow up.”
“Even in a scenario where First Brands... goes bankrupt, you are not only diversified across hundreds, tens of thousands of loans, but then you're protected by the structure itself.”
“This thing has only been around since late 2020. That is a lot of money. It's a massive, massive... Obviously, the timing could not have been better for them.”
Hosts
Guest
Janus Henderson Investors
organization
CLO
product
Michael Batnick
person
Ben Carlson
person
JAAA
product
Mike Laughlin
person
JSI
product
First Brands
organization
Silicon Valley Bank
organization
KKR
organization
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