Q&A with Nick Cherney and John Kerschner

For this episode of “ETF 360,” VettaFi Head of Research Todd Rosenbluth spoke with Nick Cherney, Head of Exchange Traded Products at Janus Henderson, and John Kerschner, Head of US Securitized Products at Janus Henderson .

ETFs adoption has been on the rise over the past few decades, with real progress in recent years.

“I think for a lot of particularly recent asset classes, unique exposures, some of the more non-traditional investment management products, ETFs have kind of become the default vehicle, and so you see people switch to ETFs for a variety of reasons,” Cherney said.

Janus Henderson tends to choose ETFs when looking to launch new, innovative themes ESGand fixed income strategies for two main reasons. Due to the accessibility and underlying demand that currently exists for ETFs, as well as opportunities for product innovation within the ETFs industry, they have become the preferred vehicle for firms like Janus Henderson to launch certain strategies.

The biggest mistake Cherney sees investors making this year is letting fear dictate their decisions in an environment where equities and fixed-income securities are challenged.

“The problem, of course, is that with inflation it doesn’t leave you a lot of places to hide, and so I think you’re seeing people potentially allocating more to cash, more to short durations that it really is reasonable given the inflationary environment,” Cherney explained.

Kerschner believes that secured loan obligations (CLOs) hold promise in the current environment because they are a floating rate instrument in an environment where most fixed income options are fixed rate and because most floating rate securities are high quality.

“Adding floating rate securities to a portfolio helps keep your portfolio closer to that efficient frontier,” Kerschner said.

CLO trading volumes spiked during the two most challenging market environments in recent years, once in March 2020 and then again in March 2022 during market disruptions.

The Janus Detroit Street Trust Janus Henderson AAA CLO ETFs (AAAA) has seen increased interest over the past year due to its potential to use interest rate hikes by the Fed as a tailwind from the headwind that interest rate hikes typically are for securities on fixed income.

“Before throwing AAAA, there was no liquid product available to investors, or at least small investors, to invest in this space. CLOs trade at a minimum size of $250,000, so if you wanted a diversified portfolio, you really had to invest millions of dollars in this product. [speaking of CLOs]. Now with AAAAyou obviously don’t need to do that,” Kerschner explained.

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