According to Janus Henderson, allocating this year to the bond sector, which trades at a cheaper relative valuation, is important for investors this year. That means looking beyond the Investment Grade Credit, Treasurys and the Bloomberg US Aggregate Bond Index, says John Lloyd, the company’s multi-sector credit strategy and portfolio manager lead. “With the yields are still persuasive overall, the spreads are very tough across many sectors,” he said. The spread measures the difference in yields between other bond assets of the same maturity as the Treasury. According to Janus Henderson, securitized credit and bank loans were one of the outperformers of bonds last year. Yet, even with that strong show, yield remains solid and historical yields, inflation expectations, and the S&P 500’s advance revenue yield, Lloyd noted. “It’s much more difficult to get negative returns on those starting yields, even if you hit rough spots over a year,” Lloyd said. Among the funds he manages is the Janus Henderson Multi-Sector Income Fund (JMUIX). With a 30-day SEC yield of 6.39%, 0.68% JMUIX 1Y Mountain Mountain Multiector Income Fund Corporate Bond Alternatives Lloyd considers secured loan liabilities and asset support securities in place of investment-grade corporate bonds. A close is a securitized pool of floating rate loans to businesses, but not all investment grades. The so-called ABS is supported by a pool of income-generating assets, such as car loans and credit card accounts receivables. Within CLOS, Lloyd prefers highly rated securities such as AAA, AA, and A ratings. Investors can recently get 120 basis point spreads on new issues, he said. “You’re getting almost twice as much spread because of very similar volatility,” he said. Additionally, he said AAA has a higher rating than the Investment Grade Index rating, which is the BBB. Multi-sector income funds account for approximately 13% of the allocation in CLOS as of January 31st. The company also has the Janus Henderson AAA Clo ETF (JAAA), which currently has a 30-day SEC yield of 5.37% and an expense ratio of 0.2%. Jaaa 1y Mountain Janus Henderson aaa clo etf Generally, Lloyd invests in the entire ABS market but does not focus on student loans and solar. Overall, he noted that consumers are still fairly healthy and underwriting remains strict in the space. Assets also tend to have shorter periods than investment grade credits, Lloyd said. Periods are a measure of bond price sensitivity to interest rate fluctuations, and long-term issues tend to have larger periods. “Even if the unemployment rate starts to slip, you’re still paying for them and you’re getting shorter maturity so you’re very well protected there,” he said of the ABS market. Multi-sector income funds have approximately 15% of their allocations to these assets. According to Janus Henderson, in 2024, the AAA rating had a total return of 7.1%, while ABS had a total return of 5%. In contrast, investment grade companies had a 2.1% return of 2.1% that makes loans look more attractive than high-yield bank loans, as investors gain a slightly wider range with loans of the same level of rating, Lloyd said. “The trade-off there is convex because in the loan market, at the beginning of the year you are trading over 70% of your loan and can be re-licated,” he said. “In our view, if high yields are traded in the first percentile and not spreading much there, convexity isn’t that important. Convexity is a measure of the relationship between bond prices and bond yields. Loans also have lower volatility than high yield bonds, he added. Both asset classes worked well last year, with bank loans totaling 8.75% and high yields returning 8.2%. Investors can add exposure to securities supported by government-backed agents’ mortgages, Lloyd said. He pointed out that the agency MBS asset class had had a “perfect storm” in recent years, as the Federal Reserve began to reduce their holdings and banks began to encourage the market very much. They are also cheaper than corporate bonds, he added. “You’re picking up really good carry compared to companies we haven’t had in the mortgage market historically,” Lloyd said. “In our view, we can see that it’s been tightened a bit,” he added. “Even if the agency market is not tough, in this type of environment where spreads are very strict, there is no credit risk and even a diverse income portfolio offers the advantages of diversification.”
Janus Henderson sees income opportunities in 2025
