VNLA: 4.7% Yielding Cash Parking Vehicle (NYSEARCA:VNLA)

Thesis

The Janus Henderson Short Duration Income ETF (NYSEARCA:VNLA) is an exchange traded fund targeting short duration corporate bonds. The fund falls in the ‘cash parking’ vehicles category, and as per its literature:

• Seeks attractive returns above cash (FTSE 3-Month U.S. Treasury Bill Index)
• Seeks to provide a steady income stream with low volatility and capital preservation across economic cycles

With a 30-day SEC yield of 4.7% and a low duration of 0.34 years, the fund is a good choice to play the short end of the curve via corporate bonds. The closest competitor for this name is the Enhanced Short Maturity Active Exchange-Traded Fund (MINT). VNLA has better risk metrics when compared with MINT, having had a shallower drawdown both in 2022 and during the Covid pandemic. As rates continue to rise VNLA is well set to outperform, with a very modest drawdown profile.

The fund is concentrated in bonds from the Financials sector, and usually holds names at the bottom of the investment grade credit spectrum. The true risk here is not duration, but a protracted and severe financial crisis that would push some of the names into restructuring and widen credit spreads in the entire sector. We do not think that is the case in 2023, despite the looming recession.

VNLA has been able to historically outperform a short term T-Bills index, and compares favorably with other ‘cash parking’ vehicles such as FLOT, GBIL and MINT.

Holdings

The fund holds very short dated bonds:

We can see that the effective duration of the portfolio is extremely low at 0.34 years, explaining the very low impact from rates for this fund. To give investors a flavor of the actual names in the portfolio let us have a look at the Semi-Annual Report:

We can see the fund holding a vast majority of fixed rate low coupon bonds here. Most of the holdings fall in the Financials industry sector:

The same theme is observed when looking at the top names in the portfolio:

Although it is extremely granular and with a very short duration and weighted average life profile, the fund does invest in the bottom of the investment grade spectrum:

The main risk for this fund from a portfolio composition standpoint is a financial crisis. Given its overweight positioning in financials and rating profile, a very serious and protracted financial crisis can have a deep drawdown impact on the name. It is not going to be the case this year or during this recession though.

Performance

The fund had an extremely shallow drawdown last year, with only a maximum -1% reached:

We can see how the name actually performs much better than the larger, better known name (MINT). On a 5-year basis the fund has a standard deviation of sub 2%:

This means that we should not expect drawdowns larger than 2% for this name on average. Even during the Covid crisis the fund had only a -3% drawdown:

The fund has managed to outperform s short term T-Bill index historically:

While all the figures are small given the low interest rate environment that has prevailed in the past decade, we can see a clear outperformance by VNLA, which has a performance 50% higher than the index since inception.

Conclusion

VNLA is a short term corporate bond fund. The vehicle is structured as an ETF and aims to outperform a short dated T-Bills index. VNLA currently offers a 30-day SEC yield of 4.7% with a low duration of 0.34 years. The fund has a very robust build, with only a -1% drawdown in 2022, when plotting its total return. The vehicle is overweight names in the financials sector, and invests in the lowest rung of investment grade paper. We do not see a severe financial crisis in 2023, although we are forecasting a recession. VNLA outperforms MINT, a peer in the short term bond funds space, and represent a robust name in the ‘cash parking’ alternatives. We like this fund’s shallow drawdown profile, even during the worst of times, such as the Covid crisis in 2020. We think 2023 is going to be a tough trading year, and may retail investors are well served to wait out a risk wash-out in cash parking vehicles such as VNLA.