Many financial experts and influencers have been suggesting Janus Henderson AAA CLO ETF, or JAAA, as a money market alternative.
Is it?
It’s not for me.
Why isn’t JAAA a money market alternative?
The primary objective I have for a money market fund is to preserve capital, AKA, keep the same price that I paid when I bought into the fund.
I think this is the priority for most investors who put money into a money market.
While we investors do, of course, like to get interest income on our money market funds, the goal of capital preservation is usually primary for money market funds.
The fact is JAAA declined about 3.6% in 2022 when the Fed Funds rate rose a bit over 5%. JAAA didn’t recover completely until early January 2024.
Source: Seeking Alpha
This could be problematic for someone who had stashed money into JAAA for a specific purpose during the time the price was down.
Why did JAAA decline like this in 2022?
Federal funds rates rose in 2022 as you can see from the chart below.
This leads me to ponder: What if interest rates had risen more in 2022? How much would JAAA have declined?
If you’re like me, you’re wondering why the Fed funds rate rose in 2022.
The answer is the Fed was attempting to lower inflation, as you can see from the chart below.
So, is JAAA a money market alternative?
JAAA is not a money market alternative if capital preservation is your primary objective since the market price can and does fluctuate, albeit by a relatively small percentage.
On the other hand, if income is your primary objective AND you’re okay with a little price fluctuation, you may want to research JAAA a little more to see if it makes sense for you.
Alternatively, you could ask your financial advisor.
As of now, I plan to move some funds into JAAA from SGOV or BIL which I use as money market alternatives. I use SGOV and BIL when my Allocate Smartly portfolios rotate into cash, and also for keeping “cash” on hand.
Note: I am an Allocate Smartly and Seeking Alpha affiliate.