Short Duration Income ETF (VNLA)


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2Q17 Portfolio Commentary

Short Duration Income ETF (VNLA) Market Environment Financial markets sent what many interpreted as mixed signals as both risk assets and safe havens rallied in unison for much of the period. Investors had much to digest, including an earlyperiod soft spot in U.S. economic data, pivotal elections in Europe and divining the trajectory of monetary policy administered by the Federal Reserve (Fed) and European Central Bank (ECB). In the U.S., March employment data (reported in April), came in soft but bounced back in the ensuing two months. A widely followed manufacturing survey declined, but remained in positive territory, and its services-sector counterpart continued to show strength. Europe’s elections were considered a draw, with potential reformer Emmanuel Macron elected president of France while UK Prime Minister Theresa May’s bid to strengthen her hand in Brexit negotiations failed as the Conservative Party lost its parliamentary majority. Softening data caused many to expect that the Fed would possibly raise rates only once more in 2017. Yet, in a late-month speech, Chairwoman Janet Yellen suggested that the U.S. economy could bear an additional hike. Echoing those sentiments, ECB President Mario Draghi stated an improving eurozone economy meant that dialing back highly accommodative policy – namely through contracting its balance sheet – may occur sooner than expected. The solid footing of U.S. payrolls demonstrated continuing employment growth. Nonetheless, fragile credit growth, low inflation and weak productivity continued to create headwinds for U.S. economic growth. The political story, including new Russia links to President Trump’s family, Congress again failing to push through U.S. health care reform and no progress on tax reform will likely continue to hamper growth. The Fed’s preferred measure of inflation again came in weaker than expected at 1.4%, remaining well below the central bank’s 2% target.

Performance/Positioning For the period the Fund outperformed its benchmark, the 3-month USD London Interbank Offered Rate (LIBOR). Contributing to returns was our exposure to global financials within the Fund’s core of high-quality corporate credits. In aggregate, mildly detracting from returns was the Fund’s hedging of interest rates. In keeping with the Fund’s investment philosophy, positions aimed at protecting the Fund from interest rate risk weighed on performance during April and May as the mid- to longer-end of the curve rallied amid tepid economic data, geopolitical risk and a stalled reform agenda within the U.S. These interest rate hedges, however, contributed to performance during June as global interest rates largely sold off.

Highlights • Corporate credit and interest rate markets rallied for much of the quarter until a selloff in rates occurred late in the period. • The Portfolio outperformed its benchmark, the 3-month USD LIBOR. • The Portfolio’s cash-based core contributed to performance. Page 1 of 3

Nick Maroutsos Portfolio Manager

Daniel Siluk Portfolio Manager

2Q17 Portfolio Commentary We retained a more conservative focus, remaining cautious of growing geopolitical risks including U.S. political turmoil and conflicts in Russia/Ukraine, North Korea, Syria and the South China Sea. We maintained a relatively short portfolio duration, with much of that coming from the front end of the U.S curve. Like the strength of the U.S. dollar, global bond yields should remain a barometer of the markets’ faith in the Trump administration’s economic plans. Over the remainder of 2017, we believe those plans will continue to be delayed as internal missteps, controversies and investigations cause continuing short-run volatility as markets price in rumor and innuendo. Bond yields have moved toward the higher end of their trading range. While jobs growth remains robust, wage increases and inflation remain well contained. Further political turmoil, little policy progress and concern that potential U.S. policies, which include increasing trade barriers and ending existing trade treaties, could undermine U.S. economic growth continue to weigh on bond yields. Considering U.S. political disorder and softening inflation data, we have been surprised by the Fed’s hawkish tone, stating that inflation was only running “somewhat” below target and that “conditions are in place for inflation to move up.” We expect unemployment to remain close to the current 4.4%, a near-decade low. Wage pressures will eventually become a concern, with year over year average hourly earnings gains at 2.5% and the ratio of job seekers to number of available jobs moving from 9:1 toward 1:1. But not in 2017. We believe core inflation will remain contained until wage gains move beyond 3%, a level not seen since 2009. Normalization of the Fed’s balance sheet is expected to begin later this year, but we expect only modest reinvestment tapering which would also reduce prospects for a larger set of rate hikes in 2018. Nonetheless, we expect the Fed to tread carefully, given Brexit concerns, European banking volatility, slower Asian growth, geopolitical risks and little progress in Trump’s economic plans.

Australia to remain on hold for the remainder of 2017. We continue to hold a positive view on investment-grade credit in Australia and Asia, largely due to what we consider as attractive real yields and healthiness of issuers compared to other developed markets. Favored holdings remain 1) the banking sector due to attractive yields and greater liquidity; and 2) infrastructure-type assets such as airports and toll roads which can offer attractive yields, solid cash flows, systemic importance, monopolistic businesses, high regulation and quality underlying collateral. We remain less supportive of European bond opportunities. In the nearer term, political risks have decreased following the French elections and near-term growth has improved, aided by increased consumer spending and improving employment, but we see little inflationary pressures. We believe the ECB will continue to struggle with the effectiveness of its quantitative easing program, currently at €60 billion/month in sovereign and corporate bond purchases. Despite low growth, low inflation and easy monetary policy, we have found bond opportunities limited given low/negative yields and what we see as substantial risks associated with higher-yielding investments. We expect to continue to avoid Europe, given uncertainty surrounding the Brexit campaign, low yields and limited corporate profitability, particularly with the uncertainty surrounding Brexit. Globally, we like systemically important, highly rated Asian issuers such as government-related energy, telecom and banking entities and U.S. “too-bigto-fail” banks, whose bonds should be supported by an increasingly robust regulatory environment focused on less risk taking and greater capital requirements. In managing fixed income portfolios, we believe there are better risks to take, including holding high-quality, investment-grade issuers. As we expect U.S. rates to underperform the rest of the world as the U.S. recovery continues, we plan to maintain positions which may benefit from narrowing U.S. versus Australian rates.

In global bond markets we continue to favor Australian rates versus the rest of the world. Like the U.S. Fed, we expect the Reserve Bank of

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2Q17 Portfolio Commentary

For more information, please visit janushenderson.com. Please consider the charges, risks, expenses and investment objectives carefully before investing. For a prospectus or, if available, a summary prospectus containing this and other information, please call Janus Henderson at 800.668.0434 or download the file from janushenderson.com/info. Read it carefully before you invest or send money. Past performance is no guarantee of future results. Call 800.668.0434 or visit janushenderson.com/performance for current month-end performance. The opinions are as of 6/30/17 and are subject to change at any time due to changes in market or economic conditions. Janus Henderson may have a business relationship with certain entities discussed. The comments should not be construed as a recommendation of individual holdings or market sectors, but as an illustration of broader themes. OBJECTIVE: Janus Henderson Short Duration Income ETF (VNLA) seeks to provide a steady income stream with capital preservation across various market cycles. The Fund seeks to consistently outperform the LIBOR 3-month rate by a moderate amount through various market cycles while at the same time providing low volatility. Investing involves risk, including the possible loss of principal and fluctuation of value. There is no assurance the stated objective(s) will be met. The ETF is new and has less than one year of operating history. Foreign securities are subject to additional risks including currency fluctuations, political and economic uncertainty, increased volatility, lower liquidity and differing financial and information reporting standards, all of which are magnified in emerging markets. Fixed income securities are subject to interest rate, inflation, credit and default risk. The bond market is volatile. As interest rates rise, bond prices usually fall, C-0617-11535 10-15-17

and vice versa. The return of principal is not guaranteed, and prices may decline if an issuer fails to make timely payments or its credit strength weakens. Derivatives can be highly volatile and more sensitive to changes in economic or market conditions than other investments. This could result in losses that exceed the original investment and may be magnified by leverage. Holding a meaningful portion of assets in cash or cash equivalents may negatively affect performance. The Fund is not a money market fund and does not attempt to maintain a stable net asset value. Actively managed portfolios may fail to produce the intended results. No investment strategy can ensure a profit or eliminate the risk of loss. ETF shares are not individually redeemable and owners of the shares may acquire those shares from the Fund and tender those shares for redemption to the Fund in Creation Units only. LIBOR (London Interbank Offered Rate) is a short-term interest rate that banks offer one another and generally represents current cash rates. Index performance does not reflect the expenses of managing a portfolio as an index is unmanaged and not available for direct investment. Janus Henderson is a trademark of Janus Henderson Investors. © Janus Henderson Investors. The name Janus Henderson Investors includes HGI Group Limited, Henderson Global Investors (Brand Management) Sarl and Janus International Holding LLC. Janus Capital Management LLC is the investment adviser and ALPS Distributors, Inc. is the distributor. ALPS is not affiliated with Janus Henderson or any of its subsidiaries.

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