Collateralized Loan Obligations (CLOs) were once the domain of institutional finance. However, the advent of ETFs have democratized access to this specialized corner of the structured credit market. Today, CLO ETFs have seen record-breaking inflows of approximately $6 billion this year alone and counting1, signaling a retail renaissance. John Kim, CEO of Reckoner Capital Management, joined Kirsten Chang, TMX VettaFi Senior Industry Analyst, in a Q2 Market Outlook Symposium.
The discussion explored the mechanics behind this surge and the lingering misconceptions associated with this often-misunderstood asset class.
Debunking the Crisis Myth
When it comes to structured credit, reminders of the 2008 Financial Crisis may emerge. In particular, collateralized mortgage obligations (CMOs) that helped spur the crisis tend to have a spillover effect.
“The number one question we still get is: ‘Aren’t these the things that blew up?’” Kim noted, mentioning that the reality is rooted in the distinction between asset categories.
While subprime mortgages associated with CMOs suffered massive defaults, CLOs offer a stark contrast. These structured credit products are backed by senior secured corporate loans that have historically exhibited remarkable resilience. For instance, AAA-rated CLO tranches have had a zero-default record for over 30 years2. Even mezzanine tranches (those rated BBB) have not seen defaults over the last 15 years2. This offers investors a “complexity premium” tied to the asset rather than the actual credit risk.
“You have to get behind the fact that these bonds cannot be bought by everyone or not understood by everyone,” Kim said, underscoring the need for investor education in CLOs.
“Others say it is a very complex asset class,” Kim added. “It needs to be explained and walked through, which we do agree with, and we’re good at educating about that.”
To this point, Reckoner Capital explains the strategies behind alternative credit on their website.
Retail Access
Institutional investors use CLOs for their potential high relative yields and low risk compared to standard fixed income assets like corporate bonds. By replacing traditional corporate debt with floating-rate CLO bonds, portfolios can seek to generate more income without necessarily increasing the risk profile.
As mentioned, the ETF wrapper has finally democratized this “practitioner’s market” for individual investors. Reckoner Capital’s deep expertise in the CLO market gives them their competitive advantage as specialists in this nuanced market.
Kim highlighted how modern fund structures like ETFs are catering to the needs of advisors. For instance, the Reckoner Yield Enhanced AAA CLO ETF (RAAA ) fund targets the senior-most AAA tranches, but adds an enhanced yield feature that uses leverage to seek to outperform unleveraged peers . For exposure to mezzanine tranches, Reckoner Capital also has the Reckoner BBB-B CLO ETF (RCLO).
Tax Efficiency and Ongoing Education
In addition to yield, the next frontier for the future of CLO ETFs is tax optimization. Reckoner Capital is already addressing this. Traditional CLO funds typically issue monthly dividends that can create an ongoing tax liability for holders. To address this, Kim mentioned newer “non-dividend” versions of the aforementioned funds in the Reckoner Yield Enhanced AAA CLO Reinvesting ETF (RAAR) and Reckoner BBB-B CLO Reinvesting ETF (RCLR). Essentially, generally these funds allow investors to avoid 1099 income by reinvesting returns. This may allow the investment to grow more efficiently and convert what would be taxed as ordinary income into long-term capital gains when shares of the fund are sold.
A poll question was asked to the audience regarding how they currently allocate to structured credit. A majority replied “none” or to a lesser degree, “a satellite position.” This is where increased investor awareness and education are imperative in the CLO market. For those familiar with the space, CLOs are certainly more than just a satellite play. Advisors and investors willing to learn about CLO products find this corner of the structured credit market a core component of a fixed income portfolio. This is thanks to not just yields, but a strong historical track record.
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1 Source: Bank of America Global Research, “CLO Factbook,” 5/15/2026
2 Source: CLO Factbook," 5/15/2026
Important Information
A prospectus and a summary prospectus which contains this and other information about the fund may be obtained by visiting https://funds.reckoner.com/assets/pdfs/RAAA-RCLO-Prospectus.pdf and https://funds.reckoner.com/assets/pdfs/ReinvestingETFs-Prospectus.pdf or call 212.597.2500. Please read each prospectus carefully before investing.
Each fund’s principal investment risks include all or some of the following risks: management risk, novel structure risk, affiliated fund risk, collateralized loan obligation risk, non-diversified fund risk, new fund risk, leverage risk, and liquidity risk. For additional information about these and other fund risks, please refer to the “Principal Investment Risks” section of each prospectus.
ETFs may trade at a premium or discount to NAV. Shares of any ETF are bought and sold at market prices (not NAV) and are not individually redeemed from the Fund. Brokerage commissions will reduce returns.
Past performance is no guarantee of future results.
Collateralized Loan Obligations (“CLOs”) are structured products that issue different tranches, with varying degrees of risk. These are backed by an underlying portfolio consisting primarily of below investment grade corporate loans. Investments in CLOs presents risks similar to those of other credit investments, including interest rate risk, credit risk, liquidity risk, prepayment risk, and the risk of defaults of the underlying assets.
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