CLO ETFs remain an attractive opportunity for investors in 2025.
A recent poll during VettaFi’s 2025 Market Outlook Symposium showed many advisors see CLOs as a compelling opportunity for next year. All told, 23.5% of respondents said securitized debt (CLOs, MBS, etc.) looks the most attractive heading into 2025, trailing only investment grade, which received 39.3% of responses. Other options were high yield (21.4%), global fixed income (8.2%), and U.S. Treasuries (7.7%).
CLO ETFs, which comprise collateralized loan obligations, were first available to investors about four years ago. The funds have grown significantly since launch, now reaching $16 billion in total market size.
This type of ETF provides investors with access to a diverse pool of senior secured loans. While CLO ETFs have been primarily used by institutional clients to date, CLOs could enhance risk-adjusted returns for individual clients.
How CLO ETFs Can Add Value
CLO ETFs have the potential to add value in portfolios as CLOs are higher-yield, higher-spread products compared to corporate bonds. Furthermore, CLOs don’t come with duration risk.
“What’s interesting about a CLO is that you can choose where you want to be on the spectrum of risk-adjusted return,” Danielle Gilbert, managing director for Panagram, said during the symposium.
“When you invest in CLO bonds, there’s CLO bonds that are rated AAA, and CLO bonds that are rated BB,” she added.
Additionally, there is an equity portion. Gilbert said she looks at this not as true equity but as a nondividend payer. "It turns on and off. It really gets any excess cash flow that comes from that pool of actively managed loans,” Gilbert noted.
Her firm Panagram provides access to the CLO asset class with the $102 millio Panagram AAA CLO ETF (CLOX ) and the $505 millio Panagram BBB-B CLO ETF (CLOZ ).
See more: CLO ETFs in Focus: Virtus, Blondbloxx, Nuveen Plot Entrance
For more information, please visit VettaFi.com | ETF Trends.
