VanEck AA-BB CLO ETF

CLOB

Market cap $153M

The VanEck AA-BB CLO ETF targets current income and capital preservation by investing in AA to BB rated CLO tranches. CLOB offers a 6.6% TTM yield, about 100-150 bps above AAA CLO ETFs, compensating for added complexity and liquidity risks. The fund's portfolio is 85.86% investment grade, with built-in protections like overcollateralization and interest-coverage tests to absorb losses before reaching investors.

As a floating-rate asset tied to SOFR, CLOB's income is directly vulnerable to the Fed's easing cycle. CLO spreads are currently at multi-year lows (0th to 10th percentile for certain tranches), meaning prices are near their theoretical ceiling. Because CLOB owns a cross-section of the CLO stack—including 21% in BBB and 14% in BB tranches—it lacks the principal protection found in pure AAA/AA funds.

Constructing a stable income portfolio in today's volatile market favors CLO bond ETFs with strong yield and minimal drawdown. My recent portfolio revision removed underperforming or volatile funds, and adding top-performing AAA CLO ETFs and a diversified alternative. PAAA, CLOB, and UYLD are highlighted for superior total return, low drawdown, and attractive yield in their respective classes, with UYLD offering a near-treasury risk profile but higher yield.

Francis Rodilosso and William Sokol appeared on Bloomberg's Inside Active Podcast to discuss how active management is essential in CLO investing. Why CLOs Stand Out in Fixed Income CLOs continue to present a compelling value proposition for investors seeking floating‐rate income and diversified credit exposure.

The VanEck AA-BB CLO ETF (CLOB) offers exposure to mezzanine tranches of CLOs, targeting AA-BB ratings for higher yield and moderate risk. CLOB yields 6%-plus with strong distribution coverage (1.32x NII/distributions), monthly payouts, and a portfolio focused on investment-grade CLOs. Compared to equity-focused CLO funds, CLOB provides lower yield but significantly better price stability and total returns, with less downside risk.

VanEck has consistently delivered some of the best funds that help investors diversify into untapped and new markets.

With persistent rate volatility and uncertain inflation dynamics, floating rate instruments like FRNs and CLOs offer a compelling way to earn income while staying insulated from rate risk. Even as rate hikes appear to be behind us, the “all-clear” signal for long-duration fixed income hasn't arrived.

The VanEck AA-BB CLO ETF offers a mixed portfolio of AA to BB CLO tranches, aiming for high current income with a 7.25% SEC yield. Despite its robust structure and low default probabilities, the ETF experienced a -6% drawdown recently and could see -10% in a mild recession. CLOs face liquidity issues and market risk, making them vulnerable to price drops during economic downturns, despite strong fundamental credit risk profiles.

Rising tariff turmoil has sparked a run from credit-sensitive instruments, with escalating trade tensions threatening economic stability. Wednesday's GDP print stoked recessionary fears when it showed the U.S. economy contracted for the first time since early 2022.

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