VanEck AA-BB CLO ETF

CLOB

Market cap $147M

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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CLOB invests in a diversified portfolio of debt CLOs. Ratings range from AA to BB. Overall credit quality is high, with a strong 8.0% distribution yield. It is a young fund, created late September. Short performance track-records, but we can use other CLO ETFs as guides.

The Federal Reserve obliged fixed income investors by lowering interest rates in September. However, spreads for investment-grade and high-yield debt are tight.

Two years ago, the Federal Reserve's rate-hiking campaign ushered in a wave of interest in CLOs. Sticky inflation and higher-for-longer rates drove investors to seek refuge in high-quality, floating-rate instruments like CLO AAA bonds.