Invesco AAA CLO Floating Rate Note ETF

ICLO

Market cap $475M

JAAA offers superior risk-adjusted returns vs. ICLO, thanks to greater diversification, higher liquidity, and a lower bid-ask spread. Despite ICLO's slightly higher yield and active management, its increased concentration and liquidity risks outweigh the marginal return advantage. Both funds invest in AAA CLOs with negligible credit risk, but JAAA's passive, diversified approach minimizes manager-specific and liquidity risks.

Janus Henderson AAA CLO ETF and Invesco Aaa Clo Floating Rate Note ETF both focus on AAA collateralized loan obligations, or CLOs, but JAAA is more conservative, while ICLO allows some AA-rated and foreign currency CLOs. Distributions for both ETFs fluctuate with interest rates, so potential Fed rate cuts could impact future yields and performance. CLOs historically have low default rates, making both ETFs attractive for capital preservation and income in a floating-rate environment.

ICLO, an Invesco ETF with an 80/20 AAA/AA allocation, has underperformed pure AAA peers despite its higher risk allocation, prompting a downgrade to 'Hold'. The fund's 15% allocation to 'AA' securities aimed to enhance yield without significant drawdown but failed to outperform competitors like JAAA and PAAA. The underperformance is attributed to poor security selection by the portfolio management team, not the expense ratio, which is comparable to peers.

As investors prepare portfolios for the new year, four fixed income ETFs are worth consideration for 2025. 1. Invesco Senior Loan ETF (BKLN) As investors look for fixed income ETFs well-positioned for 2025, bank loans should not be overlooked.

Floating rate notes excelled during the Fed's rate hike cycle, but their appeal may wane as we enter a rate-cutting phase. The Invesco AAA CLO Floating Rate Note ETF focuses on top-quality AAA-rated collateralized loan obligations, offering higher credit quality and protection against defaults. ICLO's narrow focus on AAA-rated CLOs might lead to lower returns compared to funds with riskier assets, especially in a tight credit spread environment.

Several firms are planning to launch collateralized loan obligation (CLO) ETFs, enhancing options for investors. CLOs have provided attractive risk-adjusted returns over the past decade, especially when compared to other fixed income investments.

CLO ETF performance has been outstanding these past few years. Most have seen below-average drawdowns, significant dividend growth, and massive outperformance with above-average yields. Yields range from 6.4% to 8.9%, and that is without leverage or excessive credit risk.

ICLO focuses on AAA-rated CLOs, high-quality, variable rate investments. I'm bullish on ICLO due to its 6.7% SEC yield, stable share price, and strong performance track record. It seems like a particularly compelling opportunity for more risk-averse, short-term investors.

Invesco AAA CLO Floating Rate Note ETF primarily invests in floating rate note securities issued by collateralized loan obligations rated AAA or AA. The ETF has $124 million in assets under management and a trailing twelve-month yield of 7.7%. After reviewing the ICLO ETF, I compare its performance against two other CLO ETFs that invest lower on the ratings scale with better results.

This article analyzes the Invesco AAA CLO Floating Rate Note ETF, focusing on its composition, performance, risks, and suitability for investors. ICLO invests in AAA (and a small portion in AA) CLO tranches, offering a 6.7% 30-day SEC yield. The fund has performed in line with similar AAA CLO ETFs since 2023.