Investors seek high-yield collateralized loan obligations

Investors are increasingly interested in collateralized loan obligations (CLOs), which are pools of floating-rate loans to businesses. Last year, a record $25.6 billion was invested in bank loan and CLO exchange-traded funds (ETFs). While AAA-rated CLOs remain popular, investment firms suggest exploring lower-rated options, such as AA and A-rated CLOs, which have shown better performance than AAA-rated ones. These lower-rated CLOs offer attractive yields with lower volatility compared to corporate bonds. New CLO ETFs have been launched, including VanEck's AA-BB CLO ETF, which targets lower-rated tranches. These funds provide higher yield potential while maintaining investment-grade quality, despite some increased risk. Selectivity in choosing investments is emphasized due to market uncertainty.