VanEck launches actively managed CLO ETF

Jun 28th, 2022 | By | Category: Fixed Income

VanEck has launched a new fixed income ETF in the US providing actively managed exposure to collateralized loan obligations (CLOs).

Laila Kollmorgen, Managing Director within PineBridge Investments Leverage Finance Group

Laila Kollmorgen, Managing Director within PineBridge Investments’ Leveraged Finance Group.

The VanEck CLO ETF (CLOI US) has been listed on NYSE Arca, coming to market with $25 million in assets under management.

CLOs are debt securities issued in different tranches by a trust or other special purpose vehicle and backed by an underlying portfolio consisting typically of below-investment-grade corporate loans.

The underlying loans, which are selected by a CLO’s manager, typically may include domestic and foreign senior secured loans, senior unsecured loans, and subordinate corporate loans.

CLOs have historically been available only to institutional investors and were only being packaged within the ETF wrapper for the first time in 2020. They typically exhibit low volatility and low downgrade risk and may serve to diversify a traditional fixed income portfolio.

Investment approach

The ETF is sub-advised by PineBridge Investments, a private, global investment manager with approximately $150 billion in assets under management. PineBridge markets itself as a specialist in high-conviction investing.

Day-to-day operations of the ETF will be overseen by Laila Kollmorgen, Managing Director within PineBridge Investments’ Leveraged Finance Group, who is responsible for managing investments in CLOs issued by third-party managers. Kollmorgen will be supported by Fran Rodilosso, Head of Fixed Income ETF Portfolio Management at VanEck.

The ETF invests at least 80% of its assets in CLOs with investment-grade credit ratings, and the fund may not hold any security with a rating below BB-. Up to 30% of the portfolio may be invested in CLOs that are denominated in currencies other than the US dollar.

PineBridge utilizes bottom-up analysis to select CLOs based on several factors including an assessment of the CLO manager, the CLO’s underlying collateral, performance under various stress scenarios, and an analysis of the CLO’s documentation and structural terms. This is combined with a top-down overlay incorporating PineBridge’s credit views and risk factor positioning.

As of 23 June, nearly half (46.9%) of the ETF’s allocation was in CLOs rated AA and another third (29.3%) in those rated AAA. The next-largest credit bucket was BBB at 14.1%. The fund was exhibiting a yield to maturity of 5.96% with a spread duration of 5.37 years.

The ETF comes with an expense ratio of 0.40%.

Commenting on the launch, William Sokol, Senior ETF Product Manager at VanEck, said: “The growth of the CLO market has been driven by the benefits they provide, including enhanced yields versus equivalently rated bonds and loans and their considerable structural protections. In today’s rising rate environment, the floating rate coupons of CLOs make them particularly attractive. We’re excited to launch CLOI with PineBridge at a time when investors looking for enhanced income and risk protection have few options.”

Laila Kollmorgen added: “Our institutional clients have understood the strong value proposition of our CLO strategies for more than 20 years, and we are looking forward to extending access to this market to a broader investor base. I’m looking forward to partnering with VanEck on this strategy which aims to allow investors to combine the value of CLOs with the transparency, liquidity, and cost benefits of an ETF.”

Investors interested in CLOs may also wish to consider two ETFs offered by Janus Henderson Investors – the $1.4 billion Janus Henderson AAA CLO ETF (JAAA US) which targets CLOs with the highest credit rating of AAA, and the $80m Janus Henderson B-BBB CLO ETF (JBBB US) which focuses on lower-rated CLOs, those with ratings between BBB and B.

JAAA comes with an expense ratio of 0.26%, while JBBB costs 0.49%.

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