CLO ETFs Gain Traction Amid Fed Rate Uncertainty — SkimNews
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- Todd Rosenbluth, head of research at VettaFi, told CNBC's "ETF Edge" that CLOs have been popular in the marketplace and that fixed income ETF demand will continue while investors await the Fed's next move.
- Rosenbluth pointed to the Fed's decision last month to keep rates unchanged as a catalyst driving short-term product demand.
- Reckoner Capital Management, a CLO-specializing ETF provider, has been actively creating new CLO ETFs this year, according to Rosenbluth.
- Jennifer Grancio, global head of distribution at TCW Group, said advisors are holding core income-oriented portfolios and "dabbling a little bit with short duration or CLO products."
- AAA-rated CLO tranches boast near-zero default rates, but lower-tier BBB-B tranches face heightened default risk and market volatility during economic stress, per Rosenbluth.
- CLO pools carry significant exposure to tech and software sectors, meaning private credit jitters or tech selloffs could trigger spread widening, Rosenbluth warned.
Why it matters: With the Fed holding rates steady and signaling uncertainty, advisors are shifting toward floating-rate, short-duration CLO ETFs to capture yield without long-term maturity risk — but Rosenbluth's own warning that CLO pools are concentrated in tech and software sectors means the same trade could amplify losses if those sectors sell off or private credit wobbles.
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