Collateralized Loan Obligations: A securitized products primer
Portfolio Managers John Kerschner, Nick Childs, and Jessica Shill discuss how collateralized loan obligations (CLOs) are created, their key characteristics, and what they might offer investors.
11 minute read
Key takeaways:
- While CLOs have been a part of the securitized products market for more than 30 years, their availability to a wider range of investors is a more recent development.
- At around $1 trillion in assets, the U.S. CLO market is large, liquid, and fast approaching the $1.3 trillion high-yield market in terms of size.
- With their high credit ratings, floating rate coupons, attractive yields, and diversification benefits, we believe an allocation to CLOs may be a key strategic holding within a diversified portfolio.
CLOs are managed portfolios of bank loans that have been securitized into new instruments of varying credit ratings. They have increasingly become the link between the financing needs of smaller companies and investors seeking higher yields.
CLOs have been a part of the U.S. securitized products market since the late 1980s. Historically, most CLOs were privately sold to large institutional investors such as banks, insurance companies, and asset management companies. But as the market has grown, CLOs have become more broadly accessible to retail investors.
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Past performance does not predict future returns. The value of an investment and the income from it can fall as well as rise and you may not get back the amount originally invested.
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11 minute read
Key takeaways:
- While CLOs have been a part of the securitized products market for more than 30 years, their availability to a wider range of investors is a more recent development.
- At around $1 trillion in assets, the U.S. CLO market is large, liquid, and fast approaching the $1.3 trillion high-yield market in terms of size.
- With their high credit ratings, floating rate coupons, attractive yields, and diversification benefits, we believe an allocation to CLOs may be a key strategic holding within a diversified portfolio.