Animal Spirits Podcast
Talk Your Book: Floating Rate Income
Mar 31, 2025
Fran Rodilosso, Head of Fixed Income ETF Portfolio Management at VanEck, and Bill Sokol, VP and Director of Product Management, delve into the world of collateralized loan obligations (CLOs). They discuss the structure of CLOs and their appeal to investors amid economic uncertainty. The duo analyzes the persistence of low credit spreads and explores how CLOs perform during recessions. They also stress the importance of strategic credit selection and the growing interest in CLO ETFs as a safe investment avenue in volatile markets.
36:15
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Quick takeaways
- CLOs, as floating rate investment vehicles, provide protection against interest rate risks and offer lower volatility amid market downturns.
- The rising demand for CLOs, particularly through specialized ETFs, reflects investors' reevaluation of fixed-income allocations for better risk-adjusted returns.
Deep dives
Understanding Collateralized Loan Obligations (CLOs)
A collateralized loan obligation (CLO) is defined as a securitized portfolio of leveraged loans, often referred to as bank loans or syndicated loans. These loans are provided to cash flow-generating companies and are secured by their assets, ranking senior to other forms of debt like high-yield bonds. A typical CLO contains 150 to 300 loans and issues debt to fund these purchases, allowing investors to receive interest derived from the underlying loans. The structure includes various tranches with differing levels of risk and return, with payments made sequentially based on the credit rating of each tranche.
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