Collateralised Loan Obligation (CLO) Exchange-Traded Funds (ETFs) continue to present a strong investment opportunity as we approach 2025. According to a recent poll conducted during VettaFi’s 2025 Market Outlook Symposium, CLOs were ranked highly by financial advisors, with 23.5% of respondents selecting securitised debt, including CLOs, as one of the most attractive options for the year ahead. This puts CLOs just behind investment grade bonds, which received 39.3% of the vote. Other options like high yield, global fixed income, and U.S. Treasuries saw less support from participants.
Since their introduction to the market just four years ago, CLO ETFs have witnessed significant growth, now boasting a total market size of $16 billion. These funds provide investors with exposure to a diversified selection of senior secured loans, which have primarily attracted institutional clients so far. However, there is growing potential for individual investors to benefit from CLOs, especially when it comes to improving risk-adjusted returns.
CLO ETFs offer several advantages, as they are typically higher-yielding and provide higher spreads compared to corporate bonds. Additionally, CLOs are free from duration risk, making them an appealing option in today’s market environment. Danielle Gilbert, managing director at Panagram, highlighted the flexibility CLOs offer in terms of risk-adjusted returns. Investors can choose from CLO bonds with varying ratings, from AAA to BB, providing options based on their risk appetite.
An interesting aspect of CLOs is their equity portion. While this portion is not considered traditional equity, it does allow investors to benefit from excess cash flow generated by actively managed loans. This non-dividend-paying component can provide additional returns when market conditions are favourable.
As the market continues to evolve, CLO ETFs remain an attractive option for those seeking higher yields and greater flexibility in their investment portfolios. With their potential for strong returns and manageable risk, CLO ETFs are poised to be a valuable asset for investors in 2025.
Volta Finance Ltd (LON:VTA) is a closed-ended limited liability company registered in Guernsey. Volta’s investment objectives are to seek to preserve capital across the credit cycle and to provide a stable stream of income to its Shareholders through dividends that it expects to distribute on a quarterly basis.
