The power of CLOs: Higher yields and built-in risk protection

Given their higher relative yields, “built-in” risk protection and historical outperformance in periods of rising rates, now is a good time to better understand collateralized loan obligations (CLOs), how they’re structured and how they fit within a fixed income portfolio.

CLOs are securitized, actively managed portfolios of leveraged loans. They have historically offered a compelling combination of both an attractive yield and strong risk profiles. The strong historical performance of the asset class is a testament to the built-in risk protections resulting from how CLOs are structured. In addition, CLOs are floating rate instruments, which means their coupons reset each quarter along with prevailing interest rates, resulting in low price sensitivity to changes in interest rates. This has led to CLOs historically outperforming in periods of rising rates, like the environment we are in today.

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.

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