VanEck Launches ETF For Collateralized Debt

June 23, 2022

VanEck Global rolled out on Thursday an actively managed ETF covering the collateralized loan obligation space. The VanEck CLO ETF (CLOI) is subadvised by Pinebridge Investments, an asset manager that both manages and invests in CLO tranches.  

The new fund comes with an expense ratio of 0.40% and lists on the NYSE Arca. 

CLOs are individual securities that represent a pool of loans; however, they have typically only been available to institutional investors and have only been available in an exchange-traded fund wrapper since 2020. The fund invests mainly in investment-grade securities denominated in U.S. dollars, but can invest up to 30% of its assets in securities denominated in non-U.S. currencies, according to the prospectus. 

“You’re getting an investment-grade portfolio that’s also floating rate,” said VanEck Senior ETF Product Manager William Sokol. “If you're an income investor, one area that you can look to for safety is floating rate if you want to reduce your interest rate [risk].” 

Sokol notes that investors are getting significant diversification with CLOI as its component securities typically each hold in the vicinity of 200 individual loans from different issuers. Further, those CLOs themselves have managers to actively manage their portfolios of loans. 

“Essentially, it all adds up to these built-in protections against experiencing defaults if you’re a CLO investor,” he added.  

The new ETF uses a bottom-up approach to managing its portfolio, assessing each CLO’s manager as well as its underlying collateral, performance in stress testing and each CLO’s structure and terms. The investment process also considers the subadvisor’s credit views and risk factors, the document says.  

At launch, CLOI’s portfolio included 18 securities with the largest portion of securities, nearly 47%, rated AA.  

“We do expect institutions to be interested in CLOI but also this broader investment base of advisors, individual investors and RIAs who haven't had access to this market historically,” Sokol noted. 

 

Contact Heather Bell at [email protected] 

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