Panagram CLO ETFs: CLOZ and CLOX for Diversification and Low Risk in an Expanding Market

The exchange-traded fund (ETF) market has grown expansively over the past three decades, offering investors new methods and various options for low-cost investing. Comparatively, the collateralized loan obligation (CLO) market has exceeded $1.2 trillion over the past three decades, suggesting CLOs as a valuable, evolving investment product. At first an instrument that was only accessible to institutional investors, CLOs have made their way into the ETF world through the recent evolution of CLO ETF products.  

Even among those who follow ETFs closely, CLO ETFs may represent a mystery. CLOs are primarily backed by a pool of actively managed, senior secured loans that are securitized (transformed into rated bonds). CLO ETFs place these securities in an ETF wrapper, which can allow the retail community to gain access to a mostly institutional asset class. Since CLO ETFs have only been around since late 2020, a time when the world was immersed in the COVID pandemic, they likely flew under the radar of investors, at least at first.

Today, CLO ETFs make up a $10+ billion market. With several existing funds, investors face the challenge of selecting those with the potential to manage the market. The appeal of CLO ETFs lies in their ability to potentially offer a compelling risk-reward profile. By combining a degree of security with yields exceeding risk-free rates, these funds present a unique opportunity for ETF investors seeking both income and capital preservation.

Panagram’s BBB-B CLO ETF (CLOZ), with $380+ million in assets under management* and an expense ratio of 0.50%, is clearly realizing this nascent category’s potential. CLOZ launched in 2023 with a current SEC 30-day yield over 9%.* Its companion product is the $58+ million Panagram AAA CLO ETF (CLOX), which has an even lower expense ratio of 0.20%. CLOX has delivered positive results since its launch in July 2023, with a current SEC 30-day yield over 6%.*

Both CLOZ and CLOX are products of Panagram Structured Asset Management, LLC (Panagram), where team members have been investing in CLO bonds since 2014.  

Panagram believes that many factors make CLOZ and CLOX attractive. Previously, CLOs were only accessible to institutional investors. However, the emergence of CLO ETFs has opened the door for retail investors to participate in this asset class. Retail investors now have the opportunity to seek current income and risk adjusted returns in a growing asset class.  

The possible diversification benefits are also worth noting. Each CLO bond has exposure to 150-300 senior secured corporate loans across a variety of industries, without concentrated exposure to any specific company.

CLOZ and CLOX are actively managed and apply both a macro and micro approach to review the current market environment for potential investment opportunities. Panagram’s investment team deploys a rigorous, data-driven process focused on risk-adjusted relative value. Risk management is the key to the company’s ongoing investment success and may bode well for CLOX and CLOZ.  

Taken together, these ETFs can offer premium CLO exposure at a time of tremendous opportunity in the space. Panagram is a specialized CLO investor, not an issuer, focused on providing customized access.  

Panagram’s CLO ETFs also complement Panagram’s other investment strategies in asset-backed securities (ABS) and commercial real estate (CRE). The company believes structured credit can offer excellent risk-adjusted returns.

The key ingredient in the company’s secret sauce is its employees. In a world of risk and return, Panagram considers its people the greatest investment of all.  

^{*AUM as of 6/20/2024. The 30-Day Yield represents net investment income earned by the Fund over the 30-Day period ended 5/31/2024, expressed as an annual percentage rate based on the Fund’s share price at the end of the 30-Day period. Performance data quoted represents past performance and is no guarantee of future results. Investment return and principal value of an investment will fluctuate so that an investor's shares, when redeemed, may be worth more or less than their original cost. Current performance may be lower or higher than the performance data quoted. For the most recent month-end performance, please call 212.970.1000 or visit the Funds’ websites www.clozfund.com and www.cloxfund.com.}  

^{Investors should consider the investment objectives, risks, charges, and expenses carefully before investing. For a prospectus or summary prospectus with this and other information about the Fund, please call (212) 970-1000 or visit our website at www.clozfund.com and www.cloxfund.com. Read the prospectus or summary prospectus carefully before investing.}  

 ^{Investing involves risk including possible loss of principal.  The risks of investing in CLO securities include both the credit risk associated with the underlying loans combined with the risks associated with the CLO structure governing the priority of payments (and any legal and counterparty risk associated with carrying out the priority of payments).}

^{Important Risks}

^{CLO BBB-B Risk. The risks of investing in CLO securities include both the credit risk associated with the underlying loans combined with the risks associated with the CLO structure governing the priority of payments (and any legal and counterparty risk associated with carrying out the priority of payments). This Fund intends to invest primarily in BBB and BB rated tranches (or equivalent ratings by a NRSRO); however, these ratings do not constitute a guarantee of credit quality and it’s possible that under stressed market environments these tranches could experience substantial losses due to actual defaults, write-downs of the equity or other subordinated tranches, increased sensitivity to defaults due to collateral default and impairment of subordinate tranches, market anticipation of defaults, and general market aversion to CLO securities as an asset class.} 

^{Subordinated (i.e., mezzanine) CLO tranches are subject to higher credit risk and liquidity risk relative to more senior CLO tranches. The Fund is expected to have significant exposure to below investment grade CLO tranches (up to 70% of its total assets). To the extent a CLO or its underlying loans experience default or are having difficulty making principal and/or interest payments, subordinate CLO tranches will be more likely to experience adverse impacts, and such impacts will be more severe, relative to more senior or higher-rated CLO securities, which in turn will adversely affect the performance of the Fund. Under certain circumstances, no payment of interest or principal can be made to a holder of a mezzanine CLO tranche until the interest or principal payments have been made in full to holders of the Senior tranches.}

 ^{CLO AAA Risk. The risks of investing in CLO securities include both the credit risk associated with the underlying loans combined with the risks associated with the CLO structure governing the priority of payments (and any legal and counterparty risk associated with carrying out the priority of payments). This Fund intends to invest primarily in AAA-rated tranches (or equivalent ratings by a NRSRO); however, these ratings do not constitute a guarantee of credit quality and it is possible that under stressed market environments these tranches could experience substantial losses due to actual defaults, write-downs of the equity or other subordinated tranches, increased sensitivity to defaults due to collateral default, and impairment of subordinate tranches, market anticipation of defaults, and general market aversion to CLO securities as an asset class. The most common risks associated with investing in CLOs are interest rate risk, credit risk, liquidity risk, prepayment risk (i.e., the risk that in a declining interest rate period CLO tranches could be refinanced or paid off prior to their maturities and the Fund would then have to reinvest the proceeds at a lower rate), and the risk of default of the underlying assets.}

 ^{The Funds are both recently organized investment company with no operating history. As with all ETFs, shares of the Funds may be bought and sold in the secondary market at market prices. Although it is expected that the market price of shares of the Funds will approximate the intraday value of the Funds’ holdings used to calculate the Funds’ NAV, there may be times when the market price of shares is more than the intra-day NAV (premium) or less than the intra-day NAV (discount), which may result in a widening of the bid and ask spread, due to supply and demand of shares or during periods of market volatility. This risk is heightened in times of market volatility, periods of steep market declines, and periods when there is limited trading activity for shares in the secondary market, in which case such premiums or discounts may be significant. Unlike other ETFs, the Funds expect to affect most of its creations and redemptions primarily for cash, rather than in-kind securities. Cash purchases and sales may cause the Funds to incur portfolio transaction fees, gains or losses on the sales, or charges or delays in investing the cash that it would otherwise not incur if a purchase or sale was made on an in-kind basis. The Funds’ investment in debt securities may subject it to liquidity risk, interest rate risk, floating-rate obligations risk, call risk and extension risk.}

 ^{Distributor: Quasar Distributors LLC.}