Reckoner Launches First Leveraged AAA CLO ETF

Reckoner Capital Management launched the first leveraged AAA CLO ETF Wednesday—the Reckoner Leveraged AAA CLO ETF (RAAA)—marking a new approach in the growing collateralized loan obligation exchange-traded fund space.

RAAA uses reverse repurchase agreements to create up to 50% leverage, according to the company's press release. The fund targets AAA-rated CLO bonds while seeking to deliver higher yields than unlevered competitors.

RAAA Capitalizes on CLO ETF Trend

The launch comes as CLO ETFs have attracted investor interest this year, with the largest fund in the space pulling in billions of dollars in new assets as investors seek alternative credit exposure.

The leveraged structure sets RAAA apart in a market dominated by unlevered products, as Reckoner aims to capitalize on growing institutional and retail demand for alternative credit investments that offer diversification and attractive yields, according to the press release.

"What is unique about RAAA is that we draw upon our longstanding industry relationships to select attractive, senior AAA CLO bonds, which seek to offer a high degree of capital preservation, and utilize reverse repurchase agreements to create a modest amount of leverage," John Kim, CEO and co-founder of Reckoner, said in the press release.

The fund will dynamically manage its leverage, increasing it during periods of economic stability and reducing it during market volatility, according to the company. Reckoner's team brings over a decade of experience managing $16 billion in alternative credit assets, the press release stated.

Growing CLO ETF Market

The CLO ETF market has seen growth this year, with the Janus Henderson AAA CLO ETF (JAAA) attracting $5.5 billion in year-to-date inflows, according to FactSet data. The fund, which manages $22.1 billion in assets, has posted a 2.4% return year to date.

The iShares AAA CLO Active ETF (CLOA) has also seen strong demand, pulling in $284.7 million in year-to-date flows while generating a 2.7% return, FactSet data show. The fund manages $936.8 million in assets.

Both of the AAA CLO ETFs carry 0.2% expense ratios and focus on investment-grade CLO securities, according to FactSet.

RAAA will invest in a diverse portfolio of primarily AAA-rated, floating-rate CLO bonds that sit at the top of the capital structure, according to the prospectus. The fund aims to offer a hedge against interest-rate volatility while using a data-driven approach to select bonds based on CLO manager track records and risk appetite.

Reckoner, which is employee-owned and backed by RedBird Capital Partners, positions itself as bringing alternative credit investments to both institutional and retail investors who traditionally had limited access to this asset class, the press release noted.