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Actively managed ETF exposure may better capture CLO opportunities

The article argues CLOs can benefit from a higher-for-longer rate environment because they pay floating-rate coupons tied to short-term reference rates.

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ETF Trends says collateralized loan obligations offer a yield profile that can exceed corporate bonds with comparable credit ratings, giving CLOs a potential edge for fixed income investors focused on income.

The outlet adds that CLOs may be well positioned for the current interest rate environment, noting that expectations for at least one Federal Reserve rate increase could support CLO strategies.

According to ETF Trends, CLO structures pay floating-rate coupons linked to short-term reference rates, which could help in scenarios where rates rise or remain elevated.

The article also cautions that investors may not get the strongest outcomes by using any CLO strategy, pointing to index-based approaches that can concentrate on AAA-rated tranches.

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