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Fixed income
Accessing CLOs: risk, return and liquidity considerations
Highlights
- Outlines how to access and invest in the CLO market
- Compares open-end vs. closed-end CLO fund structures and single-manager and multimanager CLO approaches
Many investors are taking a closer look at collateralized loan obligations (CLOs), an asset class with a 30+ year history and a track record of successfully weathering multiple credit cycles. The equity tranches of CLOs have attracted particular focus, as investors are drawn to the potential to generate double-digit returns while maintaining downside resilience.
In addition, CLO equity stands apart from many traditional credit investments due to its ability to potentially benefit from widening credit spreads. Amid the risk of a potential recession on the horizon — and the greater risk premia demanded by credit investors as a result — this feature has taken on particular importance.
As CLOs attract increased attention, investors are also placing greater focus on different ways of accessing this asset class.
We believe investments in CLOs can bring multiple benefits to a diversified portfolio. The decision how to allocate to CLOs is ultimately dependent on investors’ investment objectives.
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Endnotes
This material is not intended to be a recommendation or investment advice, does not constitute a solicitation to buy, sell or hold a security or an investment strategy, and is not provided in a fiduciary capacity. The information provided does not take into account the specific objectives or circumstances of any particular investor, or suggest any specific course of action. Investment decisions should be made based on an investor’s objectives and circumstances and in consultation with his or her financial professionals. The views and opinions expressed are for informational and educational purposes only as of the date of production/writing and may change without notice at any time based on numerous factors, such as market or other conditions, legal and regulatory developments, additional risks and uncertainties and may not come to pass. This material may contain “forwardlooking” information that is not purely historical in nature. Such information may include, among other things, projections, forecasts, estimates of market returns, and proposed or expected portfolio composition. Any changes to assumptions that may have been made in preparing this material could have a material impact on the information presented herein by way of example. Past performance is no guarantee of future results.
All information has been obtained from sources believed to be reliable, but its accuracy is not guaranteed. There is no representation or warranty as to the current accuracy, reliability or completeness of, nor liability for, decisions based on such information and it should not be relied on as such. CFA® and Chartered Financial Analyst ® are registered trademarks owned by CFA Institute.
A word on risk
All investments carry a certain degree of risk, including loss of principal, and there is no assurance that an investment will provide positive performance over any period of time. Any investment in collateralized loan obligations or other structured vehicles involves significant risks not associated with more conventional investment alternatives. The portfolios described herein are dynamic and may change over time. Use of the investment process tools and techniques described herein is no guarantee of investment success or positive performance
This information does not constitute investment research as defined under MiFID.
Nuveen Asset Management, LLC is a registered investment adviser and an affiliate of Nuveen, LLC.
