Episode summary
CLOI ETF: Delivering Income and Outperformance With Investment-Grade CLOs
ETF Spotlight
· · Hosts: Bill Sokol
Summary
Bill Sokol of VanEck says CLOI is designed to give retail investors access to a large but historically institutional corner of credit: collateralized loan obligations backed by diversified portfolios of leveraged loans. He argues that CLOs are not the same as the CDOs associated with the 2007-2008 crisis because the underlying collateral is different, the structures are more robust, and managers can underwrite each loan and each deal in detail.
He says the fund is built around a bottom-up and top-down process run with sub-adviser PineBridge Investments, including manager selection, re-underwriting, deal-document review, and stress testing. The strategy is intended to stay at least 80% investment grade, with a small ability to move into BBs when spreads widen and opportunities improve, while preserving ETF liquidity.
Sokol argues the setup has been favorable because of high base rates, floating-rate income, and wider credit spreads versus similarly rated bonds and loans. He says CLOI launched in 2022, has since gathered over $1 billion in assets under management, and is currently paying about a 6.25% dividend yield.
Key takeaways
- Bill Sokol says CLOs are a roughly $1.2 trillion market built on leveraged loans, with CLOI giving retail investors access through an ETF wrapper.
- Sokol argues CLOs held up well in the GFC because the underlying leveraged loans were stronger than the subprime mortgages behind many CDOs.
- PineBridge’s process, according to Sokol, combines manager selection, re-underwriting, legal-document review, stress testing, and macro positioning.
- Sokol says CLOI must stay at least 80% investment grade and can only make a small allocation to BBs, with nothing below BB.
- Sokol expects high base rates and floating-rate coupons to remain supportive, though Fed cuts would pressure yields.
Notable quotes
“it's actually a very large market. It's about $1.2 trillion in size. So and it's been around since the 90s”
“CLOs were around in the GFC and they performed remarkably well. There were very few defaults and that goes back to the strength of the underlying, these leveraged loans”
“you can't rely on a rating alone. You can't rely on the credit rating. And even deals with the same rating can actually perform very differently”
“we're always going to be at least 80% investment-grade. That's the prospectus guideline”
“I think you're going to see outperformance in a period, right, where you do have this rate volatility and high base rates, and we expect that to continue”
How the episode opens
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Seeking Alpha is not a licensed securities dealer, broker, US Investment adviser, or investment bank. Hey, everyone. Daniel Snyder back again with another ETF Spotlight.
And today, we're going into the world of collateralized debt, specifically the CLOI ETF by VanEck. And we are joined by Bill Sokol, who is the Director of Product Management over there. So thank you so much for taking the time to join us today, Bill.
I want to dive right into this fund because it's not really an area a lot of investors like to pay attention to. It's more niche. Right?
So maybe for the people that aren't really aware of the space, can you start us off by giving us the birth of the fund as well as what is a CLO? Sure. And Dan thanks for having me.
It's interesting that you call this niche because it's actually a very large market. It's about $1.2 trillion in size. So and it's been around since the 90s.
I'll clarify. I'll clarify real quick because that is a good point. For the retail investor space, it may come off as niche....
Exactly. But for everybody else, you definitely are in it. Yes.
It just hasn't been accessible to non-institutions and that's -- that is why a lot of people are just now learning about the asset class.
From the episode’s captions: roughly the first two minutes, lightly cleaned. Keep watching on YouTube →
Topics
- clo etf
- investment-grade clos
- income yield
- retail access
- credit risk management
Companies and tickers mentioned
- VanEck
Watch the episode
Watch “CLOI ETF: Delivering Income and Outperformance With Investment-Grade CLOs” on YouTube
Summary, takeaways and quote selection by Octagon. Quotes are short excerpts; the full conversation is in the episode.
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