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‘Battle-tested’ US CLO ETFs resume rapid growth
by Lisa Lee
ETFs have become one of the most important investors in the CLO space. After a rocky period earlier in the year, when CLO ETFs experienced real outflows for the first time ever, many have got their mojo back. They may now be stronger than before, and extending their reach to Europe.
For the CLO market, US President Donald Trump’s so-called ‘Liberation Day’, when his administration announced shockingly high tariffs on trading partners, was more than a period of volatility. It was a test of how the CLO landscape has been transformed by the increased might of ETFs.
“CLO ETFs are now battle-tested,” said Lauren Basmadjian, global head of liquid credit at Carlyle. “They held up remarkably well around Liberation Day, reinforcing their long-term value and serving as a new source of demand that should continue to broaden investor interest in the CLO market.”
The launch into Europe was focused on regions outside of Europe
Matt Holden
Head of ETF trading in Europe
RBC Capital Markets
CLO ETFs have resumed the growth spurt that began in late 2023, ballooning to a record USD 34bn in AUM in July, according to Bank of America research. The month saw USD 2.2bn of inflows, mostly from retail investors.
“While there were some outflows at the triple A level, they were relatively minor when viewed as a percentage of total assets,” said Taylor Moore, a portfolio manager at Palmer Square Capital Management. “Triple As are extremely liquid, with USD 1-2bn trading daily in a USD 650bn market. One reason for this stability is that there’s a broad network of dealers and trading partners in the space, making triple A CLOs far more liquid than many other ETF-backed assets.”
The next frontier is Europe, where a flurry of new triple A funds have debuted in recent months. More are expected — and the region has yet to find a dominant player like Janus Henderson in the US.
In contrast to their US counterparts, CLO ETFs in Europe are mostly targeting institutional investors — especially those outside the US. Most are UCITS funds, a European fund format that provides tax advantages to non-US investors.
“Some of the biggest potential buyers of UCITS CLO ETFs are from Asia, South America or are non-US-domiciled clients living in the US,” said Matt Holden, head of ETF trading in Europe at RBC Capital Markets.
“It’s not just Europe, but clients from all countries except America that are being targeted. It’s counterintuitive, but the launch into Europe was focused on regions outside of Europe. We’re hearing that there’s been a good take-up from family offices and insurance companies.”
