The case for European Collateralised Loan Obligations (CLOs)
Allocating to European Collateralised Loan Obligations (CLOs) opens up access to diversification and high-quality defensive income. Here the European Securitised team take a deep dive into the workings of the sector and evaluate the opportunities.
6 minute read
Key takeaways:
- The higher yield and defensive income profile of floating rate investments such as CLOs has attracted asset allocators looking to improve portfolio diversification.
- Â Relative value favours AAA CLOs which can offer enhanced spread and yield compared to investment grade (IG) corporate credit. History shows that AAA CLOs also deliver better risk-adjusted returns over the long term and during volatile markets.
- The diversity within the market and European regulatory environment necessitate an active approach to investing in CLOs, which can fully evaluate the risk and return potential of each distinct deal and capture relative value to optimise returns.
Collateralised Loan Obligations (or CLOs) are managed portfolios of corporate loans – rated below investment grade – that have been securitised. AAA CLOs offer the opportunity to capture high credit quality, defensive income and improve portfolio diversification. We believe they offer a compelling alternative to investment grade corporate bonds in a diversified fixed income portfolio and as floating rate instruments offer an opportunity to enhance returns from cash balances in a risk-controlled way.
In this Case for European CLOs, we take a deep dive into the sector, look at what history tells us and consider how investors can access the asset class.
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All opinions and estimates in this information are subject to change without notice and are the views of the author at the time of publication. Janus Henderson is not under any obligation to update this information to the extent that it is or becomes out of date or incorrect. The information herein shall not in any way constitute advice or an invitation to invest. It is solely for information purposes and subject to change without notice. This information does not purport to be a comprehensive statement or description of any markets or securities referred to within. Any references to individual securities do not constitute a securities recommendation. Past performance is not indicative of future performance. The value of an investment and the income from it can fall as well as rise and you may not get back the amount originally invested.
Whilst Janus Henderson believe that the information is correct at the date of publication, no warranty or representation is given to this effect and no responsibility can be accepted by Janus Henderson to any end users for any action taken on the basis of this information.
6 minute read
Key takeaways:
- The higher yield and defensive income profile of floating rate investments such as CLOs has attracted asset allocators looking to improve portfolio diversification.
- Â Relative value favours AAA CLOs which can offer enhanced spread and yield compared to investment grade (IG) corporate credit. History shows that AAA CLOs also deliver better risk-adjusted returns over the long term and during volatile markets.
- The diversity within the market and European regulatory environment necessitate an active approach to investing in CLOs, which can fully evaluate the risk and return potential of each distinct deal and capture relative value to optimise returns.