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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.
24 Jan 2025
6 minute read
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.
- 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.
Related insights
24 Jan 2025
6 minute read
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.
- 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.