Active management needed for growing CLO ETF market

Investor assets in collateralized loan obligation exchange-traded funds topped $40 billion earlier in 2026. Comments were made at ETF Exchange 2026 where Reckoner Capital co‑CIO Tim Wickstrom discussed the market and product design.

At ETF Exchange 2026, Wickstrom told attendees: “There is no real replicable index that someone could buy to just get exposure to CLOs. You have to be active.” He pointed to wide variation across CLO vehicles, with each fund holding a different pool of below‑investment‑grade loans and a unique capital structure.

CLOs issue tranches with different levels of credit risk. They are governed by legal documents that set reinvestment rules, covenants and manager discretion. Small differences in those terms, in collateral quality or in manager authority can materially change outcomes for holders of a given tranche.

Reckoner Capital lists two CLO ETFs: Reckoner BBB‑B CLO ETF (RCLO), which targets lower investment‑grade tranches and seeks structural cushions provided by equity layers beneath those tranches; and Reckoner Yield Enhanced AAA CLO ETF (RAAA), which uses a modest leverage approach that pledges senior securities to pursue added yield.

CLOs are backed mainly by below‑investment‑grade corporate loans and carry credit, interest‑rate, liquidity, prepayment and default risks. ETF wrappers add management risk, structure risk and the possibility that shares trade at a premium or discount to net asset value. Some strategies involve leverage risk. Prospectuses contain complete risk and fee information.

Wickstrom said that as more providers launch CLO ETFs, investors need managers who will review and understand the legal and structural details of each deal.