CLO ETFs expand retail access to floating-rate income

Reckoner Capital presented at ETF Exchange 2026 that exchange-traded funds are expanding retail access to collateralized loan obligations, known as CLOs. The firm said CLO ETFs give individual investors a way to gain exposure to a market that is measured in the trillions and to seek floating-rate, diversified income as money market yields lose appeal.

Tim Wickstrom, co-chief investment officer at Reckoner Capital, said the CLO ETF category has grown markedly over the past five to six years and that the CLO market “lends itself well to be an ETF wrapper.” He described rising adoption among institutional investors and an opening for retail participation enabled by the ETF structure.

Wickstrom described CLOs as floating-rate instruments with limited duration sensitivity compared with fixed-rate bonds. He noted that in an environment where interest rates could remain elevated, floating coupons reduce a portfolio’s sensitivity to rate moves while offering additional credit spread without adding long-term duration exposure.

A CLO is a pooled vehicle that typically holds 150 to 300 senior secured loans to corporations. Those loans sit near the top of the capital structure and are secured by company assets. The pooled structure spreads exposure across many borrowers, which can lower the impact of any single borrower default compared with owning single corporate bonds.

A live audience poll at the session showed 50% of respondents had no allocation to structured credit and about 40% used structured credit as a diversifier. Wickstrom characterized the results as consistent with an education phase for retail investors and said broader institutional use often precedes wider retail adoption.

To provide access, Reckoner has launched six funds that target different CLO tranches, including AAA and BBB-B classes. The funds offer varying distribution schedules from monthly to annual and are actively managed by teams with structured-credit experience. Reckoner described the strategy as seeking incremental yield tied to tranche structure while avoiding added long-duration exposure.

Industry risks remain. CLOs are backed mainly by below-investment-grade corporate loans and carry credit, liquidity, leverage and prepayment risks. Floating coupons lessen duration risk but do not eliminate exposure to defaults in the underlying loan pool or to market-wide liquidity stress. ETFs can trade at prices that diverge from net asset value and investors pay brokerage commissions.

Prospectuses for the funds include full details on fees, investment objectives and principal risks. Reckoner and other issuers advise investors to review those documents before making allocations. Past performance is not a guarantee of future results, and investments in CLOs and related ETFs involve the risk of principal loss.