Franklin Templeton launches YCLO, active CLO ETF in US, Europe

Franklin Templeton launched the Franklin BSP CLO ETF (YCLO) on June 4. The actively managed ETF primarily invests in investment-grade U.S. and European collateralized loan obligation (CLO) debt and charges a 35 basis-point expense ratio.

The fund is designed to generate income from CLO interest payments while seeking relative-value opportunities across the structured credit market. It will focus mainly on investment-grade tranches but can allocate across different levels of the CLO debt stack.

YCLO has a broad geographic mandate covering securities issued in the U.S. and in Europe. The fund can buy new issuances and secondary-market paper.

Many existing CLO ETFs concentrate on AAA-rated debt. YCLO maintains a wider potential allocation across the capital structure and across markets.

CLOs are debt securities backed by pools of leveraged loans and divided into tranches with varying credit risk and priority of payments. Most CLO debt carries floating-rate coupons tied to short-term benchmarks; those coupons rose when benchmark rates increased in 2022 and 2023.

The Federal Reserve has begun easing policy, but short-term rates remain higher than before the pandemic, keeping yields on many CLO tranches higher than some traditional investment-grade sectors.

The CLO market contains thousands of individual securities with differing structures and protections, producing pricing differences across jurisdictions and tranche types. Franklin Templeton described that security selection and structural analysis will be used to address those pricing differences.

YCLO expands Franklin Templeton’s fixed-income ETF lineup and is part of a platform that manages more than $10 billion in ETF assets.