Reckoner offers two CLO ETFs to target ‘complexity premium’

At a Q2 market symposium, Reckoner Capital CEO John Kim outlined two exchange-traded funds aimed at capturing a so-called “complexity premium” in collateralized loan obligations and noted CLO ETFs have drawn roughly $6 billion in inflows year-to-date.

The Reckoner Yield Enhanced AAA CLO ETF (RAAA) concentrates on AAA-rated senior CLO tranches and employs leverage to pursue higher yields than unlevered peers. Kim described the fund’s use of leverage as intended to seek greater yield and to act as a proxy for corporate credit exposure. He pointed to research indicating AAA CLO bonds have not experienced defaults in more than 30 years.

The Reckoner BBB-B CLO ETF (RCLO) invests in mezzanine CLO bonds rated BBB and BB. Mezzanine tranches sit lower in the capital structure, offer higher yields and are more sensitive to credit stress. Reckoner says RCLO focuses on CLOs backed by broadly syndicated, bank-underwritten loans rather than private direct-lending assets.

Both ETFs are actively managed by Reckoner’s portfolio managers, who select and trade across CLO tranches to respond to changing macro conditions. Kim expects advisers may use the funds to gain floating-rate exposure and higher relative yields in a higher-for-longer interest rate environment.

Fund prospectuses list principal risks, including management risk, novel structure risk, affiliated fund risk, collateralized loan obligation risk, non-diversified fund risk, new fund risk, leverage risk and liquidity risk. ETFs may trade at a premium or discount to net asset value, shares are bought and sold on the market rather than redeemed directly from the fund, and past performance is not indicative of future results.

Collateralized loan obligations issue multiple tranches backed mainly by below-investment-grade corporate loans. Senior tranches generally receive payments first and carry lower yields, while mezzanine tranches absorb losses earlier and offer higher yields. The recent inflows into CLO ETFs expand retail access to structured credit and provide a way for investors to target specific tranches and risk profiles.