Why Active Expertise Is Essential for CLO Investing

The collateralized loan obligation (CLO) market has rapidly evolved from an institutional investor-only asset class. With the creation of ETFs, CLOs are finding homes in retail portfolios, we believe making specialized active management a necessity.Simply put, many industry experts believe it’s not enough for investors to get exposure to CLOs via a passive index. As John Kim, CEO of Reckoner Capital Management, explained during a Q2 Market Outlook Symposium, the CLO space requires the expertise of a firm that specializes in investing in CLOs. See More: Exchange 2026: How ETFs are Democratizing the CLO Market “The first thing to know about my firm is that we are CLO practitioners who happen to issue ETFs, not the other way around,” said Kim. “We don’t have ETFs of every asset class. We like to do CLOs — we like to do things that we know.”The Complexity PremiumStructured credit is frequently misunderstood, as it’s often tied to the 2008 financial crisis and the collapse of mortgage-backed securities (MBS). Kim was quick to clarify that CLOs — backed by senior secured corporate loans — historically performed well during the crisis. As he noted, the real opportunity is what he calls the “complexity premium.” CLOs require deep analysis of underlying loan pools and deal structures — therein lies the advantage of having active management expertise. Additionally, active managers seek to capture higher yields that passive strategies might overlook. Kim highlighted that by replacing traditional corporate bonds with CLO floating-rate bonds, investors “naturally seek to[get] more income for the risk.” “You have to get behind the fact that these bonds cannot be bought by everyone or not understood by everyone,” Kim noted.Structural InnovationActive management also allows for structural innovation that passive funds are unable to replicate. For example, Reckoner Yield Enhanced AAA CLO ETF (RAAA ) focuses on senior AAA-rated tranches but includes a “twist”: a modest amount of leverage. Kim explained that this active structural choice aims to “outperform our unlevered peers.” Furthermore, Reckoner’s active managers can pivot between senior and mezzanine tranches — such is the case with Reckoner BBB-B CLO ETF (RCLO). This fund targets Triple-B and Double-B-rated bonds seeking to optimize SEC yields. In an era of “private credit” headlines and rising defaults, active managers act as essential gatekeepers. Kim pointed out that headlines focus on the risks of private lending. CLOs, meanwhile, primarily occupy the “broadly syndicated loan market.” That market is more liquid and unwritten by banks. In summary, active managers can limit ETFs to “very liquid bonds.” They can avoid the “creep over” from riskier pockets of the credit market. All of that said, CLOs are still in their nascent stages of retail adoption, which requires further investor education. For those looking to learn more about CLOs, Kim appeared in a webinar, Navigating the CLO Landscape, which occurred on May 27. For more news, information, and analysis, visit the Market Insights Content Hub. To find more important information about the ETFs, please click here https://reckoner.com/raaa/ for RAAA, or click here https://reckoner.com/rclo/ for RCLO.Important InformationCarefully consider the fund’s objectives, risks, charges, and expenses before investing. The prospectus at the links above or 212.597.2500 provides the full details. Read it carefully before investing. Investing involves risk, including the risk of principal loss. The fund’s principal investment risks include management risk, novel structure risk, affiliated fund risk, collateralized loan obligation risk, non-diversified fund risk, new fund risk, leverage risk, and liquidity risk. For additional information about these and other fund risks, please refer to the “Principal Investment Risks” section of the prospectus. ETFs may trade at a premium or discount to NAV. Shares of any ETF are bought and sold at market prices (not NAV) and are not individually redeemed from the Fund. Brokerage commissions will reduce returns. Past performance is no guarantee of future results. Collateralized Loan Obligations (“CLOs”) are structured products that issue different tranches, with varying degrees of risk, which are backed by an underlying portfolio consisting primarily of below investment grade corporate loans. Investments in CLOs present risks similar to those of other credit investments. That includes interest rate risk, credit risk, liquidity risk, prepayment risk, and the risk of defaults of the underlying assets. Distributor: Quasar Distributors, LLC.