Navigating the CLO Landscape With Reckoner Capital CEO

Long considered an asset class primarily reserved for institutional investors, collateralized loan obligation (CLO) exposure is proliferating amongst retail investors and registered investment advisors (RIAs). Exchange-traded funds (ETFs), in part, have helped to bring more attention to CLOs with issuers like Reckoner Capital releasing ETF products to the general investing population.In a recent webcast, Navigating the CLO ETF Landscape, Kirsten Chang, senior industry analyst at VettaFi, sat down with John Kim, CEO of Reckoner Capital Management, to unpack the structural mechanics, historical data, and macroeconomic tailwinds giving rise to CLO ETFs. Kim, a 30-year industry veteran in structured credit, cited the current retail adoption as a massive structural pivot. “I’ve been working with CLOs since the inception of the market 30 years ago, and it’s been a backwater for most of my career,” Kim noted. “It’s only in recent years that it’s become available to individual investors and RIAs. Also, CLOs have become mainstream enough for people to allocate directly to them.” See more: 3 Ways ETFs Revolutionized Access to CLOsStructural DemystificationTo skeptical advisors and retail investors, a CLO can appear complex at first glance. However, Kim simplified the fundamental architecture by citing the asset’s underlying collateral: senior secured corporate loans. In a typical corporate capital stack, these floating-rate, broadly syndicated loans are situated at the top of the structure. This translates into holding a first-lien claim on all corporate assets in the event of a default.Furthermore, standard CLO pools include 150 to 300 of these senior secured loans spread across highly diversified sectors of the economy. This framework is heavily insulated by strict diversification rules. Additionally, Kim emphasized that when travelling further down the capital stack, the structural risk remains anchored to first-lien assets. “Remember, you’re still only taking risk on senior secured loans at the end of the day,” Kim said. “It’s a very different kind of instrument from other types of securitizations, which might have different types of non-senior assets.”Less Risk, More Yield PotentialHistorically, CLO tranches have historically traded at wider spreads than similarly rated corporate bonds.1 According to Kim, this is tied to a complexity premium rather than credit risk. This discrepancy helps to create a compelling yield opportunity for modern fixed income investors. “If you take more risk, you should get more yield potential, but if you take less risk, you should get less,” Kim said. “In this case, you’re taking less risk, but you’re getting an opportunity for higher yield potential than you would otherwise get, which is a great thing for people to take advantage of.” The investment case for CLOs is further supported by their extraordinary resilience across full market cycles. Looking at historical data compiled by S&P since 1996, the current cumulative default rate for AAA-rated CLO bonds sits at a zero percent.As Kim pointed out, even the lower rungs of the credit ladder tell a remarkable story of structural seniority. In the CLO 2.0 era (2010 through 2025), BBB-rated CLO tranches have maintained a 0% default rate.2 “What we believe that tells you, as a credit practitioner, is CLOs are horribly misrated on the conservative side. You’re not supposed to have a BBB asset with a zero default rate but it currently does exist here,” Kim stated.The Active AdvantageReckoner Capital entered the ETF landscape last year to deliver CLO exposure via liquid, transparent, and tax-efficient wrappers. The firm offers two primary core funds using an active strategy: Reckoner Yield Enhanced AAA CLO ETF (RAAA ): targeted to those looking to diversify their monthly income with CLO exposure to top-tier AAA-rated credit. Reckoner BBB-B CLO ETF (RCLO): targeted to those looking to diversify their monthly income with CLO exposure to BBB- to B-rated credit. “The ETF wrapper has been so important for RIAs and individuals because now you can just access portfolio bonds directly without having to access the CLO market, which is difficult to do as a smaller investor,” Kim concluded. Moreover, Reckoner Capital has the requisite expertise to navigate the complexities inherent in the CLO market. They can perform the required due diligence in the CLO space by locating top-quality tranches for investment, monitor fund performance, and make adjustments as necessary to suit market conditions. For more news, information, and analysis, visit the Market Insights Content Hub.Important InformationA prospectus and a summary prospectus which contains this and other information about the fund may be obtained by visiting https://funds.reckoner.com/assets/pdfs/RAAA-RCLO-Prospectus.pdf or call 212.597.2500. Please read each prospectus carefully before investing. Each fund’s principal investment risks include all or some of the following risks: 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 each prospectus. Any tax or legal information provided isn’t an exhaustive interpretation current income tax regulations. Investors must consult their tax advisor or legal counsel for advice and information concerning their particular situation. Neither the Fund nor any of its representatives may give legal or tax advice. 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 presents risks similar to those of other credit investments, including interest rate risk, credit risk, liquidity risk, prepayment risk, and the risk of defaults of the underlying assets. Important Risks: Collateralized loan obligations (CLOs) are complex structured credit securities backed primarily by portfolios of below-investment-grade senior secured loans. Although certain CLO tranches have historically experienced lower default rates than similarly rated corporate bonds, CLOs are subject to significant risks, including the credit risk of the underlying borrowers, structural and modeling complexity, interest rate risk, and liquidity risk. CLO performance depends on the cash flows generated by the underlying loan portfolio, and adverse credit conditions, increased borrower defaults, or deterioration in loan recoveries may negatively affect CLO values. In periods of severe market stress, CLO securities may experience substantial price volatility, reduced liquidity, and losses, regardless of tranche rating. Investors may lose some or all of their investment. Past performance and historical default experience do not guarantee future results. Distributor: Quasar Distributors, LLC. 1 BofA Securities CLO Factbook," 5/15/2026 2 S&P Global, “CLO Spotlight: U.S. CLO Tranche Defaults And Recoveries As Of Dec. 31, 2025,” 2/4/2026; S&P Global. CLO 1.0 refers to S&P-rated CLOs issued from 1994 through year-end 2009. CLO 2.0 refers to S&P-rated CLOs issued from 2010 through 12/31/2025. U.S. Corporate refers to average cumulative 15-year default rates for S&P-rated corporate issuers from 1981 through 2025. The terms “CLO 1.0” and “CLO 2.0” distinguish between CLO bonds issued prior to & during the Global Financial Crisis (“GFC”) and those issued after the GFC, respectively. CLO bonds issued during the CLO 2.0 time period are generally subject to more stringent structural requirements.