New York, NY – Investors in the VanEck CLO ETF (CLOI) have been drawn to its focus on investment-grade CLO tranches, a solid 5.9% dividend yield, and its track record of outperforming most bonds and bond sub-asset classes. While the fund has many positive attributes, some experts believe that the Janus Henderson AAA CLO ETF (JAAA) offers a stronger and more cost-effective alternative, with a lower expense ratio of 0.20% compared to CLOI’s 0.40%.

CLOs, or Collateralized Loan Obligations, are a type of asset class that involves senior secured loans to medium-sized, riskier companies. These loans are bundled together into tranches within a CLO, where income from the loans is used to make payments to different levels of tranches. CLO tranches are generally variable rate instruments, with coupon rates fluctuating alongside interest rates set by the Federal Reserve.

One key benefit of CLOI is its extremely low credit risk, with a focus on a diversified portfolio of CLO debt tranches that are primarily investment-grade. Default rates for CLOI’s holdings are notably low, with AAA tranches practically at zero default rates and BBB tranches ranging from 0.01% to 0.10%. This low credit risk is expected to result in below-average losses during economic downturns and recessions.

Additionally, CLOI boasts an above-average dividend yield of 5.9%, which is competitive compared to most bonds and bond sub-asset classes. However, some investors may find JAAA to be more appealing due to a slightly higher dividend yield and lower expenses, making it a potentially stronger choice.

One factor to consider when investing in CLOs is interest rate risk, as these investments are variable rate securities with little exposure to interest rate fluctuations. While this may lead to outperformance when interest rates rise, it can also limit capital gains when rates decrease. However, in the current economic climate with expected rate cuts, CLO ETFs like CLOI and JAAA remain attractive investments.

In conclusion, while CLOI has shown strong performance since its inception, investors may find JAAA to be a more compelling option due to its lower expenses and potentially higher returns. As both funds offer similar investment opportunities in CLO debt tranches, investors may want to consider a combination of both funds to optimize their investment portfolios. Ultimately, the choice between CLOI and JAAA will depend on individual risk tolerance and investment goals.