Investors Consider iShares AAA CLO Active ETF Amidst Competition Concerns

The iShares AAA CLO Active ETF (CLOA) is an attractive option for investors seeking exposure to AAA CLOs through an actively managed fund. However, the fund's risk/reward profile may not be competitive enough. The Janus Henderson AAA CLO fund is also discussed as a potential alternative for investors looking for a more competitive risk/reward profile.

The iShares AAA CLO Active ETF (CLOA), launched on January 10, 2023, offers investors exposure to AAA-rated collateralized loan obligations (CLOs) through an actively managed fund. The fund is managed by BlackRock and invests in USD-denominated CLOs rated AAA by at least one major rating agency. Over the past year, CLOA has delivered a total return of 5.93%, including dividends, with an average annual return of 7.41% since inception [1].

However, a recent analysis suggests that CLOA may not offer the most competitive risk-reward profile compared to other similar funds. The Janus Henderson AAA CLO ETF (JAAA), for instance, has been highlighted as a potential alternative due to its superior risk-adjusted performance [2].

The iShares AAA CLO Active ETF (CLOA) is managed by BlackRock's Global Fundamental Credit CLO Tranche team, which aims to preserve capital while distributing income. The fund holds 301 assets with a top 10 representing 8.46% of the portfolio, indicating a low level of concentration compared to other active CLO funds. The fund's benchmark is the JP Morgan CLOIE AAA Index, composed of over 3000 securities.

In terms of performance, CLOA's 30-day SEC yield is 5.52%, which is attractive given the low risk associated with AAA securities. However, the fund's performance has been lagging compared to other similar funds, such as the Janus Henderson AAA CLO ETF (JAAA) and the VanEck CLO ETF (CLOI) [2].

The Janus Henderson AAA CLO ETF (JAAA) has a similar expense ratio of 0.20% and a higher number of holdings (392), which can provide better diversification. The VanEck CLO ETF (CLOI), on the other hand, has a higher expense ratio of 0.40% and a higher level of concentration, with the top 10 representing 23.37% of the portfolio [2].

In terms of liquidity, CLOA has an average daily trading volume of $13.4 million, which can be lower compared to other CLO funds. The fund's assets under management (AUM) of $0.9 billion also contribute to lower trading volume, which could result in a market price drop during difficult market events [2].

Despite its potential drawbacks, CLOA remains an attractive option for investors seeking exposure to AAA CLOs through an actively managed fund. The fund's focus on AAA securities and its historically low default rate make it an interesting investment, especially in the context of expected easing of interest rates and the growth potential of the CLO market [1].

References:
[1] https://stockanalysis.com/etf/cloa/
[2] https://seekingalpha.com/article/4800301-cloa-a-riskreward-not-competitive-enough