CLOZ: A Defensive Income Strategy in a Low-Yield, High-Volatility Market

In a market environment defined by low real yields, rising volatility, and macroeconomic uncertainty, income-focused investors are increasingly seeking alternatives to traditional fixed-income assets. The Eldridge BBB-B CLO ETF (CLOZ) has emerged as a compelling candidate, offering a unique blend of high yield, capital preservation, and diversification benefits. This article examines CLOZ's structural advantages, its alignment with 2025 macroeconomic trends, and its historical resilience in credit cycles-making it a standout option for defensive income strategies.

Structural Features and Investment Strategy: A Foundation for Stability

CLOZ is an actively managed ETF that, according to the fund's prospectus, invests primarily in collateralized loan obligations (CLOs) rated BBB and BB at the time of purchase (the fund's prospectus). These tranches are backed by a diversified pool of senior secured corporate loans, historically exhibiting default rates below 1% according to a TradingNews article. The fund's focus on floating-rate assets insulates it from interest rate risk, a critical advantage in a landscape where central banks are navigating shifting rate cycles. For instance, as of September 2025, CLOZ offers a trailing twelve-month yield of 8.78%, significantly outperforming high-yield corporate bond ETFs (7.5%) and investment-grade corporate bond ETFs (4.2%), a point also highlighted in the same TradingNews article.

The fund's capital preservation mechanisms are further reinforced by its active management approach. Portfolio managers rebalance holdings to maintain quality, avoiding riskier lower-grade tranches and emphasizing diversification across 51% BBB-rated and 40% BB-rated CLOs, as noted in an ETF.com feature. This strategy reduces concentration risk while leveraging the historically low loss rates of CLO debt tranches. Additionally, CLOZ's monthly distribution model-averaging $0.197 per share-provides consistent cash flow, appealing to income seekers in volatile markets; the TradingNews piece referenced above also details the fund's distribution profile.

Macroeconomic Tailwinds in 2025: A Tailored Fit

The 2025 macroeconomic landscape presents both challenges and opportunities for income strategies. Central banks are projected to cut rates in response to moderating inflation, but global growth remains uneven, with the U.S. economy outpacing peers while facing risks like tariff-driven supply chain disruptions (see Guggenheim's macro themes). In this context, CLOZ's floating-rate structure and low duration risk position it to thrive.

Credit markets, though resilient, face elevated volatility due to policy divergences between the Federal Reserve and the European Central Bank, as described in a Candriam analysis. However, CLOs have shown robust performance in 2024, with new issuance nearly doubling-an observation highlighted in the Deutsche Bank outlook-signaling optimism for 2025. The fund's active management and diversification benefits further enhance its appeal, as tighter CLO spreads and strong investor demand support risk-adjusted returns, according to that Deutsche Bank outlook.

Moreover, traditional defensive assets like government bonds are losing luster due to low real yields and rising correlations with equities, a trend discussed in the TradingNews analysis cited earlier. This has driven demand for alternatives such as private credit and infrastructure debt-sectors where CLOZ's CLO tranches offer uncorrelated returns and stable cash flows, consistent with Guggenheim's thematic analysis.

Historical Resilience: Indirect Evidence from Credit Cycles

While CLOZ itself was launched in 2023, its underlying CLO tranches have a proven track record of stability during past downturns. For example, during the 2008 financial crisis, senior CLO tranches (often AAA-rated) avoided losses, unlike the subprime CDOs that fueled the crisis, as explained in a BMO primer on CLO cash flows. Similarly, in the 2020 pandemic-driven selloff, CLO debt tranches maintained low default rates, supported by active management and diversified collateral pools, according to a CM Wealth overview of CLO risks. These historical patterns reinforce CLOZ's capital preservation claims, even if direct performance data from pre-2023 crises is unavailable from the fund's prospectus.

Conclusion: A Compelling Case for Defensive Income

CLOZ's structural advantages-floating-rate assets, active management, and low default rates-align seamlessly with the macroeconomic headwinds of 2025. As investors grapple with low yields and volatility, the fund offers a rare combination of high income (8.78% TTM), diversification benefits (low beta of 0.42), and historical resilience in credit cycles, as discussed in the ETF.com feature cited above. For income-focused portfolios, CLOZ represents a strategic allocation to a sector that has consistently delivered stability while outperforming traditional fixed-income alternatives.