The VanEck CLO ETF (CLOI) as a Strategic Income Play in a High-Yield, Low-Volatility Fixed-Income Landscape

In an era where traditional fixed-income assets struggle to keep pace with inflation and rising interest rates, the VanEck CLO ETF (CLOI) emerges as a compelling alternative for investors seeking both capital preservation and income resilience. By leveraging the structural advantages of collateralized loan obligations (CLOs), CLOI offers a unique blend of yield, low volatility, and credit protection—features that are increasingly rare in today’s market.

Structural Advantages in a Rising-Rate Environment

CLOI’s focus on investment-grade-rated tranches of CLOs provides a critical edge in a high-rate environment. Unlike fixed-rate bonds, CLOs are floating-rate instruments, meaning their coupon payments adjust with prevailing interest rates. This structure allows CLOI to benefit from higher-for-longer rates, as rising Fed policy rates translate directly into higher income for investors [2]. For instance, the fund’s 30-day SEC yield of 6.4% as of 2023 underscores its ability to generate consistent returns even as traditional corporate bonds lag [6].

Moreover, CLOs exhibit historically lower default rates compared to similarly rated corporate bonds. Over a 10-year horizon, investment-grade CLO tranches have shown near-zero impairments, with no Aaa or Aa-rated tranches defaulting since the global financial crisis [3]. This resilience stems from the multi-layered credit protections embedded in CLO structures, including over-collateralization and subordination layers that shield senior tranches from losses [2].

Performance Amid Rate Hikes: A Historical Perspective

The fund’s performance during past interest rate cycles further validates its strategic appeal. In 2024, CLOI outperformed investment-grade bonds and high-yield bonds, delivering a total return of 8.31% compared to -3.06% for the U.S. Aggregate Bond Index and -2.84% for investment-grade corporates [1]. This outperformance was driven by CLOs’ floating-rate structure, which insulated the fund from the duration risk that plagued fixed-income assets during the rate hikes of 2022-2023 [4].

Even in periods of market stress, such as the trade-related volatility in April 2025, CLOI demonstrated relative stability. While the fund slightly underperformed its benchmark by 13 basis points in Q2 2025, its year-to-date returns remained aligned with the index [2]. This consistency is partly attributable to PineBridge Investments’ active management approach, which prioritizes high-quality tranches and adjusts portfolio duration in response to macroeconomic signals [3].

Credit Quality and Risk Management

CLOI’s credit profile reinforces its role as a capital-preserving vehicle. The fund’s holdings are predominantly rated AA, with a strategic allocation to lower-rated investment-grade tranches (A/BBB) to enhance yield while managing spread risk [4]. This balanced approach reflects the fund’s dual mandate of income generation and downside protection. For example, BBB CLO tranches have historically exhibited default rates significantly lower than AAA corporate bonds, making them a safer bet in uncertain environments [2].

Strategic Positioning for the Future

As central banks maintain elevated rates, CLOI’s structural advantages become even more pronounced. The fund’s ability to adjust coupons in real time, combined with its active management focus on credit quality, positions it to outperform traditional fixed-income assets. For instance, during the 2022-2023 rate hikes, CLO ETFs like CLOI and the VanEck AA-BB CLO ETF (CLOB) outperformed high-yield bonds and investment-grade corporates, despite short-term volatility [1].

Conclusion

The VanEck CLO ETF (CLOI) represents a strategic solution for investors navigating the challenges of a high-yield, low-volatility fixed-income landscape. By combining the floating-rate benefits of CLOs with rigorous credit analysis and active management, the fund offers a rare combination of income resilience and capital preservation. As macroeconomic uncertainties persist, CLOI’s structural strengths and historical performance make it a compelling addition to diversified portfolios.

**Source:[1] CLOs Continue To Thrive Amid High Yields and Rate ... [https://www.vaneck.com/us/en/blogs/income-investing/clos-continue-to-thrive-amid-high-yields-and-rate-volatility/][2] What's Next for CLOs? [https://www.vaneck.com/us/en/blogs/income-investing/whats-next-for-clos/][3] CLO Default Rates Are Significantly Lower Than Corporate Default Rates [https://www.etftrends.com/etf-strategist-channel/clo-default-rates-significantly-lower-corporate-default-rates/][4] CLOs: Positioning for Resilience into the Second Half of ... [https://www.vaneck.com/us/en/blogs/income-investing/clos-positioning-for-resilience-into-the-second-half-of-the-year/]