Collateralized loan obligations (CLOs) are securitized portfolios of corporate loans divided into tranches by risk profile. For many retail investors, CLOs can be foreign and uncomfortable, but the potential for attractive yields, floating-rate income, and diversification is strong. Some investors may also not be aware of how easy it can be to build CLO exposure into a portfolio with dedicated exchange-traded funds (ETFs).
ETFs already offer a diversification benefit for many fixed-income investors, helping to reduce issuer-specific, sector-specific, or credit-event risk compared with owning individual securities. Because they trade throughout the day like stocks, ETFs are also easy for investors to buy into or sell out of if they need to make portfolio adjustments in real time.
