How CLOs Can Enhance Returns for Retail Clients

Collateralized loan obligations, or CLOs, may be a way for advisors to enhance retail clients’ portfolios.

They provide investors with access to a diverse pool of senior secured loans. While they have been primarily used by institutional clients to date, CLOs could enhance risk-adjusted returns for individual clients.

CLOs are securities backed by a pool of debt, usually loans to well-known corporations such as Hilton, United, and Restoration Hardware, said Danielle Gilbert, managing director for business development at Panagram Structured Asset Management, during VettaFi’s Alternatives Symposium on November 28.

Bill Sokol, director of ETF product management at VanEck, said CLOs are higher-yield, higher-spread products compared to traditional corporate bonds. Plus, CLOs don’t come with duration risk.

“That has obviously been very attractive the last few years,” he added. “CLOs [are]outperforming investment grade by about 600 basis points year to date, and a similar story in 2022 to a much greater degree.”